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The World Distribution of Productivity: Country TFP Choice in a Nelson-Phelps Economy

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  • Erika Farnstrand Damsgaard

    (IIES)

Abstract

This paper builds a theory of the shape of the distribution of total-factor productivity (TFP) across countries. The distribution of productivity across countries is arguably twin-peaked in the data, and the proposed theory presents conditions under which twin-peakedness is an equilibrium outcome. We construct a stochastic dynamic general equilibrium model where world growth is endogenous and driven by investments in TFP. All countries invest in TFP in order to increase their productivity, and each country internalizes the dynamic effects of its own TFP accumulation, i.e., through its own investment. In addition, there are technology spillovers across countries, modeled according to the Nelson-Phelps specification. We find that even under the assumption that all countries have identical technologies for TFP accumulation, the world distribution of TFP across countries can be asymmetric; it is twin-peaked, or bimodal. More specifically, twin-peaked world distributions of TFP arise if the catch-up term in the Nelson-Phelps equation is sufficiently weak. If, on the other hand, technological catch-up is important, the world distribution of TFP is unimodal.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 176.

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Date of creation: 2008
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Handle: RePEc:red:sed008:176

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  1. Kremer, Michael & Onatski, Alexei & Stock, James, 2001. "Searching for prosperity," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 275-303, December.
  2. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  3. Peter Howitt & David Mayer-Foulkes, 2002. "R&D, Implementation and Stagnation: A Schumpeterian Theory of Convergence Clubs," NBER Working Papers 9104, National Bureau of Economic Research, Inc.
  4. Paul Beaudry & Fabrice Collard & David Green, 2005. "Demographics and recent productivity performance: insights from cross-country comparisons," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 309-344, May.
  5. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
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Cited by:
  1. Jess Benhabib & Jesse Perla & Christopher Tonetti, 2014. "Catch-up and fall-back through innovation and imitation," Journal of Economic Growth, Springer, vol. 19(1), pages 1-35, March.

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