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Barriers to Capital Accumulation and Aggregate Total Factor Productivity

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  • Diego Restuccia

Abstract

I develop a growth model where output can be produced with a modern and a traditional technology. The traditional technology has a lower TFP and a lower share of reproducible capital than the modern technology. In this simple framework, barriers to capital accumu-lation affect the extent to which these technologies are used. Intuitively, barriers reduce the return to using the modern technology relative to the traditional technology because reproducible capital is a more important input in the modern technology. As a result, bar-riers to capital accumulation not only affect the capital to output ratio in the economy but also aggregate TFP. The theory thus connects two seemingly disparate research programs in the recent growth literature: models of factor accumulation and models of total factor productivity. The model economy is calibrated by interpreting the traditional technology as producing agricultural output and the non-reproducible factor as land. The theory implies that barriers to capital accumulation are associated with large agricultural shares. This novel implication of the theory is strongly supported by both cross-country data and time series evidence from a set of East Asian miracle countries. For a reasonable parameterization of the model, the required TFP differences needed to account for a reasonable disparity in the wealth of nations are reduced by a half relative to the standard growth model that abstracts from technology choice.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number diegor-02-01.

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Length: 17 pages
Date of creation: 11 Aug 2002
Date of revision:
Handle: RePEc:tor:tecipa:diegor-02-01

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Keywords: income; technology choice; barriers; total factor productivity.;

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  1. Jones, Charles I., 1994. "Economic growth and the relative price of capital," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 359-382, December.
  2. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
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  10. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  11. Young, Alwyn, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 641-80, August.
  12. Hayami, Yujiro & Ruttan, Vernon W, 1970. "Agricultural Productivity Differences Among Countries," American Economic Review, American Economic Association, vol. 60(5), pages 895-911, December.
  13. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, December.
  14. Mundlak, Yair, 2001. "Production and supply," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 1, pages 3-85 Elsevier.
  15. Edward C. Prescott, 1997. "Needed: a theory of total factor productivity," Staff Report 242, Federal Reserve Bank of Minneapolis.
  16. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  17. Stephen L. Parente & Richard Rogerson & Randall Wright, 2000. "Homework in Development Economics: Household Production and the Wealth of Nations," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 680-687, August.
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