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Technology Adoption and Schooling: Amplifier Income Effects of Policies Across Countries

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Abstract

Neoclassical growth models require large productivity/distortion differences across countries to produce the observed disparities in the wealth of nations. In this paper I develop an otherwise very standard neoclassical model with technology adoption and schooling decisions, and show that in this environment the required productivity/distortion differences are much smaller. The schooling and technology adoption features of the model amplify the effects of productivity/distortion differences on income disparity. In particular, for a reasonable parameterization, the model generates 3 times more income disparity than a standard model. Moreover, I find that it is the interaction between the technology adoption and schooling features of the model, and not each in isolation, what accounts for most of the amplifier effect. I show that the model is consistent with the observed patterns of the schooling differences across countries. Standard neoclassical models with schooling have the implication that schooling levels are constant across economies, since wage differences affect in the same proportion the marginal benefit and the opportunity cost of schooling. In my model, average levels of schooling do vary across economies since education is more useful in modern technologies and rich economies use these technologies more intensively.

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Bibliographic Info

Paper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 9810.

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Date of creation: Jul 1998
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Handle: RePEc:uwo:uwowop:9810

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Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html

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References

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  1. Psacharopoulos, George, 1994. "Returns to investment in education: A global update," World Development, Elsevier, vol. 22(9), pages 1325-1343, September.
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  3. 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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  26. repec:fth:prinin:366 is not listed on IDEAS
  27. Doms, Mark & Dunne, Timothy & Troske, Kenneth R, 1997. "Workers, Wages, and Technology," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 253-90, February.
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Cited by:
  1. Blázquez, Maite & Ramos, Jose, 2007. "Disparidades entre Educación Formal y Educación en el Puesto de Trabajo," Working Papers in Economic Theory 2007/10, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  2. Alberto BUCCI, 2002. "Market Power, Human Capital and Growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Chris Papageorgiou & Fidel Pérez Sebastián, 2001. "Growth Miracles Reexamined," Working Papers. Serie AD 2001-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Diego Restuccia & Carlos Urrutia, 1999. "Public Policy, Price Distortions, and Investment Rates," UWO Department of Economics Working Papers 9901, University of Western Ontario, Department of Economics.
  5. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.

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