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Education vs TFP: Empirical Evidence from The Sub-Saharan Countries

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  • Guido Cazzavillan

    ()
    (Department of Economics, University Of Venice Cà Foscari)

  • Michael Donadelli

    (Department of Economics, LUISS Guido Carli University)

Abstract

This paper investigates the “education-total factor productivity trade-off” in explaining per worker income differences between Sub-Saharan (unlucky) and G7 (lucky) economies. Following Hall and Jones (1999) and Caselli (2005), on a country basis, we are able to study separately the dynamic of the average years of schooling (i.e. education level), the per worker capital, the per worker income, and the total factor productivity (TFP). We confirm, according to the related literature, that physical capital and education levels partially explain income differences between unlucky and lucky economies. We show, however, that the impact of ad hoc TFP shocks on per worker income is larger in the unlucky economies than in the lucky ones. The result holds both for negative and positive shocks. In particular, we find that average TFP volatility in the “unlucky world” is eight times higher than the “G7 world” average TFP volatility. As a result we argue that the order of magnitude of the impact heavily depends on the level of the TFP volatility. It turns out that the effect of a TFP shock on a relative low per worker income growth rate is higher. We conclude by arguing that the presence of low levels of per worker capital and of human productivity push the unlucky economies into a poverty trap.

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File URL: http://www.unive.it/media/allegato/DIP/Economia/Working_papers/Working_papers_2012/WP_DSE_cazzavillan_donadelli_27_12.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2012_27.

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Length: 25 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:ven:wpaper:2012_27

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Keywords: Education; Average Years of Schooling; TFP Shocks; Poverty Trap;

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  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
  2. Kraay, Aart & Raddatz, Claudio, 2007. "Poverty traps, aid, and growth," Journal of Development Economics, Elsevier, Elsevier, vol. 82(2), pages 315-347, March.
  3. Bewley, Truman, 1977. "The permanent income hypothesis: A theoretical formulation," Journal of Economic Theory, Elsevier, Elsevier, vol. 16(2), pages 252-292, December.
  4. Azariadis, Costas & Stachurski, John, 2005. "Poverty Traps," Handbook of Economic Growth, Elsevier, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5 Elsevier.
  5. Quah, Danny T, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(437), pages 1045-55, July.
  6. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(3), pages 681-712, August.
  7. Danny Quah, 1992. "Empirical cross-section dynamics in economic growth," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 75, Federal Reserve Bank of Minneapolis.
  8. David McKenzie & Christopher Woodruff, 2008. "Experimental Evidence on Returns to Capital and Access to Finance in Mexico," World Bank Economic Review, World Bank Group, World Bank Group, vol. 22(3), pages 457-482, November.
  9. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
  10. Guido Cazzavillan & Michael Donadelli, 2010. "Understanding the Global Demand Collapse: Empirical Analysis and Optimal Policy Response," Working Papers, Department of Economics, University of Venice "Ca' Foscari" 2010_18, Department of Economics, University of Venice "Ca' Foscari".
  11. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers, Federal Reserve Bank of Minneapolis 502, Federal Reserve Bank of Minneapolis.
  12. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(2), pages 298-321, April.
  13. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers, Centre for Economic Performance, LSE dp0280, Centre for Economic Performance, LSE.
  14. Nihal Bayraktar & Hippolyte Fofack, 2011. "Capital Accumulation in Sub-Saharan Africa: Income-group and Sector Differences-super- †," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 20(4), pages 531-561, August.
  15. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1586, C.E.P.R. Discussion Papers.
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