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TFP and global growth: Shaping cross-country income inequality, 1960–2019

Author

Listed:
  • del Río, Fernando
  • Lores, Francisco-Xavier

Abstract

This study examines global economic growth and cross-country income inequality from 1960 to 2019 using a stochastic dynamic general equilibrium model. Total factor productivity (tfp), captured through the efficiency wedge, primarily drives global output growth and shapes income disparities. Distortions in capital and labour markets — represented by the investment and labour wedges — play secondary, context-specific roles, notably reducing growth in middle-income countries. Two major waves of global growth — post-war industrialization and globalizationdriven technological diffusion — can explain tfp predominance. Cluster analysis confirms the central role of tfp in both growth miracles and failures. Global shocks like the 1973 oil crisis and 2008 recession slowed growth, particularly in high-income countries, narrowing cross-country income disparities. Since the 2000s, tfp gains in emerging economies reduced inequality. These findings highlight the theoretical and policy relevance of tfp-centred growth models and the importance of policies promoting trade openness, institutional quality, and innovation to enhance tfp and foster inclusive growth and convergence.

Suggested Citation

  • del Río, Fernando & Lores, Francisco-Xavier, 2025. "TFP and global growth: Shaping cross-country income inequality, 1960–2019," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 191-213.
    • Handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:191-213
    DOI: 10.1016/j.eap.2025.08.039
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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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