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Accounting for Cross-Country Income Differences

  • Francesco Caselli

Why are some countries so much richer than others? Development Accounting is a first-pass attempt at organizing the answer around two proximate determinants: factors of production and efficiency. It answers the question "how much of the cross-country income variance can be attributed to differences in (physical and human) capital, and how much to differences in the efficiency with which capital is used?" Hence, it does for the cross-section what growth accounting does in the time series. The current consensus is that efficiency is at least as important as capital in explaining income differences. I survey the data and the basic methods that lead to this consensus, and explore several extensions. I argue that some of these extensions may lead to a reconsideration of the evidence.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0667.

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Date of creation: Jan 2005
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Handle: RePEc:cep:cepdps:dp0667
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