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Income Differences and Input-Output Structure

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  • Fadinger, Harald
  • Ghiglino, Christian
  • Teteryatnikova, Mariya

Abstract

We consider a multi-sector general equilibrium model with input-output (IO) linkages and sector-specific productivities to investigate how the IO structure interacts with sectoral productivities in determining cross-country differences in aggregate income per worker. Using tools from network theory, we show that aggregate income can be approximated as a simple function of the first and second moments of the joint distribution of the IO multipliers and sectoral productivities. We then estimate the parameters of the model to fit their joint empirical distribution. Poor countries have few high-multiplier sectors, while most sectors have very low multipliers; by contrast, rich countries have more sectors with intermediate multipliers. Moreover, the correlations of sectoral IO multipliers with productivities are positive in poor countries, while being negative in rich ones. The estimated model predicts cross-country income differences extremely well and significantly better than a multi-sector model without IO linkages. Finally, we perform a number of counterfactuals and compute optimal tax rates.

Suggested Citation

  • Fadinger, Harald & Ghiglino, Christian & Teteryatnikova, Mariya, 2016. "Income Differences and Input-Output Structure," CEPR Discussion Papers 11547, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11547
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    Cited by:

    1. Robert Zymek & Alejandro Cunat, 2017. "International Value-Added Linkages in Development Accounting," ESE Discussion Papers 281, Edinburgh School of Economics, University of Edinburgh.
    2. Lorenzo Caliendo & Fernando Parro & Aleh Tsyvinski, 2017. "Distortions and the Structure of the World Economy," NBER Working Papers 23332, National Bureau of Economic Research, Inc.
    3. Daron Acemoglu & Pablo D. Azar, 2017. "Endogenous Production Networks," NBER Working Papers 24116, National Bureau of Economic Research, Inc.
    4. repec:eee:ecolet:v:162:y:2018:i:c:p:81-85 is not listed on IDEAS
    5. repec:eee:respol:v:46:y:2017:i:7:p:1340-1359 is not listed on IDEAS
    6. Dungey, Mardi & Volkov, Vladimir, 2018. "R&D and wholesale trade are critical to the economy: Identifying dominant sectors from economic networks," Economics Letters, Elsevier, vol. 162(C), pages 81-85.

    More about this item

    Keywords

    cross-country income differences; Development; input-output structure; Networks; productivity;

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • 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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