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Appropriate Technology, Human Capital and Development Accounting

  • Areendam Chanda
  • Beatrice Farkas

Over the past decade, research explaining cross country income differences has increasingly pointed to the dominant role of total factor productivity (TFP) gaps as opposed to factor accumulation. Nevertheless, it is a widely held belief that a country's ability to absorb and implement technologies is tied to its human capital. In this paper, we implement this idea in a novel specification and explore its quantitative implications within a development accounting framework. In our model, intermediate goods production takes place over a range of industries, and human capital ratios in a country influence industry specific productivities asymmetrically. As a result, in human capital abundant countries, production is concentrated around industries with high TFP, while in low human capital countries, production is concentrated around industries with low TFP. Development accounting exercises for a range of parameter values suggest that this human capital-technology complementarity may account for eighteen to twenty five percent of differences in GDP per worker which is higher than the combined direct contribution of factors of production.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1236.

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Length: 37 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwwpp:dp1236
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  1. Areendam Chanda & Carl-Johan Dalgaard, 2003. "Dual Economies and International Total Factor Productivity Differences," Macroeconomics 0305002, EconWPA.
  2. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
  3. Chris Papageorgiou & Fidel Pérez Sebastián & John Duffy, 2002. "Capital-Skill Complementarity? Evidence From A Panel Of Countries," Working Papers. Serie AD 2002-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Todd Schoellman, 2012. "Education Quality and Development Accounting," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 388-417.
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  6. Benjamin F. Jones, 2011. "The Human Capital Stock: A Generalized Approach," NBER Working Papers 17487, National Bureau of Economic Research, Inc.
  7. Andrés Erosa & Tatyana Koreshkova & Diego Restuccia, 2010. "How Important Is Human Capital? A Quantitative Theory Assessment of World Income Inequality," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1421-1449.
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  11. Francesco Caselli & Wilbur John Coleman II, 2006. "The World Technology Frontier," American Economic Review, American Economic Association, vol. 96(3), pages 499-522, June.
  12. Chang-Tai Hsieh & Peter J. Klenow, 2010. "Development Accounting," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 207-23, January.
  13. Vollrath, Dietrich, 2009. "How important are dual economy effects for aggregate productivity?," Journal of Development Economics, Elsevier, vol. 88(2), pages 325-334, March.
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  17. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  18. Atkinson, Anthony B & Stiglitz, Joseph E, 1969. "A New View of Technological Change," Economic Journal, Royal Economic Society, vol. 79(315), pages 573-78, September.
  19. repec:oup:qjecon:v:113:y:1998:i:4:p:1025-1054 is not listed on IDEAS
  20. repec:oup:qjecon:v:107:y:1992:i:2:p:407-37 is not listed on IDEAS
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