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Dual Economies and International Total Factor Productivity Differences

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  • Areendam Chanda

    (North Carolina State University)

  • Carl-Johan Dalgaard

    (Institute of Economics, University of Copenhagen)

Abstract

This paper argues that a significant part of measured TFP differences across countries is attributable not to technological factors that affect the entire economy neutrally, but rather, to variations in the structural composition of economies. In particular, the allocation of scarce inputs between agriculture and non-agriculture seems to be important. We provide a theory which links the institutional framework to the long-run composition of the economy, and thereby to measured TFP and income per worker. A decomposition analysis suggests that between 30 and 50 percent of the international variation in TFP can be attributed to the composition of output. Estimation exercises suggest that recent findings of a conducive effect from institutions, and to some extent, geography, on long-run prosperity and TFP, may be thus explained.

Suggested Citation

  • Areendam Chanda & Carl-Johan Dalgaard, 2003. "Dual Economies and International Total Factor Productivity Differences," EPRU Working Paper Series 03-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:03-09
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    Cited by:

    1. Tasso Adamopoulos & Diego Restuccia, 2014. "The Size Distribution of Farms and International Productivity Differences," American Economic Review, American Economic Association, vol. 104(6), pages 1667-1697, June.
    2. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    3. Alvarez-Cuadrado, Francisco & Long, Ngo & Poschke, Markus, 2017. "Capital-labor substitution, structural change and growth," Theoretical Economics, Econometric Society, vol. 12(3), September.
    4. Dietrich Vollrath, 2009. "The dual economy in long-run development," Journal of Economic Growth, Springer, vol. 14(4), pages 287-312, December.
    5. Jaime Alonso-Carrera & Xavier Raurich, 2006. "Growth, Sectoral Composition, and the Wealth of Nations," Working Papers 278, Barcelona Graduate School of Economics.
    6. Mike Waugh & David Lagakos & Doug Gollin, 2011. "The Agricultural Productivity Gap in Developing Countries," 2011 Meeting Papers 1397, Society for Economic Dynamics.
    7. Oded Galor & Omer Moav & Dietrich Vollrath, 2004. "Land Inequality and the Origin of Divergence and Overtaking in the Growth Process," GE, Growth, Math methods 0410004, EconWPA.
    8. John Landon-Lane & Peter Robertson, 2005. "A Note on Barriers to Capital Accumulation and Income," Departmental Working Papers 200509, Rutgers University, Department of Economics.
    9. Jonathan Temple & Ludger Wößmann, 2006. "Dualism and cross-country growth regressions," Journal of Economic Growth, Springer, vol. 11(3), pages 187-228, September.
    10. Markus Eberhardt & Francis Teal, 2011. "Econometrics For Grumblers: A New Look At The Literature On Cross‐Country Growth Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 109-155, February.
    11. Benos, Christos & Angelopoulou, Ioanna & Metaxas, Theodore, 2017. "“Decentralization” of income per capita and its relationship to administrative decentralization in the context of European Union members," MPRA Paper 78777, University Library of Munich, Germany.
    12. Jacob L. Weisdorf, 2006. "From domestic manufacture to Industrial Revolution: long-run growth and agricultural development," Oxford Economic Papers, Oxford University Press, vol. 58(2), pages 264-287, April.
    13. Bryan Graham & Jonathan Temple, 2006. "Rich Nations, Poor Nations: How Much Can Multiple Equilibria Explain?," Journal of Economic Growth, Springer, vol. 11(1), pages 5-41, March.
    14. Areendam Chanda & Beatrice Farkas, 2012. "Appropriate Technology, Human Capital and Development Accounting," Departmental Working Papers 2012-03, Department of Economics, Louisiana State University.
    15. Galor, Oded & Moav, Omer & Vollrath, Dietrich, 2003. "Land Inequality and the Origin of Divergence and Overtaking in the Growth Process: Theory and Evidence," CEPR Discussion Papers 3817, C.E.P.R. Discussion Papers.
    16. Douglas Gollin & David Lagakos & Michael E. Waugh, 2014. "The Agricultural Productivity Gap," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 939-993.
    17. Oded Galor & Omer Moav & Dietrich Vollrath, 2009. "Inequality in Landownership, the Emergence of Human-Capital Promoting Institutions, and the Great Divergence," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 143-179.
    18. Oded Galor & Omer Moav & Dietrich Vollrath, 2005. "Land Inequality and the Emergence of Human Capital Promoting Institutions," Development and Comp Systems 0502018, EconWPA.
    19. Cai, Wenbiao, 2010. "Skill Investment, Farm Size Distribution and Agricultural Productivity," MPRA Paper 26439, University Library of Munich, Germany.
    20. World Bank Group, 2016. "Malaysia Economic Monitor, December 2016," World Bank Other Operational Studies 25857, The World Bank.
    21. Oded Galor & Omer Moav & Dietrich Vollrath, 2006. "Inequality in Land Ownership, the Emergence of Human Capital Promoting Institutions, and Great Divergence," Working Papers 2006-14, Brown University, Department of Economics.
    22. Oded Galor & Omer Moav & Dietrich Vollrath, 2005. "The Emergence of Human Capital Promoting Institutions in the Process of Development," GE, Growth, Math methods 0508008, EconWPA.
    23. Carl-Johan, Dalgaard & Henrik, Hansen, 2010. "Evaluating Aid Effectiveness in the Aggregate: A critical assessment of the evidence," MPRA Paper 23026, University Library of Munich, Germany.

    More about this item

    Keywords

    dual economy; structural change; total factor productivity; institutions; geography;

    JEL classification:

    • 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
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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