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Dual Economies and International Total Factor Productivity Differences

  • Areendam Chanda

    (North Carolina State University)

  • Carl-Johan Dalgaard

    (Institute of Economics, University of Copenhagen)

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.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 03-09.

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Length: 37 pages + tables
Date of creation: May 2003
Date of revision:
Handle: RePEc:kud:epruwp:03-09
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