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Capital-Skill complementarity? Evidence from a Panel of Countries

Since Griliches (1969), researchers have been intrigued by the idea that physical capital and skilled labor are more complementary than physical capital and unskilled labor. In this paper we consider the cross-country evidence for capital-skill complementarity using a time-series cross-section panel of 73 developed and less developed countries over a 25-year period. We focus on three empirical issues. First, what is the best specification of the aggregate production technology to address the capital-skill complementarity hypothesis? Second, how should we measure skilled labor? Finally, is there any cross-country evidence in support of the capital-skill complementarity hypothesis? Our main finding is that there is some empirical support for the capital-skill complementarity hypothesis in our macro panel data set. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Paper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2003-12.

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Handle: RePEc:lsu:lsuwpp:2003-12
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  1. Eli Berman & John Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Boston University - Institute for Economic Development 78, Boston University, Institute for Economic Development.
  2. Bergstrom, Villy & Panas, Epaminondas E, 1992. "How Robust Is the Capital-Skill Complementarity Hypothesis?," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 540-46, August.
  3. Karnit Flug & Zvi Hercowitz, 1996. "Equipment Investment and the Relative Demand for Skilled Labor: International Evidence," Research Department Publications 4042, Inter-American Development Bank, Research Department.
  4. Stokey, Nancy L, 1996. " Free Trade, Factor Returns, and Factor Accumulation," Journal of Economic Growth, Springer, vol. 1(4), pages 421-47, December.
  5. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University.
  6. Kumar, T Krishna & Gapinski, James H, 1974. "Nonlinear Estimation of the CES Production Parameters: A Monte Carlo Study," The Review of Economics and Statistics, MIT Press, vol. 56(4), pages 563-67, November.
  7. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
  8. Thursby, Jerry, 1980. "Alternative CES Estimation Techniques," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 295-99, May.
  9. Fallon, P R & Layard, P R G, 1975. "Capital-Skill Complementarity, Income Distribution, and Output Accounting," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 279-301, April.
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