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The World Distribution of Productivity: Country TFP Choice in a Nelson-Phelps Economy

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  • Erika Färnstrand Damsgaard
  • Per Krusell

Abstract

This paper builds a theory of the distribution of TFP across countries. The theory is based on the hypothesis that TFP improvements in a given country follow a Nelson-Phelps specification: they derive from past investments in the country itself and, through a spillover term, from past investments in other countries. Within a stochastic dynamic general equilibrium model of the world, each country invests in TFP and internalizes the dynamic effects of its investments, while ignoring any effects on others. Small symmetric idiosyncratic shocks can lead to large long-run differences in TFP levels and the world TFP distribution may become twin-peaked.

Suggested Citation

  • Erika Färnstrand Damsgaard & Per Krusell, 2010. "The World Distribution of Productivity: Country TFP Choice in a Nelson-Phelps Economy," NBER Working Papers 16375, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16375
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    Cited by:

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    More about this item

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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