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Endogenous Productivity and Development Accounting

  • Roc Armenter
  • Amartya Lahiri

    ()

    (Economics University of British Columbia)

We model an environment in which different vintages of capital with their different productivities coexist. A reduction in the cost of investment induces investment in new capital which raises both measured capital and measured productivity simultaneously. We calibrate this model to cross-country data on the price of investment goods and compare the resultant world distribution of per capita income with the actual distribution in the data. We find that the model does fairly well in quantitatively accounting for the observed dispersion in world income. In particular, the model generates 35-fold income gaps and 6-fold productivity differences between the richest and poorest countries in our sample

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 268.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:268
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