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Development Accounting in a Heckscher-Ohlin World

  • Harald Fadinger

    (Department of Economics and Business, Universitat Pompeu Fabra)

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    What are the reasons for cross country differences in income per worker? Are they caused by differential factor endowments or by cross country variation in productivity? If productivity matters, what form do productivity differences have? In this paper I address these questions from an open economy perspective using tools from development accounting. I show that trade changes the relationship between factors, productivities and income in a crucial way. In addition, I simultaneously fit income and trade data, which enables me to evaluate the quality of my productivity calibrations. The model best supported by trade data has factor specific productivities and complementarities between human and physical capital. Rich countries use physical capital more efficiently than poor countries, while medium income countries employ human capital in the most productive way.

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    Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 600.

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    Date of creation: 2007
    Date of revision:
    Handle: RePEc:red:sed007:600
    Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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    1. Francisco Alcalá & Antonio Ciccone, 2001. "Trade and productivity," Economics Working Papers 580, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2002.
    2. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    3. Werner Antweiler & Daniel Trefler, 2000. "Increasing Returns and All That: A View From Trade," NBER Working Papers 7941, National Bureau of Economic Research, Inc.
    4. Demiroglu, U. & Yun, K.K., 1997. "The Lens Conditions for factor Price Equalization," Working Papers 404, Research Seminar in International Economics, University of Michigan.
    5. Ben S. Bernanke & Refet S. Gurkaynak, 2001. "Is Growth Exogenous? Taking Mankiw, Romer and Weil Seriously," NBER Working Papers 8365, National Bureau of Economic Research, Inc.
    6. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-51, August.
    7. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    8. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
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