The World Distribution of Productivity: Country TFP Choice in a Nelson-Phelps Economy
This paper builds a theory of the shape of the distribution of total-factor productivity (TFP) across countries. The distribution of productivity across countries is arguably twin-peaked in the data, and the proposed theory presents conditions under which twin-peakedness is an equilibrium outcome. We construct a stochastic dynamic general equilibrium model where world growth is endogenous and driven by investments in TFP. All countries invest in TFP in order to increase their productivity, and each country internalizes the dynamic effects of its own TFP accumulation, i.e., through its own investment. In addition, there are technology spillovers across countries, modeled according to the Nelson-Phelps specification. We find that even under the assumption that all countries have identical technologies for TFP accumulation, the world distribution of TFP across countries can be asymmetric; it is twin-peaked, or bimodal. More specifically, twin-peaked world distributions of TFP arise if the catch-up term in the Nelson-Phelps equation is sufficiently weak. If, on the other hand, technological catch-up is important, the world distribution of TFP is unimodal.
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