COSTLY INTERMEDIATION AND THE POVERTY OF NATIONSShankha Chakraborty () and Amartya Lahiri International Economic Review, 2007, vol. 48, issue 1, pages 155-183 Abstract: This article has two goals: (i) to reduce the 7-fold productivity differential required to explain the observed 33-fold income difference between the richest and poorest countries of the world; and (ii) to explain cross-country differences in the capital-output ratio. To achieve the first goal we modify the production function of the standard neoclassical growth model to include public capital whose provision is subject to intermediation costs. For the second goal we distort private investment by introducing credit frictions. The model, quantified using cross-country data, generates an income gap of 33 with productivity differences of "only" 3 under the measured variations in public and private capital. The required productivity gap declines even further, to 2.1, when we introduce a home-production sector. On the second goal, however, credit frictions do a poor job of explaining cross-country variations in the capital-output ratio. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association. Downloads: (external link) Related works: Ordering information: This journal article can be ordered from Access Statistics for this article International Economic Review is edited by Randall Wright More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
Econpapers is hosted by the
Swedish Business School at Örebro University.