Production Ability and economic growth

Sebastián Bustos and Muhammed A. Yıldırım

Research Policy, 2022, vol. 51, issue 8

Abstract: Cities and countries undergo constant structural transformation. Industries need many inputs, such as regulations, infrastructure or productive knowledge, which we call capabilities. And locations are successful in hosting industries insofar as the capabilities that they can provide. We propose a capabilities-based production model and an empirical strategy to measure the Sophistication of a product and the Production Ability of a location. We apply our framework to international trade data and employment data in the United States, recovering measures of Production Ability for countries and cities, and the Sophistication of products and industries. We show that both country- and city-level measures have a strong correlation with income and economic growth at different time horizons. Product Sophistication is positively correlated with indicators of human capital and wages. Our model-based estimations predict product appearances and disappearances through the extensive margin.

JEL-codes: F10 F11 F14 O41 O47 O50 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:51:y:2022:i:8:s0048733320302286

DOI: 10.1016/j.respol.2020.104153

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