Production Ability and Economic Growth
Sebastian Bustos () and
Muhammed A. Yildirim
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Sebastian Bustos: Center for International Development at Harvard University
Muhammed A. Yildirim: Center for International Development at Harvard University
No 110a, CID Working Papers from Center for International Development at Harvard University
Production is shaped by capability requirements of products and availability of these capabilities across locations. We propose a capabilities based production model and an empirical strategy to measure product sophistication and location’s production ability. We apply our framework to international trade data, and employment data in the US, recovering measures of production ability for countries and cities, and 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 measures like education and training needed in the industry. Our model-based estimations also predict the diversification patterns through the extensive margin.
Keywords: Production; capability (search for similar items in EconPapers)
JEL-codes: O41 O47 O50 F10 F11 F14 (search for similar items in EconPapers)
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