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Endogenous Productivity and Development Accounting

Roc Armenter () and Amartya Lahiri

No 268, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We model an environment in which different vintages of capital with their different productivities coexist. A reduction in the cost of investment induces investment in new capital which raises both measured capital and measured productivity simultaneously. We calibrate this model to cross-country data on the price of investment goods and compare the resultant world distribution of per capita income with the actual distribution in the data. We find that the model does fairly well in quantitatively accounting for the observed dispersion in world income. In particular, the model generates 35-fold income gaps and 6-fold productivity differences between the richest and poorest countries in our sample

Keywords: Development; Productivity; Cross-country income (search for similar items in EconPapers)
JEL-codes: E2 O11 (search for similar items in EconPapers)
Date: 2006-12-03
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