Abstract

http://ssrn.com/abstract=1707912
 
 

References (27)



 


 



The World Distribution of Productivity: Country TFP Choice in a Nelson-Phelps Economy


Erika Färnstrand Damsgaard


National Institute of Economic Research; Research Institute of Industrial Economics (IFN)

Per Krusell


Princeton University - Department of Economics; Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR)

September 2010

CEPR Discussion Paper No. DP8022

Abstract:     
This paper builds a theory of the shape of the distribution of total-factor productivity (TFP) across countries. The data on productivity suggests vast differences across countries, and arguably even has twin peaks". The theory proposed here is consistent with vast differences in long-run productivity, and potentially also with a twin-peaks outcome, even under the assumption that all countries are ex-ante identical. It is based on the hypothesis that TFP improvements in a given country follow a Nelson- Phelps specification. Thus, they derive from past investments in the country itself and, through a spillover (or catch-up) term, from past investments in other countries. We then construct a stochastic dynamic general equilibrium model of the world which has externalities: each country invests in TFP and internalizes the dynamic effects of its own investment, while treating other countries' investments as given. Average world growth is endogenous, as is the distribution of TFP across countries. We find that small idiosyncratic TFP shocks can lead to large long-run differences in TFP levels and that, in the long run, the world distribution of TFP across countries may be asymmetric, i.e., twin-peaked, or bimodal. More specifically, twin-peaked world distributions of TFP arise if the catch-up term in the Nelson-Phelps equation has a sufficiently low weight. If, on the other hand, technological catch-up is important, the world distribution of TFP is unimodal, though it may still have large dispersion.

Number of Pages in PDF File: 41

Keywords: growth, inequality

JEL Classification: F43, O1

working papers series


Date posted: November 14, 2010  

Suggested Citation

Färnstrand Damsgaard, Erika and Krusell, Per, The World Distribution of Productivity: Country TFP Choice in a Nelson-Phelps Economy (September 2010). CEPR Discussion Paper No. DP8022. Available at SSRN: http://ssrn.com/abstract=1707912

Contact Information

Erika Färnstrand Damsgaard (Contact Author)
National Institute of Economic Research ( email )
Box 3116
Stockholm, SE-103 62
Sweden
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
Per L. Krusell
Princeton University - Department of Economics ( email )
111 Fisher Hall
Princeton, NJ
United States
609-258-4003 (Phone)
609-258-6419 (Fax)
HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/
Stockholm University - Institute for International Economic Studies (IIES) ( email )
Stockholm University
10691 Stockholm, SE-10691
Sweden
+46 0 8 16 30 73 (Phone)
+46 0 8 16 41 77 (Fax)
HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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References:  27

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