Quality of Human and Physical Capital and Technological Gaps across Italian Regions
Regional Studies, 2007
Posted: 15 Jan 2009
Date Written: July 14, 2007
This paper evaluates the relative contribution of factor accumulation and technology in explaining output per worker differences across Italian regions in the period 2000-2004. The contributions of physical and human capital are separately estimated through the variance decomposition of output per worker. Whereas from a basic analysis of development accounting with crude data TFP emerges as a fundamental determinant of output per worker, when more accurate data are used in the estimations of human and physical capital, results change radically, showing a higher importance of factor accumulation with respect to previous standard estimations. Several measures of quality of human and physical capital are introduced: a) individuals' cognitive skills as measured in international test scores; b) region specific rates of return on human capital; c) public investments and public-subsidized investments are weighted differently from private investment in the determination of physical capital stock. We show that better measurement of factor inputs allows a reduction in the solowian "measure of our ignorance".
Keywords: Development Accounting, Human Capital, Physical Capital, TFP, variance decomposition, Problems of Measurement
JEL Classification: O47, E23, E13
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