Explaining Cross-Country Differences in Productivity: Is it Efficiency or Factor Endowments?

27 Pages Posted: 4 Nov 2013

See all articles by Eddie Gerba

Eddie Gerba

Banco de España; London School of Economics & Political Science (LSE); CES Ifo Institute; European Central Bank

Emmanuel V. Pikoulakis

Hull University Business School (HUBS)

Date Written: October 30, 2013

Abstract

In this paper we develop a two-sector growth model of optimizing agents and apply this model to the data for the purpose of addressing the two interrelated questions that preoccupy the literature on development and growth accounting, namely: (1) What determines sustained growth and (2) What explains the vast cross-country differences in labor productivity. Concerning the first questions our findings support the view that to some extend the growth in effective human capital is a by-product of learning-by-doing. On the second question we find that differences in factors of production explain twice as much of the difference in labor productivity between developed and developing countries than differences in efficiency.

Keywords: Two-Sector Growth Model, Effective Human Capital, Education Quality

JEL Classification: O41, O47, J24

Suggested Citation

Gerba, Eddie and Pikoulakis, Emmanuel V., Explaining Cross-Country Differences in Productivity: Is it Efficiency or Factor Endowments? (October 30, 2013). Available at SSRN: https://ssrn.com/abstract=2347688 or http://dx.doi.org/10.2139/ssrn.2347688

Eddie Gerba

Banco de España ( email )

Alcala 50
Madrid 28014
Spain
(+34)917088132 (Phone)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

CES Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Emmanuel V. Pikoulakis (Contact Author)

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

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