Mismatch and Assimilation

57 Pages Posted: 17 Sep 2018 Last revised: 14 Mar 2022

See all articles by Ping Wang

Ping Wang

Washington University in St. Louis - Department of Economics; National Bureau of Economic Research (NBER)

Tsz-Nga Wong

Washington University in St Louis

Chong Kee Yip

The Chinese University of Hong Kong (CUHK) - Department of Economics

Date Written: August 2018

Abstract

Income disparity across countries has been large and widening over time. We develop a tractable model where factor requirements in production technology do not necessarily match a country's factor input profile. Appropriate assimilation of frontier technologies balances such multi-dimensional factor input-technology mismatch, thus mitigating the efficiency loss. This yields a new measure for endogenous TFP, entailing a novel trade-off between a country's income level and income growth that depends critically on the assimilation ability and the factor input mismatch. Our baseline model accounts for 80%-92% of the global income variation over the past 50 years. The widening of mismatch and heterogeneity in the assimilation ability account for 41% and 20% of the global growth variation, whereas physical capital accounts for about one third with human capital largely inconsequential. In particular, about 30% of the output growth in miracle Asian economies comes from narrowing the gap arisen from mismatch, and 94% of the growth stagnation in trapped African economies due to the widening mismatch. A country may fall into a middle-income trap after a factor advantage reversal that changes the pattern of mismatch.

Suggested Citation

Wang, Ping and Wong, Tsz-Nga and Yip, Chong Kee, Mismatch and Assimilation (August 2018). NBER Working Paper No. w24960, Available at SSRN: https://ssrn.com/abstract=3244243

Ping Wang (Contact Author)

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tsz-Nga Wong

Washington University in St Louis ( email )

One Brookings Drive
St. Louis, MO 63130
United States

HOME PAGE: http://sites.google.com/site/tszngawong/

Chong Kee Yip

The Chinese University of Hong Kong (CUHK) - Department of Economics ( email )

Shatin, N.T.
Hong Kong
+852 2609-7057 (Phone)
+852 2603-5805 (Fax)

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