Externalities and Interdependent Growth: Theory and Evidence
Economics working paper 194
27 Pages Posted: 12 May 1997
Date Written: October 1996
I formulate and estimate a model of externalities within countries and technological interdependence across countries. I find that external returns to scale to physical capital within countries are 8 percent; that a 10 percent increase of total factor productivity of a country's neighbors raises its total factor productivity by 6 percent; and that a 2 percent annual growth rate of labor productivity can be explained as an endogenous response to an exogenous 0.2 percent annual growth rate of total factor productivity in the steady-state.
JEL Classification: E13, O1, O3, O4
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