Dual Economies and International Total Factor Productivity Differences: Channelling the Impact from Institutions, Trade, and Geography

Abstract

This paper provides a framework that decomposes aggregate total factor productivity (TFP) into a component reflecting relative efficiency across sectors, and another component that reflects the absolute level of efficiency. A development accounting analysis suggests that as much as 85% of the international variation in aggregate TFP can be attributed to variation in relative efficiency across sectors. Estimation results show that recent findings highlighting the importance of strong protection of property rights, financial development and geographical advantage for the level of TFP, can be explained by their impact on relative efficiency.

Capital-Labor Substitution, Structural Change and Growth

“…These dierences in employment shares are compounded by important dierences in labor productivity and capital intensity. As Restuccia et al (2008) and Chanda and Dalgaard (2008) report, the dierences in agricultural labor productivity between rich and poor countries are twice as large than those in aggregate labor productivity. Mundlak (2000) nds that the distributions of the various measures of investment and capital show a much larger spread in agriculture than in the rest of the economy.…”

The Wise Use of Leisure Time. A Three-Sector Endogenous Growth Model with Leisure Services

“…A recent stream of literature on economic development explains the cross-country differences in the growth rates of GDP as the result of differences in the sectoral composition of GDP [Echevarria, 1997, Laitner, 2000). More recently, Chanda and Dalgaard [2008], Córdoba and Ripoll [2009], Alonso-Carrera and Raurich [2010] show that changes in the sectoral composition may contribute both to the output and productivity growth, without any changes in total factor productivity (technological changes).…”

Labor reallocation in China: 1978–2011

“…The mismatch of labor forces resulting from these barriers leads to price distortion of input factors, which further affects the labor flow across sectors. This effect is channeled both through enterprises' production activities in agricultural sector and non-agricultural sector, and through residents' consumption behaviors (Chanda and Dalgaard, 2008;Vollrath, 2009). In particular, this mismatch exists not only just between agricultural and non-agricultural sectors, but also between public sector and private sector (Hsieh and Klenow, 2009;Song et al, 2011).…”