Structural Development Accounting

Abstract

In this paper, we construct and estimate a uni…ed model combining three of the main sources of cross-country income disparities: di¤erences in factor endowments, barriers to technology adoption and the inappropriateness of frontier technologies to local conditions. The key components of our framework are di¤erent types of workers (skilled and unskilled labor), distortions to capital accumulation, directed technical change, costly adoption and spillovers from the world technology frontier. Despite its parsimonious parametrization, our empirical model provides a good …t of GDP data for up to 90 countries in 1970 and 2000. We use the model to assess the relative importance of alternative factors a¤ecting the world income distribution and to perform counterfactual experiments. Our results suggests that removing barriers to technology adoption would increase output of the average OECD economy relative to the US frontier from 68.3% to 92.5%. The average non-OECD country would instead increase from 17.4% to 53.8%. Slashing barriers would also lead to higher skill premia in all countries. We also study how globalization can shape income disparities. In the absence of global IPR protection, we …nd that trade in goods ampli…es income disparities, induces skill-biased technology adoption and increases skill premia in the majority of countries. These results are reverted if trade liberalization is coupled with international protection of IPR.JEL Classi…cation: F43, O11, O31, O33, O38, O41, O43, O47.

Talent, labor quality, and economic development

“…Recently, authors such as Gancia et al (2011) and others have argued that the elasticity of substitution between skilled labor and unskilled labor is higher than the conventional value we use. They estimate elasticities in the range of 1.4 to 2.5.…”

Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade

“…The Schmookler effect is central to the directed technical change literature; see, for example, Acemoglu (, , , Chapter 15), Acemoglu and Zilibotti (), Gancia and Zilibotti (, ), and Gancia, Mueller, and Zilibotti (). In these models, the relative market sizes are given exogenously.…”

Skill-Biased Technological Change, Unemployment, and Brain Drain

“…A key parameter in our model is the elasticity of substitution ε between skilled and unskilled workers. Gancia, Müller, and Zilibotti () calibrate ε simultaneously together with Z , the factor determining the exogenous part of the relative productivity of skilled workers. They use a version of equation without unemployment to fit the evolution of the US skill premium (for , since the United States is assumed to be the technology frontier), which is defined as the relative wage of college graduates to non‐college graduates between 1970 and 2000; they calibrate and .…”

“…Models of skill‐biased technological change have become increasingly popular in explaining the rise in the relative wage of skilled workers (skill premium) that has been observed around the world in the last decade or so (e.g., Acemoglu ; Thoenig and Verdier ; Epifani and Gancia ). Such models have also been used to explain cross‐country differences in income per worker (e.g., Acemoglu and Zilibotti ; Caselli and Coleman ; Gancia, Müller, and Zilibotti ). A major challenge when testing these models in a cross‐country context is that their main empirical prediction concerns a link between the skill premium and the relative abundance of skilled workers.…”

“…Acemoglu and Zilibotti (2001) show that skill-technology mismatch can partially explain cross-country income differences when all countries use the technologies developed by the United States. More recently, Gancia, Müller, and Zilibotti (2011) use a full-fledged quantitative model of directed technological change-featuring skill-technology mismatch, technology adoption costs, and international tradethat can endogenously generate skill-specific productivity differences. They estimate technology adoption costs by fitting predicted income per worker to the data and find that their model replicates observed income differences extremely well.…”