Working Paper: CEPR ID: DP2584
Authors: Francesco Caselli; Wilbur John Coleman II
Abstract: We define a country's technology as a triple of efficiencies: one for unskilled labour, one for skilled labour, and one for capital. We find a negative cross-country correlation between the efficiency of unskilled labour and the efficiencies of skilled labour and capital. We interpret this finding as evidence of the existence of a World Technology Frontier. On this frontier, increases in the efficiency of unskilled labour are obtained at the cost of declines in the efficiency of skilled labour and capital. We estimate a model in which firms in each country optimally choose from a menu of technologies, i.e. they choose their technology subject to a Technology Frontier. The optimal choice of technology depends on the country's endowment of skilled and unskilled labour, so that the model is one of appropriate technology. The estimation allows for country-specific technology frontiers, due to barriers to technology adoption. We find that poor countries tend disproportionately to be inside the World Technology Frontier.
Keywords: appropriate technology; cross-country income differences
JEL Codes: E10; O30; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unskilled labor efficiency (F66) | Skilled labor efficiency (J24) |
| Unskilled labor efficiency (F66) | Capital efficiency (G31) |
| Skilled labor efficiency (J24) | Unskilled labor efficiency (F66) |
| Capital efficiency (G31) | Unskilled labor efficiency (F66) |
| Relative endowments of skilled and unskilled labor (F66) | Technology choice (O14) |
| Abundant unskilled labor (F66) | Technologies that complement unskilled labor (J24) |
| More skilled labor (J24) | Technologies that enhance efficiency of skilled labor and capital (J24) |
| Barriers to technology adoption (O33) | Differences in per capita income (D31) |