Working Paper: CEPR ID: DP4703
Authors: Francesco Caselli
Abstract: Why are some countries so much richer than others? Development Accounting is a first-pass attempt at organizing the answer around two proximate determinants: factors of production and efficiency. It answers the question ?how much of the cross-country income variance can be attributed to differences in (physical and human) capital, and how much to differences in the efficiency with which capital is used?? Hence, it does for the cross-section what growth accounting does in the time series. The current consensus is that efficiency is at least as important as capital in explaining income differences. I survey the data and the basic methods that lead to this consensus, and explore several extensions. I argue that some of these extensions may lead to a reconsideration of the evidence.
Keywords: development; factor supplies; technology
JEL Codes: E20; O10; O20; O30; O40; O50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| efficiency (D61) | income levels (J31) |
| improvements in measurement of human and physical capital (J24) | reconsideration of existing evidence on income differences (D31) |
| non-neutral differences in efficiency (D61) | different conclusions about contributions of factor endowments to income inequality (E25) |
| elasticity of substitution between physical and human capital (J24) | observed income distribution (D31) |