Working Paper: CEPR ID: DP9253
Authors: David Lagakos; Benjamin Moll; Tommaso Porzio; Nancy Qian
Abstract: Using recently available large-sample micro data from 36 countries, we document that experience-earnings profiles are flatter in poor countries than in rich countries. Motivated by this fact, we conduct a development accounting exercise that allows the returns to experience to vary across countries but is otherwise standard. When the country-specific returns to experience are interpreted in such a development accounting framework -- and are therefore accounted for as part of human capital -- we find that human and physical capital differences can account for almost two thirds of the variation in cross-country income differences, as compared to less than half in previous studies.
Keywords: cross-country income; development accounting; returns to experience
JEL Codes: O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Experience-earnings profiles are flatter in poorer countries (F66) | Experience-earnings profiles are flatter in richer countries (J31) |
| Lower levels of total factor productivity (TFP) in poorer countries (O49) | Depress incentives for human capital accumulation (H31) |
| Depress incentives for human capital accumulation (H31) | Flatter experience-earnings profiles (J31) |
| Differences in human and physical capital (J24) | Account for almost two-thirds of the variation in cross-country income differences (F40) |
| Higher human capital from experience (J24) | Increased income levels (D31) |