Working Paper: NBER ID: w16375
Authors: Erika Farnstrand Damsgaard; Per Krusell
Abstract: This paper builds a theory of the distribution of TFP across countries. The theory is based on the hypothesis that TFP improvements in a given country follow a Nelson-Phelps specification: they derive from past investments in the country itself and, through a spillover term, from past investments in other countries. Within a stochastic dynamic general equilibrium model of the world, each country invests in TFP and internalizes the dynamic effects of its investments, while ignoring any effects on others. Small symmetric idiosyncratic shocks can lead to large long-run differences in TFP levels and the world TFP distribution may become twin-peaked.
Keywords: Total Factor Productivity; Economic Growth; Technology Spillovers
JEL Codes: F43; O1; O33; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment levels (G31) | TFP growth (O49) |
| Past investments of other countries (F21) | TFP improvements in a country (O24) |
| Idiosyncratic shocks (D89) | Long-run differences in TFP levels (O49) |
| Investment decisions (G11) | World distribution of TFP (F16) |
| TFP improvements (F16) | Bimodal distribution of TFP (D39) |