We are grateful to Yongsung Chang and three referees, particularly the final referee, for useful comments. Saasha Celestial-One provided excellent research assistance. Does Schooling Cause Growth? Barro (1991) and others find that growth and schooling are highly correlated across countries. A model is examined in which the ability to build on the human capital of one's elders plays an important role in linking growth to schooling. The model is calibrated to quantify the strength of the effect of schooling on growth by using evidence from the labor literature on Mincerian (1974) returns to education. The upshot is that the impact of schooling on growth explains less than one third of the empirical cross-country relationship. The model is extended to address the choice of schooling, showing that faster growth can induce more schooling by raising its effective return. Calibrating schooling choices suggests that this reverse channel can potentially explain one half or more of the observed relationship between schooling and

all R&D-performing countries converge to parallel growth paths. All other countries stagnate. Any parameter change that would have raised a country’s growth rate in standard Schumpeterian theory will permanently raise its productivity and per-capita income relative to other countries and raise the world growth rate. Transitional dynamics are analyzed for each country and for the world economy. Steady-state income differences obey the same equation as in neoclassical theory, but since R&D is positively correlated with investment rates, capital accumulation accounts for less than estimated by neoclassical theory. (JEL E10, O40) Cross-country evidence on income differences has been used in recent years to cast doubt

We introduce imperfect creditor protection in a multi-country version of Schumpeterian growth theory with technology transfer. The theory predicts that the growth rate of any country with more than some critical level of financial development will converge to the growth rate of the world technology frontier, and that all other countries will have a strictly lower long-run growth rate. The theory also predicts that in a country that converges to the frontier growth rate, financial development has a positive but eventually vanishing effect on steady-state per-capita GDP relative to the frontier. We present cross-country evidence supporting these two implications. In particular, we find a significant and sizeable effect of an interaction term between initial per-capita GDP (relative to the United States) and a financial intermediation measure in an otherwise standard growth regression, implying that the likelihood of converging to the U.S. growth rate increases with financial development. We also find that, as predicted by the theory, the direct effect of financial intermediation in this regression is not significantly different from zero. These findings are robust to alternative conditioning sets, estimation procedures and measures of financial development.

This paper proposes an aggregative model of total factor productivity (TFP) in the spirit of Houthakker (1955—1956). It considers a frictional labor market where production units are subject to idiosyncratic shocks and jobs are created and destroyed as in Mortensen and Pissarides (1994). An aggregate production function is derived by aggregating across micro production units in equilibrium. The level of TFP is explicitly shown to depend on the underlying distribution of shocks as well as on all the characteristics of the labor market as summarized by the job-destruction decision. The model is also used to study the effects of labor-market policies on the level of measured TFP.

Per capita income in the richest countries of the world exceeds that in the poorest countries by more than a factor of 50. What explains these enormous differences? This paper returns to several old ideas in development economics and proposes that linkages, complementarity, and superstar effects are at the heart of the explanation. First, linkages between firms through intermediate goods deliver a multiplier similar to the one associated with capital accumulation in a neoclassical growth model. Because the intermediate goods ’ share of revenue is about 1/2, this multiplier is substantial. Second, just as a chain is only as strong as its weakest link, problems at any point in a production chain can reduce output substantially if inputs enter production in a complementary fashion. Finally, the high elasticity of substitution associated with final consumption delivers a superstar effect: GDP depends disproportionately on the highest levels of productivity in the economy. This paper builds a model with links across sectors, complementary inputs, and highly substitutable consumption, and shows that it can easily generate 50-fold aggregate income differences.

Per capita income in the richest countries of the world exceeds that in the poorest countries by more than a factor of 50. What explains these enormous differences? This paper returns to two old ideas in development economics and proposes that complementarity and linkages are at the heart of the explanation. First, just as a chain is only as strong as its weakest link, problems at any point in a production chain can reduce output substantially if inputs enter production in a complementary fashion. Second, linkages between firms through intermediate goods deliver a multiplier similar to the one associated with capital accumulation in a neoclassical growth model. Because the intermediate goods ’ share of revenue is about 1/2, this multiplier is substantial. The paper builds a model with complementary inputs and links across sectors and shows that it can easily generate 50-fold aggregate income differences.

The paper argues that an economy’s industry/technology structure is endogenously determined by the economy’s endowment structure. For the convergence to occur, the government of an LDC should target the upgrading of endowment structure instead of the industry/technology structure in its development strategy. If the government chooses to pursue an industry/technology structure, which is inconsistent with the comparative advantage determined by the economy’s endowment structure, the firms in the government’s priority sectors will be nonviable and the government needs to suppress the function of market and distort all kinds of prices as a way to protect the nonviable firms. Convergence will fail to occur as a result. Regression results from cross-country panel data are consistent with the predictions of the above arguments.

Using an industry-level dataset of production and trade spanning 75 countries and 5 decades, and a fully specified multi-sector Ricardian model, we estimate productivities at the sector level and examine how they evolve over time in both developed and developing countries. We find that in both country groups, comparative advantage has become weaker: productivity grew systematically faster in sectors that were initially at the greater comparative disadvantage. The global welfare implications of this phenomenon are significant. Relative to the counterfactual scenario in which an individual country’s comparative advantage remained the same as in the 1960s, and technology in all sectors grew at the same country-specific average rate, welfare today is 1.9 % lower for the median country. The welfare impact varies greatly across countries,

slightly revised version of a draft completed in 2002 for the World Bank. 2 Ethiopia has had fairly rapid growth since the current reformist regime took power. However, part of that growth consisted of recovery from the disasters of the previous government and the civil war. The permanent component of per capita growth under the reformist government in the 1992-2001 period is estimated at about 1.1 percent per annum. That growth is explained by total factor productivity growth rather than by capital deepening. Most of the growth is due to non-agricultural sources, despite the government’s commitment to agriculture-led development. This 1.1 percent growth rate also corresponds to the average growth payoff to the policy changes initiated by the current government, measured by variables such as the inflation rate, the budget deficit, the black market premium, the ratio of M2 to GDP, the level of infrastructure, and real depreciation of the currency. International comparisons suggest that a growth acceleration of the magnitude foreseen in the HIPC documents is only rarely achieved. Further increases in Ethiopia's growth potential would require a second generation

At the start of the 21 st Century, the gap in living standards between rich and poor nations is large and rising. The developing world suffers persistent poverty, while the developed world enjoys growing prosperity. According to Maddison (2001) the ratio of per-capita GDP in the richest group of nations to per-capita GDP in the poorest 1 grew from 11 in