Name : Chairunnisa

Student Inndex : 1911021042

Course : World economy

Assigment 14. Difference in Technology

Difference in Technology in Cross-Country Income

Differences

Central goal of accounting-style studies of income differences is to decompose

those differences into the contributions of:
physical-capital accumulation,
human-capital accumulation, and
other factors.
Two leading examples accounting-style income decompositions are those
performed by Hall and Jones (1999) and Klenow and Rodr´ıguez-Clare (1997).
Procedure
Hall and Jones and Klenow and Rodr´ıguez-Clare begin by assuming that output in
a given country is a Cobb–Douglas combination of physical capital and effective
labor services:
Yi = Kαi (AiHi )1−α, (1)
where i indexes countries. Since A’s (technology) contribution will be measured as
a residual, it reflects not just technology or knowledge, but all forces that
determine output for given amounts of physical capital and labor services.
Dividing both sides of (1) by the number of workers, Li , and taking logs yields
ln(Yi/Li )= αln(Ki/Li)+ (1 − α) lnHiLi+ (1 − α) lnAi . (2)
The basic idea in these papers, as in growth accounting over time, is to measure
directly all the ingredients of this equation other than Ai and then compute Ai as a
residual. Thus (2) can be used to decompose differences in output per worker into
the contributions of
physical capital per worker,
labor services per worker, and
other factors.
It would be more useful to have a decomposition that attributes all the increase to
the residual, since the rise in A was the underlying source of the increase in output
per worker. To address this issue, Klenow and Rodr´ıguez-Clare and Hall and
Jones subtract α ln(Yi/Li ) from both sides of (2) and divide on 1- α. This yields:
𝛼
Ln(Yi/Li) = ln(Ki/Yi)+ ln(Hi/Li)+ lnAi . (3)
1−𝛼
Equation (3) expresses output per worker in terms of :
physical-capital intensity (that is, the capital-output ratio, K/Y),
labor services per worker, and
a residual.
Klenow and Rodr´ıguez-Clare and Hall and Jones calculation for five richest and 5
poor countries. Difference in income (Yi/Li) is 31,7 times.
 Difference Share of
Ln(Yi/Li) Difference in 1
ln(Yi/Li)- 3,5 times
𝛼
ln(Ki/Yi) 0,6 1/6 – physical
1−𝛼
capital
ln(Hi/Li) 1,2 1/3 – human
capital
lnAi 1,7 0,5 - technology
Sum 3,5 1
𝛼 = 1/3
Assignment: Please compare levels of technological development of countries if
you know their GDP per capita:
Example France-USA

Assignment China-Russia

Gross domestic Difference, ln Technol Switch

product per capita, times ogy from ln
current prices gives to actual
0,5 of level
this
differen
ce
https://www.imf.or
g/en/Publications/
WEO/weo-
database/2021/Octo
ber
France 40298,851
USA 63358,489 USA/France=1, Ln1,57= 0,45/2 = Exp
57 0,45 0,22 0,22=1,
25
China 11890 5.33 1.67 0.83 2.29
Russia 30430 2.56 0.94 0.47 1.59

Conclusion: the difference in technology between USA and France is 1,25 times,
China and Russia is 1,59 times