Mismatch and Assimilation / Ping Wang, Tsz-Nga Wong, Chong K. Yip.

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Wang, Ping

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w24960.Publication details: Cambridge, Mass. National Bureau of Economic Research 2018.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Income disparity across countries has been large and widening over time. We develop a tractable model where factor requirements in production technology do not necessarily match a country's factor input profile. Appropriate assimilation of frontier technologies balances such multi-dimensional factor input-technology mismatch, thus mitigating the efficiency loss. This yields a new measure for endogenous TFP, entailing a novel trade-off between a country's income level and income growth that depends critically on the assimilation ability and the factor input mismatch. Our baseline model accounts for 80%-92% of the global income variation over the past 50 years. The widening of mismatch and heterogeneity in the assimilation ability account for 41% and 20% of the global growth variation, whereas physical capital accounts for about one third with human capital largely inconsequential. In particular, about 30% of the output growth in miracle Asian economies comes from narrowing the gap arisen from mismatch, and 94% of the growth stagnation in trapped African economies due to the widening mismatch. A country may fall into a middle-income trap after a factor advantage reversal that changes the pattern of mismatch.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w24960 (Browse shelf(Opens below))	Not For Loan

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August 2018.

Income disparity across countries has been large and widening over time. We develop a tractable model where factor requirements in production technology do not necessarily match a country's factor input profile. Appropriate assimilation of frontier technologies balances such multi-dimensional factor input-technology mismatch, thus mitigating the efficiency loss. This yields a new measure for endogenous TFP, entailing a novel trade-off between a country's income level and income growth that depends critically on the assimilation ability and the factor input mismatch. Our baseline model accounts for 80%-92% of the global income variation over the past 50 years. The widening of mismatch and heterogeneity in the assimilation ability account for 41% and 20% of the global growth variation, whereas physical capital accounts for about one third with human capital largely inconsequential. In particular, about 30% of the output growth in miracle Asian economies comes from narrowing the gap arisen from mismatch, and 94% of the growth stagnation in trapped African economies due to the widening mismatch. A country may fall into a middle-income trap after a factor advantage reversal that changes the pattern of mismatch.