NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Why Development Levels Differ: The Sources of Differential Economic Growth in a Panel of High and Low Income Countries

Charles R. Hulten, Anders Isaksson

NBER Working Paper No. 13469
Issued in October 2007
NBER Program(s):   PR

Average income per capita in the countries of the OECD was more than 20 times larger in 2000 than that of the poorest countries of sub-Sahara Africa and elsewhere, and many of the latter are not only falling behind the world leaders, but have even regressed in recent years. At the same time, other low-income countries have shown the capacity to make dramatic improvements in income per capita. Two general explanations have been offered to account for the observed patterns of growth. One view stresses differences in the efficiency of production are the main source of the observed gap in output per worker. A competing explanation reverses this conclusion and gives primary importance to capital formation. We examine the relative importance of these two factors as an explanation of the gap using 112 countries over the period 1970-2000. We find that differences in the efficiency of production, as measured by relative levels of total factor productivity, are the dominant factor accounting for the difference in development levels. We also find that the gap between rich and most poor nations is likely to persist under prevailing rates of saving and productivity change. To check the robustness of these conclusions, we employ different models of the growth process and different assumptions about the underlying data. Although different models of growth produce different relative contributions of capital formation and TFP, we conclude that the latter is the dominant source of gap. This conclusion must, however, be qualified by the poor quality of data for many developing countries.

download in pdf format
   (254 K)

email paper

This paper is available as PDF (254 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13469

Users who downloaded this paper also downloaded these:
Hulten w15341 Growth Accounting
Rousseau w9333 Historical Perspectives on Financial Development and Economic Growth
Barro w5698 Determinants of Economic Growth: A Cross-Country Empirical Study
Henderson, Storeygard, and Weil w15199 Measuring Economic Growth from Outer Space
Johnson, Ostry, and Subramanian w13120 The Prospects for Sustained Growth in Africa: Benchmarking the Constraints
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us