Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-08T18:31:46.827Z Has data issue: false hasContentIssue false

INTANGIBLE CAPITAL AND INTERNATIONAL INCOME DIFFERENCES

Published online by Cambridge University Press:  23 November 2011

Aamir Rafique Hashmi*
Affiliation:
National University of Singapore
*
Address correspondence to: Aamir Rafique Hashmi, Department of Economics, National University of Singapore, 1 Arts Link, AS2/05-08, Singapore117570; e-mail: [email protected].

Abstract

I add intangible capital to a variant of the neoclassical growth model that already features physical and human capital, and study the implications for international income differences. I calibrate the parameters associated with intangible capital by using new estimates of investment in intangibles by Corrado et al. [Review of Income and Wealth 55, 661–685 (2009)] and depreciation rates by Corrado and Hulten [American Economic Review 100, 99–104 (2010)]. I find that for a given efficiency difference between rich and poor countries, the model with intangible capital can explain more than double the income differences of the model without. Put another way, in the benchmark case, differences in intangible capital account for 14.3% of the observed income differences. I also examine the role played by intangible capital in versions of the model with barriers to accumulation. In all the variants that I consider, differences in intangible capital account for 10% to 22% of the observed income differences.

Type
Articles
Copyright
Copyright © Cambridge University Press 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Acemoglu, Daron, Aghion, Philippe, and Zilibotti, Fabrizio (2006) Distance to frontier, selection and economic growth. Journal of the European Economic Association 4, 3774.CrossRefGoogle Scholar
Acemoglu, Daron, Antras, Pol, and Helpman, Elhanan (2007) Contracts and technology adoption. American Economic Review 97, 916943.CrossRefGoogle Scholar
Acemoglu, Daron, Johnson, Simon, and Robinson, James A. (2005) Institutions as a fundamental cause of long-run growth. In Aghion, Philippe and Durlauf, Steven N. (eds.), Handbook of Economic Growth, pp. 385472. Amsterdam: Elsevier.Google Scholar
Acemoglu, Daron and Zilibotti, Fabrizio (2001) Productivity differences. Quarterly Journal of Economics 116, 563606.CrossRefGoogle Scholar
Aghion, Philippe, Howitt, Peter, and Mayer-Foulkes, David (2005) The effect of financial development on convergence: Theory and evidence. Quarterly Journal of Economics 120, 173222.Google Scholar
Aizcorbe, Ana M., Moylan, Carol E., and Robbins, Carol A. (2009) Towards better measurement of innovation and intangibles. Survey of Current Business 89, 1023.Google Scholar
Barro, Robert J. and Lee, Jong-Wha (2000) International Data on Educational Attainment: Updates and Implications. CID working paper 42, Center for International Development, Harvard University.CrossRefGoogle Scholar
Barro, Robert J. and Sala-i-Martin, Xavier (1992) Convergence. Journal of Political Economy 100, 223251.CrossRefGoogle Scholar
Beaudry, P. and Francois, P. (2010) Managerial skills acquisition and the theory of economic development. Review of Economic Studies 77, 90126.CrossRefGoogle Scholar
Bils, M. and Klenow, P. J. (2000) Does schooling cause growth? American Economic Review 90, 11601183.CrossRefGoogle Scholar
Bontempi, Maria Elena and Mairesse, Jacques (2008) Intangible Capital and Productivity: An Exploration on a Panel of Italian Manufacturing Firms. NBER working paper 14108.CrossRefGoogle Scholar
Boss, J.W.B., Economidou, C., Koetter, M., and Kolari, J.W. (2010) Do all countries grow alike? Journal of Development Economics 91, 113127.CrossRefGoogle Scholar
Caselli, Francesco (2005) Accounting for cross-country income differences. In Aghion, Philippe and Durlauf, Steven N. (eds.), Handbook of Economic Growth, pp. 679741. Amsterdam: Elsevier.Google Scholar
Caselli, Francesco and Coleman, Wilbur John (2001) Cross-country technology diffusion: The case of computers. American Economic Review 91, 328335.CrossRefGoogle Scholar
Caselli, Francesco and Coleman, Wilbur John (2006) The world technology frontier. American Economic Review 96, 499522.CrossRefGoogle Scholar
Chari, V.V., Patrick, J. Kehoe and McGrattan, Ellen R. (1996) The Poverty of Nations: A Quantitative Exploration. NBER working paper 5414.CrossRefGoogle Scholar
Comin, D. and Hobijn, B. (2004) Cross-country technology adoption: Making the theory face the facts. Journal of Monetary Economics 51, 3983.CrossRefGoogle Scholar
Corrado, Carol A. and Hulten, Charles R. (2010) Measuring intangible capital: How do you measure a “technological revolution”? American Economic Review 100, 99104.CrossRefGoogle Scholar
Corrado, Carol A., Hulten, Charles R., and Sichel, Daniel E. (2009) Intangible capital and U.S. economic growth. Review of Income and Wealth 55, 661685.CrossRefGoogle Scholar
Eaton, Jonathan and Kortum, Samuel (2001) Trade in capital goods. European Economic Review 45, 11951235.CrossRefGoogle Scholar
Erosa, Andres, Koreshkova, Tatyana, and Restuccia, Diego (2010) How important is human capital? A quantitative theory assessment of world income inequality. Review of Economic Studies 77, 14211449.CrossRefGoogle Scholar
Gomme, Paul and Rupert, Peter (2007) Theory, measurement and calibration of macroeconomic models. Journal of Monetary Economics 54, 460497.CrossRefGoogle Scholar
Hall, Robert E. and Jones, Charles I. (1999) Why do some countries produce so much more output per worker than others? Quarterly Journal of Economics 114, 83116.CrossRefGoogle Scholar
Haveman, Robert and Wolfe, Barbara (1995) The determinants of children's attainments: A review of methods and findings. Journal of Economic Literature 33, 18291878.Google Scholar
Henderson, Daniel J. and Russell, R. Robert (2005) Human capital and convergence: A production frontier approach. International Economic Review 46, 11671205.CrossRefGoogle Scholar
Heston, Alan, Summers, Robert, and Aten, Bettina (2006) Penn World Tables, Version 6.2. Center for International Comparisons of Production, Income and Prices, University of Pennsylvania.Google Scholar
Hsieh, Chang-Tai and Klenow, Peter J. (2007) Relative prices and relative prosperity. American Economic Review 97, 562585.CrossRefGoogle Scholar
Hsieh, Chang-Tai and Klenow, Peter J. (2010) Development accounting. American Economic Journal: Macroeconomics 2, 207223.Google Scholar
Hulten, Charles R. (2010) Decoding Microsoft: Intangible Capital as a Source of Company Growth. NBER working paper 15799.CrossRefGoogle Scholar
Hulten, Charles R. and Isaksson, Anders (2007) Why Development Levels Differ: The Sources of Differential Economic Growth in a Panel of High and Low Income Countries. NBER working paper 13469.CrossRefGoogle Scholar
Jerzmanowski, M. (2007) Total factor productivity differences: Appropriate technology vs. efficiency. European Economic Review 51, 20802110.CrossRefGoogle Scholar
Jones, Charles I. (2011) Intermediate goods, weak links and superstars: A theory of economic development. American Economic Journal: Macroeconomics 3, 128.Google Scholar
Klenow, Peter J. and Rodriguez-Clare, Andres (1997) The neoclassical revival in growth economics: Has it gone too far? In Bernanke, Ben S. and Rotemberg, Julio J. (eds.), NBER Macroeconomics Annual, pp. 73114. Cambridge, MA: The MIT Press.Google Scholar
Klenow, Peter J. and Rodriguez-Clare, Andres (2005) Externalities and growth. In Aghion, Philippe and Durlauf, Steven N. (eds.), Handbook of Economic Growth, pp. 817861. Amsterdam: Elsevier.Google Scholar
Kosempel, S. (2004) A theory of development and long run growth. Journal of Development Economics 75, 201220.CrossRefGoogle Scholar
Kumar, S. and Russell, R.R. (2002) Technological change, technological catch-up and capital deepening: Relative contributions to growth and convergence. American Economic Review 92, 527548.CrossRefGoogle Scholar
Le, Trinh, Gibson, John, and Oxley, Les (2003) Cost- and income-based measures of human capital. Journal of Economic Surveys 17, 271307.CrossRefGoogle Scholar
Ljungqvist, Lars and Sargent, Thomas J. (2004) Recursive Macroeconomic Theory. Cambridge, MA: MIT Press.Google Scholar
Lucas, Robert E. Jr., (1988) On the mechanics of economic development. Journal of Monetary Economics 22, 342.CrossRefGoogle Scholar
Mankiw, N. Gregory, Romer, David, and Weil, David (1992) A contribution to the empirics of economic growth. Quarterly Journal of Economics 107, 407437.CrossRefGoogle Scholar
Manuelli, Rodolfo E. and Seshadri, Ananth (2007) Human Capital and the Wealth of Nations. Working paper.Google Scholar
McGrattan, Ellen and Prescott, Edward C. (2009) Openness, technology capital and development. Journal of Economic Theory 44, 24542476.CrossRefGoogle Scholar
McGrattan, Ellen and Prescott, Edward C. (2010) Unmeasured investment and the puzzling U.S. boom in the 1990s. American Economic Journal: Macroeconomics 2, 88123.Google Scholar
McGrattan, E.R. and Schmitz, J.A. (1999) Explaining cross-country income differences. In Taylor, J. B. and Woodford, M. (eds.), Handbook of Macroeconomics, pp. 669737. Amsterdam: Elsevier.CrossRefGoogle Scholar
Ngai, L. Rachel (2004) Barriers and the transition to modern growth. Journal of Monetary Economics 51, 13531383.CrossRefGoogle Scholar
Parente, Stephen L. and Prescott, Edward C. (1994) Barriers to technology adoption and development. Journal of Political Economy 102, 298321.CrossRefGoogle Scholar
Parente, Stephen L. and Prescott, Edward C. (1999) Monopoly rights: A barrier to riches. American Economic Review 89, 12161233.CrossRefGoogle Scholar
Parente, Stephen L. and Prescott, Edward C. (2000) Barrier to Riches. Cambridge, MA: MIT Press.CrossRefGoogle Scholar
Prescott, Edward C. (1998) Needed: A theory of total factor productivity. International Economic Review 39, 525551.CrossRefGoogle Scholar
Restuccia, Diego and Urrutia, Carlos (2001) Relative prices and investment rates. Journal of Monetary Economics 47, 93121.CrossRefGoogle Scholar
Sadik, J. (2008) Technology adoption, convergence and divergence. European Economic Review 52, 338355.CrossRefGoogle Scholar
Van Ark, Bart, Hao, Janet X., Corrado, Carol, and Hulten, Charles (2009) Measuring intangible capital and its contribution to economic growth in Europe. EIB Papers 14, 6293.Google Scholar
Zeira, Joseph (1998) Workers, machines and economic growth. Quarterly Journal of Economics 113, 10911117.CrossRefGoogle Scholar