The World Technology Frontier

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We define a country's technology as a triple of efficiencies: one for unskilled labor, one for skilled labor, and one for capital. We find a negative cross-country correlation between the efficiency of unskilled labor and the efficiencies of skilled labor and capital. We interpret this finding as evidence of the existence of a World Technology Frontier. On this frontier, increases in the efficiency of unskilled labor are obtained at the cost of declines in the efficiency of skilled labor and capital. We estimate a model in which firms in each country optimally choose from a menu of technologies, i.e. they choose their technology subject to a Technology Frontier. The optimal choice of technology depends on the country's endowment of skilled and unskilled labor, so that the model is one of appropriate technology. The estimation allows for country-specific technology frontiers, due to barriers to technology adoption. We find that poor countries tend disproportionately to be inside the World Technology Frontier.

Published: Francesco Caselli & Wilbur John Coleman, 2006. "The World Technology Frontier," American Economic Review, American Economic Association, vol. 96(3), pages 499-522, June.

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