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A unified theory of the evolution of international income levels

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Author Info
Stephen L. Parente
Edward C. Prescott

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Abstract

This essay develops a theory of the evolution of international income levels. In particular, it augments the Hansen-Prescott theory of economic development with the Parente-Prescott theory of relative efficiencies and shows that the unified theory accounts for the evolution of international income levels over the last millennium. The essence of this unified theory is that a country starts to experience sustained increases in its living standard when production efficiency reaches a critical point. Countries reach this critical level of efficiency at different dates not because they have access to different stocks of knowledge, but rather because they differ in the amount of society-imposed constraints on the technology choices of their citizenry.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 333.

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Date of creation: 2004
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Handle: RePEc:fip:fedmsr:333

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Keywords: Income

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  2. Berthold Herrendorf & Arilton Teixeira, 2004. "Monopoly rights can reduce income big time," Macroeconomics 0404023, EconWPA. [Downloadable!]
    Other versions:
  3. Roberto M Samaniego, 2004. "Does Employment Protection Inhibit Technical Diffusion?," Computing in Economics and Finance 2004 51, Society for Computational Economics. [Downloadable!]
  4. Alwyn Young, 2000. "The Razor'S Edge: Distortions And Incremental Reform In The People'S Republic Of China," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1091-1135, November. [Downloadable!] (restricted)
  5. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Ellen R. McGrattan & Edward C. Prescott, 2004. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Levine's Bibliography 122247000000000715, UCLA Department of Economics. [Downloadable!]
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  7. Parente, Stephen L & Rios-Rull, Jose-Victor, 2005. "The Success and Failure of Reforms in Transition Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 23-42, February.
  8. D. Gale Johnson, 2000. "Population, Food, and Knowledge," American Economic Review, American Economic Association, vol. 90(1), pages 1-14, March. [Downloadable!] (restricted)
  9. Thomas J. Holmes & James A. Schmitz, Jr., 1995. "Resistance to new technology and trade between areas," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-17. [Downloadable!]
  10. Klenow, Peter J. & Rodriguez-Clare, Andres, 1997. "Economic growth: A review essay," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 597-617, December. [Downloadable!] (restricted)
  11. Krusell, Per & Rios-Rull, Jose-Victor, 1996. "Vested Interests in a Positive Theory of Stagnation and Growth," Review of Economic Studies, Blackwell Publishing, vol. 63(2), pages 301-29, April. [Downloadable!] (restricted)
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  12. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  13. Herrendorf, Berthold & Teixeira, Arilton, 2003. "Monopoly Rights can Reduce Income Big Time," CEPR Discussion Papers 3854, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. SchmitzJr, James A., 2001. "Government production of investment goods and aggregate labor productivity," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 163-187, February. [Downloadable!] (restricted)
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  15. Dowrick, Steve & Spencer, Barbara J, 1994. "Union Attitudes to Labor-Saving Innovation: When Are Unions Luddites?," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 316-44, April. [Downloadable!] (restricted)
  16. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," NBER Working Papers 7828, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Rui Zhao & Stephen L. Parente, 2004. "Path Dependence, Uneven Industrialization and Special Interests," 2004 Meeting Papers 273, Society for Economic Dynamics. [Downloadable!]
  18. Oded Galor & David N. Weil, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September. [Downloadable!] (restricted)
  19. Thomas J. Holmes & James A. Schmitz, Jr., 1994. "Resistance to technology and trade between areas," Staff Report 184, Federal Reserve Bank of Minneapolis. [Downloadable!]
  20. Gary S. Becker & Kevin M. Murphy & Robert F. Tamura, 1990. "Human Capital, Fertility, and Economic Growth," NBER Working Papers 3414, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Simeon Djankov & Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "The Regulation Of Entry," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 1-37, February. [Downloadable!] (restricted)
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  22. Andreas Hornstein & Edward C. Prescott, 1989. "The firm and the plant in general equilibrium theory," Staff Report 126, Federal Reserve Bank of Minneapolis. [Downloadable!]
  23. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April. [Downloadable!] (restricted)
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  24. Tamura, R., 1991. "Fertility , Human Capital and the "Wealth of Nations"," Working Papers 91-17, University of Iowa, Department of Economics.
  25. Herrendorf, Berthold & Teixeira, Arilton, 2004. "Monopoly rights can reduce income big time," Research Discussion Papers 7/2004, Bank of Finland. [Downloadable!]
  26. Benjamin R. Bridgman & Igor D. Livshits & James C. MacGee, 2004. "For Sale: Barriers to Riches," University of Western Ontario, RBC Financial Group Economic Policy Research Institute Working Papers 20043, University of Western Ontario, RBC Financial Group Economic Policy Research Institute. [Downloadable!]
  27. Hendricks, Lutz, 2003. "Taxation and the intergenerational transmission of human capital," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1639-1662, July. [Downloadable!] (restricted)
  28. Holmes, Thomas J. & Jr., James A. Schmitz, 2001. "A gain from trade: From unproductive to productive entrepreneurship," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 417-446, April. [Downloadable!] (restricted)
  29. McDermott, John, 1999. " Mercantilism and Modern Growth," Journal of Economic Growth, Springer, vol. 4(1), pages 55-80, March. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hildegunn Ekroll Stokke, 2005. "Productivity Growth in Backward Economies and the Role of Barriers to Technology Adoption," Working Paper Series 4905, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
  2. Hildegunn Ekroll Stokke, 2006. "Resource Boom, Productivity Growth and Real Exchange Rate Dynamics - A dynamic general equilibrium analysis of South Africa," Working Paper Series 7206, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
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  3. Garett Jones, 2006. "IQ in the Ramsey Model: A Naive Calibration," DEGIT Conference Papers c011_063, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
    Other versions:
  4. Ryo Horii & Ryoji Ohdoi & Kazuhiro Yamamoto, 2005. "Finance, Technology and Inequality in Economic Development," Development and Comp Systems 0504004, EconWPA, revised 31 Jul 2005. [Downloadable!]
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  5. Jaime Alonso-Carrera & Xavier Raurich, 2006. "Growth, Sectoral Composition, and the Wealth of Nations," DEGIT Conference Papers c011_019, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
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  6. Joshua Aizenman & Mark Spiegel, 2007. "Takeoffs," NBER Working Papers 13084, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Andrew Tiffin, 2006. "Ukraine: The Cost of Weak Institutions," IMF Working Papers 06/167, International Monetary Fund. [Downloadable!]
  8. Torfinn Harding & Jørn Rattsø, 2005. "The Barrier Model of Productivity Growth: South Africa," Working Paper Series 4805, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
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  9. Guido Ascari & Valeria Di Cosmo, 2005. "Determinants of Total Factor Productivity in the Italian Regions," Macroeconomics 0511009, EconWPA. [Downloadable!]
  10. María Dolores Guilló & Fidel Pérez Sebastián, 2006. "The Quest for Productivity Growth in Agriculture and Manufacturing," DEGIT Conference Papers c011_005, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  11. Peter J. Klenow & Andres Rodriguez-Clare, 2004. "Externalities and Growth," NBER Working Papers 11009, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Klenow, Peter J. & Rodriguez-Clare, Andres, 2005. "Externalities and Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 11, pages 817-861 Elsevier. [Downloadable!] (restricted)
  12. John Landon-Lane & Peter Robertson, 2005. "A Note on Barriers to Capital Accumulation and Income," Departmental Working Papers 200509, Rutgers University, Department of Economics. [Downloadable!]
  13. Elizabeth M. Caucutt & Thomas F. Cooley & Nezih Guner, 2007. "The Farm, the City, and the Emergence of Social Security," NBER Working Papers 12854, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Alex William Trew, 2007. " Endogenous Financial Development and Industrial Takeoff," CDMA Working Paper Series 0702, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
  15. Francesc Dilme, 2007. "Technological Change and Immigration," Working Papers in Economics 186, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
  16. Miguel Lebre de Freitas, 2006. "Sobre a perda de ímpeto no processo de convergência da economia portuguesa: uma abordagem dogmática," NIPE Working Papers 8/2006, NIPE - Universidade do Minho. [Downloadable!]
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  17. Harold L. Cole & Lee E. Ohanian & Alvaro Riascos & James A. Schmitz, Jr., 2004. "Latin America in the rearview mirror," Staff Report 351, Federal Reserve Bank of Minneapolis. [Downloadable!]
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