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Production Ability and economic growth

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  • Bustos, Sebastián
  • Yıldırım, Muhammed A.

Abstract

Cities and countries undergo constant structural transformation. Industries need many inputs, such as regulations, infrastructure or productive knowledge, which we call capabilities. And locations are successful in hosting industries insofar as the capabilities that they can provide. We propose a capabilities-based production model and an empirical strategy to measure the Sophistication of a product and the Production Ability of a location. We apply our framework to international trade data and employment data in the United States, recovering measures of Production Ability for countries and cities, and the Sophistication of products and industries. We show that both country- and city-level measures have a strong correlation with income and economic growth at different time horizons. Product Sophistication is positively correlated with indicators of human capital and wages. Our model-based estimations predict product appearances and disappearances through the extensive margin.

Suggested Citation

  • Bustos, Sebastián & Yıldırım, Muhammed A., 2022. "Production Ability and economic growth," Research Policy, Elsevier, vol. 51(8).
    • Handle: RePEc:eee:respol:v:51:y:2022:i:8:s0048733320302286
    DOI: 10.1016/j.respol.2020.104153
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    More about this item

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General
    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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