Human Capital and Convergence: A Production-Frontier Approach

We decompose labor-productivity growth into components attributable to (1) technological change (shifts in the world production frontier), (2) technological catch-up (movements toward or away from the frontier), (3) human capital accumulation (changes in the efficiency of labor), and (4) physical capital accumulation (movement along the frontier). The world production frontier is constructed using deterministic methods requiring no specification of functional form for the technology nor any assumption about market structure or the absence of market imperfections. We find that technological change is decidedly non-neutral. We also analyze the evolution of the cross-country distribution of labor productivity in terms of the quadripartite decomposition, finding that (1) productivity growth is driven primarily, and roughly equally, by physical and human capital accumulation, (2) the increased dispersion of the distribution is explained by any paiwise subset of technological change and physical and human capital accumulation, and (3) international polarization (the shift from a unimodal to a bimodal distribution) is brought about primarily by efficiency changes, with some help from physical and human capital accumulation. (JEL classification codes: J24, C69, O49.) * Department of Economics, State University of New York, Binghamton, NY 13902; phone: (607) 7774480; fax: (607) 777-2681; email: [email protected]. ** Department of Economics, University of California, Riverside, CA 92521; phone: (909) 827-1585; fax: (909) 787-5685; email: [email protected].