REASSESSING THE IMPACT OF BARRIERS TO CAPITAL ACCUMULATION ON INTERNATIONAL INCOME DIFFERENCES*

doi:10.1111/j.1468-2354.2007.00420.x

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Wiley InterScience

International Economic Review

Volume 48 Issue 1, Pages 147 - 154

Published Online: 13 Feb 2007

Published on behalf of the University of Pennsylvania and Osaka University

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REASSESSING THE IMPACT OF BARRIERS TO CAPITAL ACCUMULATION ON INTERNATIONAL INCOME DIFFERENCES*

John S. Landon-Lane † Peter E. Robertson †¹

†Rutgers University, New Jersey, U.S.A.; The University of New South Wales, New South Wales, Australia

*Manuscript received September 2004; revised January 2006.

¹ We are grateful to Geoffrey Kingston, Adrian Pagan, Diego Restuccia, Bill Schworm, Jonathan Temple, and two anonymous referees for their comments. All remaining errors are our own. Please address correspondence to: Peter Robertson, School of Economics, University of New South Wales, NSW, 2052, Australia. Phone: +612 93853367. E-mail p.robertson@unsw.edu.au.

ABSTRACT

Can barriers to capital accumulation account for large differences in GDP per capita? We reconsider the claim that these barriers have an amplified effect on income levels in a model where both modern and traditional sector technologies are active. We show that this claim is not correct. We do find, however, that the removal of barriers to capital accumulation can cause large changes in the employment shares of labor. Thus the model can account for an important stylized fact of the development process, with labor moving from the traditional to the modern sector as income levels rise.

Received: 2004; First Revision: 2006;

DIGITAL OBJECT IDENTIFIER (DOI)

10.1111/j.1468-2354.2007.00420.x About DOI