Showing papers by "Areendam Chanda published in 2005"

Dual Economies and International Total Factor Productivity Differences

Abstract: This paper shows that a significant part of measured total factor productivity (TFP) differences across countries is attributable not to technological factors that affect the entire economy neutrally, but rather, to variations in the structural composition of economies. In particular, the allocation of scarce inputs between agriculture and non-agriculture is important. We provide a framework which maps the composition of the economy to measured aggregate TFP. A decomposition analysis suggests that as much as 85 percent of the international variation in TFP can be attributed to the composition of output. Estimation exercises indicate that recent findings of the conduciveness of good institutions, and, to some extent trade, on levels of TFP, may be thus explained.

State Effectiveness, Economic Growth, and the Age of States

Abstract: In the late twentieth century, makers of maps and atlases faced the challenge of keeping up with numerous changes in countries’ names and borders. One thing remained a constant, however: find a piece of inhabited territory, and it was certain to belong to some country or other—a country with a government, a flag, an army, and all of the other trappings of the modern nation state. For a country to lack a central government, as, for example, Somalia did during most of the 1990s, was a noteworthy and exceptional fact.

The Rise in Returns to Education and the Decline in Household Savings

Abstract: This paper explores the consequences of rising returns to human capital investment on the personal savings rate. Over the past two decades, the return to college education has increased relative to high school education leading economists to argue the presence of 'skill biased technological progress'. The literature explaining household savings has also burgeoned considerably, motivated by its declining rate in the US over the past couple of decades. Stylized facts suggest a negative relationship between returns to education and savings rates across most of the past century and also a negative relationship between education spending and savings rates across OECD countries. In this paper, we present a model where a declining savings rate emerges as an outcome of an exogenously driven increase in the return to education. The link between the two is attributed to optimizing behavior of altruistic households. The results of our model are robust to the inclusion of life cycle savings and unintentional bequests. Some of the interesting results of our model are (i) a rise in the return to education raises education spending ratio by less than what it reduces the aggregate savings rate (ii) for some parameter values it actually reduces both the education spending rate and the aggregate savings rate and finally, (iii) it also raises the return to capital due to physical capital-human capital complementarity.

Education and Growth in the Presence of Capital Flight

Abstract: We study the effect of capital controls on the level of investment in human capital and the resulting growth path of an economy. The economy consists of two groups of agents based on the ownership of factors of production. One type of agents - called workers - own human capital and bequeath education to their offsprings. The other group of agents - called capitalists - own and bequeath physical capital. The workers have the political power to tax capital income. The capitalists, based on the tax rate imposed by the workers and the capital control regime in place, decide to invest part or all of their capital abroad. We characterize the optimal tax behavior of the workers. We find that higher capital controls are beneficial for investment in education whenever there is capital flight in a steady state equilibrium. However, higher capital controls are shown to have no effect on the tax rate on capital income imposed by workers: rather, they act as a disincentive for capital flight by lowering the return from foreign investment. We show that lowering capital controls can lead to higher growth only when there is no capital flight in the steady state. Importantly, to prevent capital flight in the long run, human capital accumulation must not show decreasing returns with respect to education and the economy must be sufficiently developed.