The World Technology Frontier

Francesco Caselli, Department of Economics, Harvard University

We extend the development-accounting framework to allow for imperfect substitutability between skilled and unskilled labor, and factor non-neutral cross-country differences in technology. We find that the efficiency units embodied in skilled labor increase with income much more sharply than the efficiency of unskilled labor. Indeed, the latter may even decline with income. To interpret this finding we develop a simple model that combines two ideas: poor countries face "barriers" to technology adoption, and different countries choose "appropriate technologies" that fit their factor endowments. The appropriate technology idea is captured by assuming that each country faces a technology frontier, representing a tradeoff in which technologies that use skilled labor more efficiently also use unskilled labor less efficiently, and vice versa. The barriers-to-adoption idea is captured by allowing some countries to face richer menus of accessible technologies, i.e. to have "higher" frontiers.

Date: 29 March-00 0000