Economic growth and economic development 159

Introduction to Modern Economic Growth

1

USA
SWE
BGD

.8

GBR

CAN

NLD

DNK

Capital productivity
.4
.6

JPN
NZL

COL

IRL
GRC

URY

THA

PAN
PRT
YUG

CHE

AUT
ITA
ISR

HKG ESP
PAK

DEU
FIN BEL
NOR
FRA

TTO

SGP

.2

IDN

LKA

0

.2

.4
.6
Labor productivity

Figure 3.5. Comparison of labor-productivity
productivity differences across countries.

.8

and

1

capital-

where Rj is the rental rate of capital in country j and wj is the observed wage rate
(which includes the compensation to human capital) in country j. Equation (3.31),
for example, states that if workers in a particular country have, on average, half the
efficiency units as those in the United States, their earnings should be roughly half
of American workers.
With data on factor prices, we can therefore construct an alternative series for
Akj and Ahj ’s. It turns out that the series for Akj and Ahj ’s implied by (3.29), (3.30)
and (3.31) are very similar, so there appears to be some validity to this approach.
Given this validation, we can presume that there is some information in the numbers
that Trefler obtains.

The following figure shows Trefler’s original estimates.
These numbers imply that there are very large differences in labor productivity, and some substantial, but much smaller differences in capital productivity. For
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