Economic growth and economic development 161

1.5

Introduction to Modern Economic Growth

ITA

Calibrated productivity differences 1988
0
.5
1

ESP
PRT

FRABEL

SGP
HKG
IRL

AUT

NLD
CAN
CHE

FIN

SWE
DNK

GRC
URY

PAN

COL
ISR

NOR
JPN
NZL

PAK

IDN
LKA

0

BGD
THA

.2
.4
.6
Estimated capital-productivity differences

.8

1

Figure 3.7. Comparison of the capital productivity estimates from
the Trefler approach with the calibrated productivity differences from
the Hall-Jones approach.
of reality and that in fact there are significant productivity (technology) differences
across countries. Interestingly, however, Figure 3.7 shows that the relationship between the calibrate it productivity differences in the capital-productivity differences
is considerably weaker.
It is also important to emphasize that Trefler’s approach relies on very stringent
assumptions. To recap, the three major assumptions are:
(1) No international trading costs;
(2) Identical homothetic preferences;
(3) Sufficiently integrated world economy, leading to conditional factor price
equalization.
All three of these assumptions are rejected in the data in one form or another.
There are clearly international trading costs, including freight costs, tariff costs and
147