July 11, 2022
Why do living standards differ so much across countries? Across time and space, we observe large differences in income per capita across countries. Factor difference between richest and poorest deciles of the income distribution are of 20 folds in 1960 to more than 50 fold in 2014. A natural question arises, what accounts for the large differences in income per capita across countries? The literature subscribes to productivity (TFP) in accounting for bulk of the differences in income per capita across countries.