Sunday, 27 June 2010

Latest + Greatest News: CREI Lectures in Macro

Francesco Caselli delivered the 2010 CREI Lectures in Macro the other day. He was surveying "Differences in Technology across Time and Space". One of the most interesting things I learned (out of many) was that, with the right type of correction for the hetereogeneity of human capital, we can actually explain a lot of the cross-sectional differences in output per head. The standard result in this literature used to be (after a classic paper by Hall and Jones in 1998) that most of the difference in income between, say, the US and Zaire is not down to capital or human capital, but must be "social capacity", TFP, or some measure of institutions -- in other words, something we just don't understand all that well.

The endowment view - so crucial for development agencies, etc. - instead has received scant empirical support. Francesco painstakingly goes through the evidence once more, adds a few refinements from other people (notably David Weil's work on the effects of health), and then puts in one additional variable that really makes a lot of sense -- separate effects for high- and low-human capital. Since this is correlated with physical capital, it turns out to be a pretty important thing -- suddenly, endowment differences that previously could account for maybe a third of income differences can get to about 60% or so. This is incredibly important, me thinks -- and while we of course want as much exposure for the PUP book that comes out of the lectures, I very much hope that Francesco turns this into a separate article (the QJE will surely be keen).

A few years back, when we first talked to PUP about the idea for a new series, we wondered what there was left to do - there are many lecture series. We proposed to go for young and already distinguished speakers, who deliver a synthesis of recent work. I think this installment in the series really validates the view that this was exactly the right direction in which to take things...

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