The models of trade developed in this chapter used differing output per unit of

Question

The models of trade developed in this chapter used differing output per unit of labor to explain trade. What might explain why output per unit of labor varies across nations? The models of trade developed in this chapter used differing output per unit of labor to explain trade. What might explain why output per unit of labor varies across nations? The models of trade developed in this chapter used differing output per unit of labor to explain trade. What might explain why output per unit of labor varies across nations?

Explanation / Answer

Countries produce high levels of output per worker in the long run as

they achieve high rates of investment in physical capital and human capital

and as they utilize these inputs with a high level of productivity.

Empirical analysis shows that success on each of these fronts is driven by

social infrastructure. A country's long-run economic performance is determined

mainly by the institutions and government policies that make up

the economic environment within which individuals and firms make investments,

create and transfer ideas, and produce commodities.

The major points of empirical studies are-

only partially explained by differences in physical capital and educational attainment.

Paralleling the growth accounting literature, levels accounting

finds a large residual that varies considerably across countries.

in capital accumulation, educational attainment, and productivity,

and therefore large differences in income across countries.

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