Mismatch and Assimilation

Time：4:00pm - 5:30pm, Oct 19, 2018

Venue：Room 359S, Overseas Exchange Center, Peking University

Speaker：Ping Wang (Department of Economics, Washington University in St. Louis)

Abstract

Income disparity across countries has been large and widening over time. We develop a tractable model where factor requirements in production technology do notnecessarily match a country's factor input profile. Appropriate assimilation of frontier technologies balances such multi-dimensional factor input-technology mismatch, thus mitigating the efficiency loss. This yields a new measure for endogenous TFP, entailing a novel trade-off between a country's income level and income growth that depends critically on the assimilation ability and the factor input mismatch. Our model accounts for 80%-92% of the global income variation over the past 50 years. The widening of mismatch accounts for 40%-60% of the global growth variation, whereas physical capital accounts for about one third with human capital largely inconsequential. While about 30% of the growth performance in miracle Asian economies can be attributed to successful assimilation which narrows the gap arisen from mismatch, almost 70% of growth stagnation in trapped African economies is due to the lack of assimilation. A country may fall into a middle-income trap after a factor advantage reversal that changes the pattern of mismatch.