DP9253 Experience Matters: Human Capital and Development Accounting

Author(s): David Lagakos, Benjamin Moll, Tommaso Porzio, Nancy Qian
Publication Date: December 2012
Keyword(s): Cross-country income, Development Accounting, Returns to Experience
JEL(s): O11
Programme Areas: International Macroeconomics, Labour Economics, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9253

Using recently available large-sample micro data from 36 countries, we document that experience-earnings profiles are flatter in poor countries than in rich countries. Motivated by this fact, we conduct a development accounting exercise that allows the returns to experience to vary across countries but is otherwise standard. When the country-specific returns to experience are interpreted in such a development accounting framework -- and are therefore accounted for as part of human capital -- we find that human and physical capital differences can account for almost two thirds of the variation in cross-country income differences, as compared to less than half in previous studies.