Also known as Why I Don’t Believe in the Housing Theory at All:
Development accounting is the search for proximate sources of cross-country income differences. This article describes how knowledge in this field has developed over two decades since the influential work of Caselli (2005). There has been great progress in the measurement of production inputs (labor, physical capital, and human capital). These advances have raised estimates of the contribution of inputs, especially human capital, in development accounting. The preferred estimate is that inputs account for 55-70 percent of gross domestic product (GDP) per worker difference, instead of 30 percent using the classical specification. The literature has also made progress in moving away from the Cobb-Douglas production function and measuring factors such as management quality that were previously integrated into total factor productivity (TFP). Our review highlights new implications of these advances, areas where future research would be useful, and the limitations of development accounting.
That’s from a recent NBER working paper by