SOME COUNTRIES PRODUCE SO MUCH MORE OUTPUT PER WORKER THAN OTHERS: Reduced-Form Results

Table 3 reports the two reduced-form regressions corresponding to our main econometric specification. These are OLS regressions of log output per worker and social infrastructure on the four main instruments. Interpreting these regressions calls for care: our framework does not require that these reduced forms be complete in the sense that all exogenous variables are included. Rather, the equations are useful but potentially incomplete reduced-form equations.

The reduced-form equations document the close relationship between our instruments and actual social infrastructure. Distance from the equator, the Frankel-Romer predicted trade share, and the fraction of the population speaking a European language (including English) combine to explain a substantial fraction of the variance of our index of social infrastructure.

Regressors ] Distance from the DependenSocial

nfrastructure

0.708

t VariablesLog(Output per Worker)

3.668

Equator, (0,1) Scale (.110) (.337)
Log of Frankel-Romer 0.058 0.185
Predicted Trade Share (.031) (.081)
Fraction of Population 0.118 0.190
Speaking English (.076) (.298)
Fraction of Population 0.130 0.995
Speaking a European Lang (.050) (.181)
R2 .41 .60

Similarly, these instruments are closely related to long-run economic performance as measured by output per worker.

Results by Component
Table 4 examines in more detail the sources of differences in output per worker across countries by considering why some countries have higher productivity or more physical or human capital than others.

The dependent variables in this table use the contributions to output per worker (the log of the terms in equation (3)), so that adding the coefficients across columns reproduces the coefficient in the main specification of Table 2. Broadly speaking, the explanations are similar. Countries with a good social  infrastructure have high capital intensities, high human capital per worker, and high productivity. Each of these components contributes to high output per worker.

 

Component = a + –≤e + e

Social DependI^bg K/Y

1.052

ent Variable log H/L1.343 log A 2.746
Infrastructure (.164) (.171) (.336)
OverlD Test (p) .784 .034 .151
Test Result Accept Reject Accept
.310 .243 .596
&DepV ar .320 .290 .727