Essays in development economics: Distortions, technology adoption, and schooling

Chapter 1: Income Disparity across Countries: The Role of Investment Distortions (with Carlos Urrutia). We use the Summers and Heston database to construct a panel of distortions affecting investment decisions. We report three facts about this panel: there is a huge disparity across countries, there is a lot of mobility in the cross-section distribution over time, and there is little persistence in changes across sub-sample periods. We show that a neoclassical model, in which investment distortions follow a stochastic Markov process parameterized from our panel, accounts for between 67 and 84 percent of the income disparity observed in the data. We show that this model is consistent with other features of the distribution of income and investment rates, although it produces more persistence in growth rates.;Chapter 2: Technology Adoption and Schooling: Amplifier Income Effects of Policies Across Countries. Neoclassical growth models require large productivity/distortion differences across countries to produce the observed disparities in the wealth of nations. In this essay, I develop an otherwise standard neoclassical model with technology adoption and schooling decisions, and show that in this environment the required productivity/distortion differences are much smaller. In particular, for a reasonable parameterization, my model generates 3 times more income disparity than a standard model. Moreover, I find that it is the interaction between the technology adoption and schooling features of the model, and not each feature individually, that accounts for most of the amplifier effect. I show that the model is consistent with the observed patterns of the schooling differences across countries. Standard neoclassical models of schooling have the implication that schooling levels are constant across countries, since wage differences affect in the same proportion the marginal benefit and the opportunity cost of schooling. In my model, average levels of schooling do vary across economies since education is more useful in modern technologies and rich economies use these technologies more intensively.