Fundamental Determinants of Output per Worker Across Countries

Abstract

Output per worker varies enormously across countries. Why? Our analysis shows that differences in social infrastructure are important sources of this variation. According to our results, a high-productivity country (i) has institutions that favor production over diversion, (ii) has a low rate of government consumption, (iii) is open to international trade, (iv) has at least some private ownership, (v) speaks an international language, and (vi) is located in a temperate latitude far from the equator. A favorable social infrastructure helps a country both by stimulating the accumulation of human and physical capital and by raising its total factor productivity.