Practice question · Multiple choice
Why does TFP explain most of the income gap between rich and poor countries?
Hints
- If you gave a poor country the same capital, would output be the same?
- Institutions, technology adoption, and management quality are part of TFP.
Show the answer
C. Rich countries use all inputs more productively
Why
TFP captures everything beyond raw inputs: institutions, technology, management, trust. Giving a poorly governed country more capital doesn't close the gap, the deep determinants need to change.
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