Accounting for Cross-Country Income Differences

Why are some countries so much richer than others? Development Accounting is a first-passattempt at organizing the answer around two proximate determinants: factors of productionand efficiency. It answers the question “how much of the cross-country income variance canbe attributed to differences in (physical and human) capital, and how much to differencesin the efficiency with which capital is used?” Hence, it does for the cross-section whatgrowth accounting does in the time series. The current consensus is that efficiency is at leastas important as capital in explaining income differences. I survey the data and the basicmethods that lead to this consensus, and explore several extensions. I argue that some ofthese extensions may lead to a reconsideration of the evidence.[...]