How good are trade and telephone call traffic in bridging income gaps and TFP gaps?

Abstract

This paper empirically evaluates the relative importance of embodied vs. disembodied idea flows in explaining income gaps and total factor productivity (TFP) gaps. Trade is used as a measure of embodied idea flows and telephone call traffic a measure of disembodied flows. Since both trade and telephone traffic may be endogenous, this paper uses the geographic, linguistic, and colonial components of trade and telephone traffic as instruments to identify their effects on income and TFP. The results provide little support for the embodied object models when both trade and telephone traffic are included in the regressions. Telephone traffic has a quantitatively larger effect on income per worker and TFP than trade.©2004 Elsevier B.V. All rights reserved.