Technology, human capital and efficiency in manufacturing firms

Accounting for output per worker differences across countries has been an ongoing topic of research in economics. This thesis expands upon standard approaches by allowing for technological heterogeneity and exploiting firm and worker level data to determine the microeconomic sources of variation in both productivity and earnings. An intercontinental comparison using production functions for the Ghanaian and South Korean manufacturing sectors in Chapter 2 finds, in contrast to the conclusions of much of the macroeconomic literature, that there is no difference in total factor productivity (TFP). The microeconomic sources of the difference in value added per worker lie within the technology of firms, which is defined as the way in which inputs are used. Two important dimensions of this difference are the larger role of material inputs and the much lower rate of return to schooling in Ghana. In Chapter 3 a more general specification investigates intra-African variation in production, which is much smaller than the intercontinental difference. The pattern of cross-country heterogeneity is that, as GDP per capita rises, the relative input of materials falls, those of capital and labour rise and the returns to education increase. Differences in TFP are limited. Possible sources of the low returns to schooling in Ghana are investigated in Chapter 4 using earnings and production functions. Conditional upon selection into occupations, the only group of workers for whom education appreciably increases earnings are those employed in skilled jobs with more than ten years of education. The evidence is consistent with a lack of technological sophistication being the source of these low returns. Investment in new production processes by firms will increase the return to education and raise incomes and output. Reducing the share of intermediate inputs in production is key to the transition from low to high productivity activities. Technology is the critical element that can explain the performance of manufacturing firms across countries.