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1.5 Introduction to Modern Economic Growth ITA Calibrated productivity differences 1988 ESP PRT FRABEL SGP HKG IRL AUT NLD CAN CHE FIN SWE DNK GRC URY PAN COL ISR NOR JPN NZL PAK IDN LKA BGD THA Estimated capital-productivity differences Figure 3.7 Comparison of the capital productivity estimates from the Trefler approach with the calibrated productivity differences from the Hall-Jones approach of reality and that in fact there are significant productivity (technology) differences across countries Interestingly, however, Figure 3.7 shows that the relationship between the calibrate it productivity differences in the capital-productivity differences is considerably weaker It is also important to emphasize that Trefler’s approach relies on very stringent assumptions To recap, the three major assumptions are: (1) No international trading costs; (2) Identical homothetic preferences; (3) Sufficiently integrated world economy, leading to conditional factor price equalization All three of these assumptions are rejected in the data in one form or another There are clearly international trading costs, including freight costs, tariff costs and 147