The paper focues on three variables that affect knowledge of technology. We found a negative cross‐country correlation between the efficiency of unskilled labor and the efficiencies of skilled labor and capital. We interpret this finding as evidence of the existence of a world technology frontier. On this frontier, increases in the efficiency of unskilled labor are obtained at the cost declines in efficiency of skilled labor and capital. We estimated a model in which firms in each choice optionally choose from a menu of technologies, i.e., their choice of technology depends on the county’s endowment of skilled and unskilled labour, so that the model is one of appropriate technology. The estimation allowed for country‐specific technology frontiers, due to barriers to technology adoption. We found that poor countries tend disproportionately to be inside the world technology frontier.
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