Chapter 11: Productivity Convergence Across Industries and Countries: The Importance of Theory-based Measurement
Robert Inklaar and Marcel P. Timmer 11.1 INTRODUCTION Comparative productivity levels are an important ingredient in crosscountry studies of economic growth. Initially, this research was mainly focused on explaining patterns of convergence and divergence at the aggregate level.1 More recently, studies on the differences in performance at the sectoral level (agriculture, manufacturing and services) have appeared, motivated by the influential study by Bernard and Jones (1996), henceforth BJ. They found that across a set of selected OECD countries, convergence at the aggregate does not necessarily imply convergence at the industry level. In particular they found that during the period 1970–87 manufacturing showed little evidence of productivity convergence, in contrast to the services sector in which convergence was strong. These findings have not been undisputed. Sørensen (2001) showed that the finding of non-convergence in manufacturing heavily depended on the choice of a set of purchasing power parities (PPPs) to convert national currencies into comparable units. BJ used one set of aggregate GDP PPPs to convert all sectoral variables. However, as sectoral prices do not move in tandem over time, the sectoral findings of BJ became highly sensitive to the choice of the base year for the aggregate PPPs. Typically, manufacturing prices grow much slower than prices of services and a common PPP would not capture this difference. In their reply, BJ conclude that: ‘future research is needed to construct conversion factors appropriate to each sector and that research relying on international comparisons of sectoral productivity and income should proceed...
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