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Productivity convergence and international openness

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  • Stephen Redding
  • James Proudman

Abstract

There is a strong partial correlation between openness and rates of productivity growth across UK manufacturing sectors. The paper investigates the relationship more formally, within a theoretical model of productivity catch-up. The model identifies three potential effects of international openness: openness may affect (a) domestic rates of innovation, (b) the quantity of technological know-how that may be transferred from the frontier to the less advanced economy, (c) the rate at which this technology transfer occurs. From the theoretical framework, an econometric equation is derived which is used to estimate the relationship between UK productivity growth, the UK-US productivity gap and the degree of international openness. International openness is found, primarily, to affect the rate of productivity convergence, and this relationship is robust to the inclusion of information on R&D intensity, human capital, unionisation and capacity utilisation.

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File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1998/wp77.pdf
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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 77.

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Date of creation: Mar 1998
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Handle: RePEc:boe:boeewp:77

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  1. G. Cameron, 1996. "Innovation and economic growth," LSE Research Online Documents on Economics 20685, London School of Economics and Political Science, LSE Library.
  2. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August.
  3. Bernard, Andrew B & Jones, Charles I, 1996. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries," American Economic Review, American Economic Association, vol. 86(5), pages 1216-38, December.
  4. Bernard, Andrew B & Jones, Charles I, 1996. "Productivity across Industries and Countries: Time Series Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 135-46, February.
  5. Coe, D.T. & Helpman, E., 1993. "International R&D Spillovers," Papers 5-93, Tel Aviv.
  6. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
  7. Gavin Cameron & James Proudman & Stephen Redding, 1999. "Openness and its association with productivity growth in UK manufacturing industry," Bank of England working papers 104, Bank of England.
  8. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
  9. Cameron, G. & Proudman, J. & Redding, S., 1998. "Deconstructing Growth in UK Manufacturing," Papers 28, Centre for Economic Performance & Institute of Economics.
  10. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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