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Development Accounting with Intermediate Goods

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  • Jan Grobovšek

    (Universitat Autònoma de Barcelona)

Abstract

Do intermediate goods help explain relative and aggregate productivity differences across countries? Three observations suggest they do: (i) intermediates are relatively expensive in poor countries; (ii) goods industries demand intermediates more intensively than service industries; (iii) goods industries are more prominent intermediate suppliers in poor countries. I build a standard multisector growth model accommodating these features to show that inefficient intermediate production strongly depresses aggregate productivity and increases the price ratio of final goods to services. Applying the model to data for middle and high income countries, I find that poorer countries are only modestly less efficient at producing goods than services, but substantially less efficient at producing intermediate relative to final goods and services. If all countries had the intermediate production efficiency of the US, the aggregate productivity gap between the lowest and highest income countries in the sample is predicted to shrink by roughly two thirds while cross-country differences in the final price ratio would virtually vanish.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.85.

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Date of creation: Nov 2011
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Handle: RePEc:fem:femwpa:2011.85

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Keywords: Development Accounting; Productivity; Intermediate Goods;

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  1. Sergio Rebelo & Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 01/85, International Monetary Fund.
  2. Jose E. Galdon-Sanchez & James A. Schmitz, Jr., 2003. "Competitive pressure and labor productivity: world iron ore markets in the 1980s," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 9-23.
  3. Margarida Duarte & Diego Restuccia, 2010. "The Role of the Structural Transformation in Aggregate Productivity," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 129-173, February.
  4. Berthold Herrendorf & Richard Rogerson & ?kos Valentinyi, 2013. "Two Perspectives on Preferences and Structural Transformation," American Economic Review, American Economic Association, vol. 103(7), pages 2752-89, December.
  5. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
  6. Diego Restuccia & Dennis Tao Yang & Xiaodong Zhu, 2007. "Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis," Working Papers e07-3, Virginia Polytechnic Institute and State University, Department of Economics.
  7. Moro, Alessio, 2012. "Biased Technical Change, Intermediate Goods, And Total Factor Productivity," Macroeconomic Dynamics, Cambridge University Press, vol. 16(02), pages 184-203, April.
  8. Norihiko Yamano & Nadim Ahmad, 2006. "The OECD Input-Output Database: 2006 Edition," OECD Science, Technology and Industry Working Papers 2006/8, OECD Publishing.
  9. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  10. Melvin, James R, 1969. "Intermediate Goods and Technological Change," Economica, London School of Economics and Political Science, vol. 36(144), pages 400-408, November.
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