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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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Bibliographic Info

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. Nathan Nunn, 2005. "Relationship Specificity, Incomplete Contracts and the Pattern of Trade," International Trade 0512018, EconWPA.
  2. Norihiko Yamano & Nadim Ahmad, 2006. "The OECD Input-Output Database: 2006 Edition," OECD Science, Technology and Industry Working Papers 2006/8, OECD Publishing.
  3. Margarida Duarte & Diego Restuccia, 2006. "The Role of the Structural Transformation in Aggregate Productivity," 2006 Meeting Papers 415, Society for Economic Dynamics.
  4. Kongsamut, Piyabha & Rebelo, Sérgio & Xie, Danyang, 1997. "Beyond Balanced Growth," CEPR Discussion Papers 1693, C.E.P.R. Discussion Papers.
  5. José E. Galdón-Sánchez & James A. Schmitz Jr., 2002. "Competitive Pressure and Labor Productivity: World Iron-Ore Markets in the 1980's," American Economic Review, American Economic Association, vol. 92(4), pages 1222-1235, September.
  6. Berthold Herrendorf & Richard Rogerson & Ákos Valentinyi, 2009. "Two Perspectives on Preferences and Structural Transformation," NBER Working Papers 15416, National Bureau of Economic Research, Inc.
  7. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  8. Alessio Moro, 2007. "Biased Technical Change, Intermediate Goods and Total Factor Productivity," Economics Working Papers we076034, Universidad Carlos III, Departamento de Economía, revised Jun 2008.
  9. Diego Restuccia & Dennis Tao Yang & Xiaodong Zhu, 2003. "Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis," Working Papers diegor-03-01, University of Toronto, Department of Economics.
  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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