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Disaggregate Productivity Comparisons: Sectoral Convergence in OECD Countries

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  • Johannes Van Biesebroeck

Abstract

International comparisons of productivity have used exchange rates or purchasing power parity (PPP) to make output comparable across countries. While aggregate PPP holds well in the long run, sectoral deviations are very persistent. It raises the need for a currency conversion factor at the same level of aggregation as the output that is compared. Mapping prices from household expenditure surveys into the industrial classification of sectors and adjusting for taxes and international trade, I obtain an expenditure-based sector-specific PPP. Using detailed price data for 1985, 1990, 1993, and 1996, I test whether the sectoral PPPs adequately capture differential changes in relative prices between countries. For agriculture and the majority of industrial sectors, but not for most service sectors, sectoral PPP is preferred over aggregate PPP. Using the most appropriate conversion factor for each industry, productivity convergence is found to be taking place in all but a few industries for a group of 14 OECD countries. The results are robust to the base year used for the currency conversion.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-290.

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Length: 41 pages
Date of creation: 18 Jun 2007
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-290

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Keywords: PPP; sectoral comparison; base year;

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References

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  1. Johannes Van Biesebroeck, 2004. "Cross-country Conversion Factors for Sectoral Productivity Comparisons," NBER Working Papers 10279, National Bureau of Economic Research, Inc.
  2. Steven N. Durlauf & Danny T. Quah, 1998. "The New Empirics of Economic Growth," Working Papers 98-01-012, Santa Fe Institute.
  3. Engel, C. & Rogers, J.H., 1995. "How Wide is the Border?," Papers 4-95-16, Pennsylvania State - Department of Economics.
  4. Charles Engel & John H. Rogers, 2004. "European product market integration after the euro," Economic Policy, CEPR & CES & MSH, vol. 19(39), pages 347-384, 07.
  5. 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.
  6. Funk, Mark & Strauss, Jack, 2003. "Panel tests of stochastic convergence: TFP transmission within manufacturing industries," Economics Letters, Elsevier, vol. 78(3), pages 365-371, March.
  7. Ariel Pakes, 2003. "A Reconsideration of Hedonic Price Indexes with an Application to PC's," American Economic Review, American Economic Association, vol. 93(5), pages 1578-1596, December.
  8. Robert J. Hill, 1999. "Comparing Price Levels across Countries Using Minimum-Spanning Trees," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 135-142, February.
  9. Wong, Wei-Kang, 2006. "OECD convergence: A sectoral decomposition exercise," Economics Letters, Elsevier, vol. 93(2), pages 210-214, November.
  10. Scott Bradford, 2003. "Paying the Price: Final Goods Protection in OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 24-37, February.
  11. Harrigan, James, 1999. "Estimation of cross-country differences in industry production functions," Journal of International Economics, Elsevier, vol. 47(2), pages 267-293, April.
  12. Dirk Pilat, 1996. "Labour Productivity Levels in OECD Countries: Estimates for Manufacturing and Selected Service Sectors," OECD Economics Department Working Papers 169, OECD Publishing.
  13. Jim Malley & Anton Muscatelli & Ulrich Woitek, 2003. "Some new international comparisons of productivity performance at the sectoral level," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 166(1), pages 85-104.
  14. D. S. Prasada Rao & Marcel P. Timmer, 2003. "Purchasing Power Parities for Industry Comparisons Using Weighted Elteto-Koves-Szulc (EKS) Methods," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(4), pages 491-511, December.
  15. Andrew B. Bernard & Charles I. Jones, 2001. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries: Reply," American Economic Review, American Economic Association, vol. 91(4), pages 1168-1169, September.
  16. Anders Sorensen, 2001. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries: Comment," American Economic Review, American Economic Association, vol. 91(4), pages 1160-1167, September.
  17. Arcelus, Francisco J. & Arocena, Pablo, 2000. "Convergence and productive efficiency in fourteen OECD countries: A non-parametric frontier approach," International Journal of Production Economics, Elsevier, vol. 66(2), pages 105-117, June.
  18. Hooper, Peter & Larin, Kathryn A, 1989. "International Comparisons of Labor Costs in Manufacturing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 35(4), pages 335-55, December.
  19. Dowrick, Steve & Quiggin, John, 1997. "True Measures of GDP and Convergence," American Economic Review, American Economic Association, vol. 87(1), pages 41-64, March.
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Cited by:
  1. Renaud Bourlès & Gilbert Cette & Jimmy Lopez & Jacques Mairesse & Giuseppe Nicoletti, 2010. "Do Product Market Regulations in Upstream Sectors Curb Productivity Growth? Panel Data Evidence for OECD Countries," NBER Working Papers 16520, National Bureau of Economic Research, Inc.
  2. Simone Salotti & Carmine Trecroci, 2012. "Even Worse than You thought: The Impact of Public Debt on Aggregate Investment and Productivity," DEGIT Conference Papers c017_020, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Dijk, Michiel van, 2013. "Productivity growth at the sectoral level: measurement and projections," Proceedings Issues, 2013: Productivity and Its Impacts on Global Trade, June 2-4, 2013. Seville, Spain 152269, International Agricultural Trade Research Consortium.
  4. Bruno Bracalente & Cristiano Perugini, 2010. "The components of regional disparities in Europe," The Annals of Regional Science, Springer, vol. 44(3), pages 621-645, June.
  5. Johannes Van Biesebroeck, 2004. "Cross-country Conversion Factors for Sectoral Productivity Comparisons," NBER Working Papers 10279, National Bureau of Economic Research, Inc.

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