International Productivity Leakages: A Theoretical and Empirical Analysis of Pasinetti’s Notion

As a consequence of international trade, the goods and services that can be used in a given country do not necessarily coincide with those that are produced within its borders. In these circumstances, improvements in the terms of trade can act, like technical progress, as a means to increase the amount of commodities available in an economy without further use of its resources. This was early emphasized by Pasinetti, who described the possibility of international leakages of productivity. Following his remarks, this paper develops a novel methodology with which to measure the quantity of goods that become available in an economy as a result of both its production and exchange processes. This method, together with a structural decomposition analysis, is used to calculate international productivity leakages, employing the OECD’s Inter-Country Input-Output tables and Trade in Employment data. The results indicate that these leakages can be relevant in hampering or fostering nations’ material prosperity.