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Development Accounting with Intermediate Goods

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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 multi-sector growth model accommodating these features to show that inefficient intermediate production strongly depresses aggregate labor productivity and increases the price ratio of final goods to services. Applying the model to data, low and high income countries in fact reveal similar relative efficiency levels between goods and services despite clear differences in relative sectoral labor productivity. Moreover, the main empirical exercise suggests that poorer countries are substantially less efficient at producing intermediate relative to final goods and services. Closing the cross-country efficiency gap in intermediate input production would strongly narrow the aggregate labor productivity difference across countries as well as turn final goods in poorer countries relatively cheap compared to services.

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  • Jan Grobovsek, 2013. "Development Accounting with Intermediate Goods," Edinburgh School of Economics Discussion Paper Series 223, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:223
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    Cited by:

    1. Margarida Duarte & Diego Restuccia, 2020. "Relative Prices and Sectoral Productivity," Journal of the European Economic Association, European Economic Association, vol. 18(3), pages 1400-1443.
    2. Harald Fadinger & Christian Ghiglino & Mariya Teteryatnikova, 2015. "Income Differences and Input-Output Structure," Vienna Economics Papers 1510, University of Vienna, Department of Economics.

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    More about this item

    Keywords

    development accounting; productivity; intermediate goods;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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