Productivity Catch-Up or Factor Shift in the Race for Global Industrial Dominance

We examine global trends in productivity and sectoral dominance across countries and industries, asking whether changes are driven by productivity catch-up or shifts in factor endowments. To address this, we develop a general-equilibrium, multi-country, multi-sector model with a global production network based on international input--output linkages. The model incorporates country-specific technologies, factor endowments (skilled and unskilled labor and capital), and tariffs. Calibrating the model to international data from 1996 to 2007, we find that in high-income countries productivity changes are mainly driven by technology, while in middle-income countries capital is most crucial. We then assess whether these changes explain structural transformation in global output shares. For most industries where one group of countries overtakes another, the primary cause is the change in capital and skilled labor, rather than factor-induced productivity improvements. Overall, factor endowment shifts play the central role in explaining changes in sectoral dominance across countries and industries.