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Estimation of Cross-Country Differences in Industry

  • James Harrigan

Many economists and policy makers are concerned about international differences in technology and labor quality, correctly seeing these issues as crucial to long term growth in living standards. Typically, international trade economists assume that technological knowledge is the same in all countries, and that production processes exhibit constant returns to scale. An equivalent way of stating this assumption is that total factor productivity (TFP) for each industry is the same in every country. This paper is a contribution to a growing body of work which casts doubt on this hypothesis, finding large and persistent TFP differences across countries. The paper uses a new data set on prices, inputs, and outputs for a group of industrialized countries in the 1980s. In addition to calculating industry-specific TFP indexes over time and across countries, the paper uses panel data econometric techniques to examine the sources of the observed large TFP differences across countries. Two hypotheses are examined to account for TFP differences: constant returns to scale production with country-specific technological differences economies with identical technology in each country. The data support the constant returns/different technology hypothesis over the increasing returns/same technology hypothesis.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6121.

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Date of creation: Aug 1997
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Publication status: Published as "Estimation of Cross-Country Differences in Industry Production Functions", Journal of International Economics, Vol. 47, no. 2 (April 1999): 267-293.
Handle: RePEc:nbr:nberwo:6121
Note: ITI
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  1. James Harrigan, 1996. "Technology, Factor Supplies and International Specialization: Estimating the Neoclassical Model," NBER Working Papers 5722, National Bureau of Economic Research, Inc.
  2. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
  3. Brown, D.K., 1988. "Tariffs And Capacity Utilization By Monopolistically Competitive Firms," Working Papers 229, Research Seminar in International Economics, University of Michigan.
  4. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  5. repec:fth:harver:1487 is not listed on IDEAS
  6. Keith E. Maskus, 1991. "Comparing International Trade Data and Product and National Characteristics Data for the Analysis of Trade Models," NBER Chapters, in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 17-60 National Bureau of Economic Research, Inc.
  7. James Harrigan, 1997. "Cross-country comparisons of industry total factor productivity: theory and evidence," Research Paper 9734, Federal Reserve Bank of New York.
  8. 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.
  9. Costello, Donna M, 1993. "A Cross-Country, Cross-Industry Comparison of Productivity Growth," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 207-22, April.
  10. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  11. Diewert, W E, 1992. "The Measurement of Productivity," Bulletin of Economic Research, Wiley Blackwell, vol. 44(3), pages 163-98, July.
  12. Bernard, Andrew B & Jones, Charles I, 1996. "Productivity across Industries and Countries: Time Series Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 135-46, February.
  13. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
  14. repec:cup:cbooks:9780521314275 is not listed on IDEAS
  15. 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.
  16. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
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