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The Magnitude of the Task Ahead: Macro Implications of Heterogeneous Technology

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  • Markus Eberhardt
  • Francis Teal

Abstract

The empirical growth literature is dominated by accounting and regression methods which assume common production technology across countries. Our empirical model relaxes this assumption and further allows unobservable determinants of output (Total Factor Productivity, TFP) to differ across countries and time, while accounting for endogeneity and cross-section correlation arising from global shocks. Using manufacturing sector data for 48 economies we show that the assumption of common technology creates questionable results in accounting exercises and is rejected in our regressions. We illustrate that the erroneous choice of homogeneous technology has substantial impact on patterns and magnitudes of resulting TFP estimates.

Suggested Citation

  • Markus Eberhardt & Francis Teal, 2017. "The Magnitude of the Task Ahead: Macro Implications of Heterogeneous Technology," Discussion Papers 2017-16, University of Nottingham, GEP.
  • Handle: RePEc:not:notgep:17/16
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    Keywords

    Cross-Country Analysis; Heterogeneous Technology; Total Factor Productivity; Common Factor Model;
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