33 Pages Posted: 11 May 2010
Date Written: October 16, 2009
We introduce a novel methodology to measure the relative TFP of the tradeable sector across countries, based on the relationship between trade and TFP in the model of Eaton and Kortum (2002). The logic of our approach is to measure TFP not from its "primitive" (the production function) but from its observed implications. In particular, we estimate TFPs as the productivities that best fit data on trade, production, and wages. Applying this methodology to a sample of 19 OECD countries, we estimate the TFP of each country's manufacturing sector from 1985 to 2002. Our measures are easy to compute and, with respect to the standard development-accounting approach, are no longer mere residuals. Nor do they yield common "anomalies", such as the higher TFP of Italy relative to the US.
Keywords: Multi-factor productivity, TFP measurement, Eaton-Kortum model
JEL Classification: F1, D24, O4
Suggested Citation: Suggested Citation