Estimation of Cross-Country Differences in Industry

47 Pages Posted: 26 Aug 2000

See all articles by James Harrigan

James Harrigan

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1997

Abstract

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.

Suggested Citation

Harrigan, James, Estimation of Cross-Country Differences in Industry (August 1997). NBER Working Paper No. w6121. Available at SSRN: https://ssrn.com/abstract=225887

James Harrigan (Contact Author)

University of Virginia - Department of Economics ( email )

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United States

National Bureau of Economic Research (NBER)

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