Trade and Sectoral Productivity

Even though differences in sectoral total factor productivity are at the heart of Ricardian trade theory and many models of growth and development, very little is known about their size and their form. In this paper we try to fill this gap by using a Hybrid-Ricardo-Heckscher-Ohlin trade model and bilateral sectoral trade data to overcome the data problem that has limited previous studies, which have used input and output data to back out productivities, to a small number of OECD economies. We provide a comparable set of sectoral productivities for 24 manufacturing sectors and more than sixty countries at all stages of development. Our results show that TFP differences in manufacturing sectors between rich and poor countries are substantial and far more pronounced in skill and R&D intensive sectors. We also apply our productivity estimates to test theories on development that have implications for the patterns of sectoral productivities across countries.