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Title:Development accounting with intermediate goods PDF Logo
Authors:Grobov├ęsek, Jan
Issue Date:2011
Series/Report no.:Nota di lavoro // Fondazione Eni Enrico Mattei: Economy and Society 85.2011
Abstract:Do intermediate goods help explain relative and aggregate productivity differences across countries? Three observations suggest they do: (i) intermediates are relatively expensive in poor countries; (ii) goods industries demand intermediates more intensively than service industries; (iii) goods industries are more prominent intermediate suppliers in poor countries. I build a standard multisector growth model accommodating these features to show that inefficient intermediate production strongly depresses aggregate productivity and increases the price ratio of final goods to services. Applying the model to data for middle and high income countries, I find that poorer countries are only modestly less efficient at producing goods than services, but substantially less efficient at producing intermediate relative to final goods and services. If all countries had the intermediate production efficiency of the US, the aggregate productivity gap between the lowest and highest income countries in the sample is predicted to shrink by roughly two thirds while cross-country differences in the final price ratio would virtually vanish.
Subjects:Development Accounting
Productivity
Intermediate Goods
JEL:O10
O41
O47
Document Type:Working Paper
Appears in Collections:FEEM Working Papers, Fondazione Eni Enrico Mattei

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