NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Relative Prices and Sectoral Productivity

Margarida Duarte, Diego Restuccia

NBER Working Paper No. 23979
Issued in October 2017, Revised in January 2019
NBER Program(s):The Development Economics Program, The Economic Fluctuations and Growth Program, The Productivity, Innovation, and Entrepreneurship Program

The relative price of services rises with development. A standard interpretation of this fact is that productivity differences across countries are larger in manufacturing than in services. The service sector comprises heterogeneous categories. We document that many disaggregated service categories–such as transportation, communication, and finance–feature a negative income elasticity of relative prices, whereas the relative price of aggregate services is mostly driven by large expenditure categories in housing, collective government, and health that feature a positive income elasticity of relative prices. We also document a substantial reallocation of expenditures in services from categories with positive income elasticities (traditional services) to categories with negative elasticities (non-traditional services) as income rises. Using an otherwise standard multi-sector development accounting framework extended to include an input-output structure, we find that the cross-country income elasticity of sectoral productivity is large in non-traditional services (1.15), smaller in manufacturing (1.05) and much smaller in traditional services (0.67). Eliminating cross-country productivity differences in non-traditional services reduces aggregate income disparity by 58 percent, a 7.9-fold reduction in aggregate productivity differences. We also find that the heterogeneity between traditional and non-traditional services has a substantial impact on aggregate productivity and that the input-output structure is important in this assessment.

download in pdf format
   (462 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23979

Users who downloaded this paper also downloaded* these:
Hulten w24141 The Importance of Education and Skill Development for Economic Growth in the Information Era
Uras and Wang w23970 Production Flexibility, Misallocation and Total Factor Productivity
Aghion, Jones, and Jones w23928 Artificial Intelligence and Economic Growth
Nakamura and Steinsson w23968 Identification in Macroeconomics
Uribe w23977 The Neo-Fisher Effect in the United States and Japan
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us