Did the Manufacturing Sector Contribute to Aggregate Convergence? How About Services and Structural Change?

This paper quantifies the contributions of sectoral productivity growth and structural change to aggregate productivity convergence. Existing evidence is inconclusive because it focuses on convergence within sector and its methodology depends sensitively on the conversion factor used to compare sectoral productivity levels across countries. Thus, a methodology – β-decomposition – is proposed to directly estimate how much sectoral productivity growth and structural change contribute to convergence. The evidence suggests that productivity growth in both manufacturing and services were important in driving convergence in GDP per worker among the OECD countries. However, structural change contributed little to convergence. The results are robust to the choice of base year. JEL: O41, O47