Productivity across Industries and Countries: Time Series Theory and Evidence

In this paper, we test whether aggregate productivity movements, especially convergence, are also reflected at the industry level. Using a new result on the asymptotic normality of panel unit root estimators, we find evidence for convergence in total factor productivity for sectors such as services and construction in 14 OECD countries from 1970-1987. However, surprisingly, we find that convergence does not hold for the manufacturing sector. Convergence in total industry occurs as a result of the declining share of manufacturing and the growing share of sevices in these countries.