The evolution of international output differences (1970-2000): From factors to productivity

This article presents a group of exercises of level and growth decomposition of output per worker using cross-country data from 1970 to 2000. It is shown that in the early seventies factors of production (capital and education) were the main source of output dispersion across economies and that productivity variance was considerably smaller than in later years. Only after the mid-eighties did the prominence of productivity start to show up in the data, as the majority of the literature has found. The growth decomposition exercises show that the reversal of relative importance of productivity vis-a-vis factors is explained by the very good (bad) performance of productivity of fast- (slow-) growing economies. Although growth in the period, on average, is mostly due to factor accumulation, its variance is explained by productivity.