TRADE AND SECTORAL PRODUCTIVITY

Cross-country differences in sectoral total factor productivity (TFP) are at the heart of Ricardian trade theory and of many models of growth and development. Our knowledge of the magnitude and the characteristics Of cross-country differences in sectoral TFP is limited. This study fills the gap by showing how sectoral TFP differences can be backed out from bilateral trade data using a hybrid Ricardo-Heckscher-Ohlin model. This allows us to overcome the data problems that constrained previous studies and to provide a comparable set of sectoral productivities for 24 manufacturing sectors in more than 60 countries at all stages of development. Our results imply that TFP differences in manufacturing sectors between rich and poor countries are substantial and far more pronounced in skilled labour and R&D intensive sectors.