Trade and Sectoral Productivity

Preliminary Version What do we know about cross country differences in sectoral productivity? Not much, even though they are at the heart of trade theory and many stories explaining cross country income differences. In this paper we fill this gap by using a Hybrid-Ricardo-Heckscher-Ohlin trade model and bilateral sectoral trade and production data to overcome the data problem that has plagued previous studies. We provide a comparable set of sectoral total factor productivities (TFP) for 24 manufacturing sectors and more than fifty countries at all stages of development. Our results show that TFP differences in manufacturing sectors between rich and poor countries are substantial and far more pronounced in skill intensive sectors