Relative Prices and Sectoral Productivity

Relative Prices and Sectoral Productivity

Diego RestucciaUniversity of Toronto

and NBER

University of OsloAugust 14-18, 2017

Restuccia Macro Growth and Development University of Oslo 1 / 37

Overview


Relative prices and sectoral productivity

Basic facts

Heterogeneity in services

Structural transformation within services

Productivity implications

Relative Prices and Sectoral Productivity


Based on Duarte and Restuccia (2016):https://ideas.repec.org/p/tor/tecipa/tecipa-555.html

Aggregate labor productivity differences across countries are large

Sectoral analysis of labor productivity differences is important tounderstand aggregate outcomes

No systematic real sectoral output data across countries

Standard approach uses sectoral price and expenditure data (theinputs of PWT) to infer sectoral productivity

https://ideas.repec.org/p/tor/tecipa/tecipa-555.html

Motivation


Well-known fact: relative price of services rises with development

Standard interpretation: cross-country differences in productivityare larger in manufacturing than in services, e.g.:

Balassa-Samuelson,Kravis, Heston, and Summers (1983),Hsieh and Klenow (2007),Herrendorf and Valentinyi (2012)

These productivity implications are important as the servicesector becomes large with structural change

Limitations of Standard Approach


Heterogeneity within services; in particular, not all services havean increasing relative price

“The service sector happens to contain some of the economy’smost progressive activities as well as its most stagnant.” (Baumolet al, AER, 1985)

Expenditure differs from output

“... the price parities computed from these surveys [ICP] are notsatisfactory for making sectoral productivity comparisons.”(Heston and Summers, AER, 1996)

Plan


Address these two limitations, by

disaggregating services—between those with a falling relative price(non-traditional) and those with an increasing relative price(traditional)

developing a framework with an input-output structure that mapsrelative expenditure prices to value added sectoral productivity

Data


International Comparisons Program (ICP)

Disaggregated data for 2005

pricesnominal expendituresreal expenditures (real = when measured at common internationalprices)

129 categories / 130 countries

World Input-Output Database (WIOD)

Harmonized input-output tables for 40 countries, 35 by 35industries.

Annual tables from 1995 to 2009, at current prices.

Facts


The price of services relative to that of GDP increases withincome

The (nominal) share of services in GDP increases with income

The real share of services does not vary systematically withincome (real = when measured at common international prices)

Relative Price of Services

5 6 7 8 9 10 11 120

0.2

0.4

0.6

0.8

1

AGOALB

ARG

ARM

AUSAUT

AZE

BDI

BEL

BENBFA

BGD

BGR

BIH

BLR

BOL

BRA

BWA

CAF

CAN

CHE

CHL

CHNCIV

CMR

COG

COLCZE

DEUDNK

ECU

EGY

ESP

EST

ETH

FINFRA

GAB

GBR

GEO

GHAGIN

GMB

GNB

GNQ

GRC

HKG

HUNIDN

IND

IRL

IRN

IRQ

ISRITAJOR

JPN

KAZ

KEN

KGZ

KHM

KOR

KWT

LAO

LBN

LBR

LKALSO

LTULVA

MAR

MDA

MDG

MEX

MKD

MLIMNG

MOZ

MRT

MUSMWI

MYS

NAM

NER

NGA

NLD

NOR

NPLNZL

OMN

PAK

PERPHLPOL

PRT

PRY ROM

RUS

RWA

SAU

SDN

SEN

SGP

SLE

SRBSVK

SVN

SWE

SWZ

SYR

TCD

TGO

THA

TJK

TUNTUR

TWN

TZAUGA

UKR

URY

USA

VEN

VNM

YEM

ZAF

ZAR

ZMB

ZWE

Rel

ativ

e Pr

ice

of S

ervi

ces

GDP per capita (PPP adjusted, log)

Correlation: 0.67

The relative price of services increases with income


Share of Services

5 6 7 8 9 10 11 120

0.1

0.2

0.3

0.4

0.5

0.6

AGO

ALB

ARG

ARM

AUSAUT

AZE

BDI

BEL

BENBFA

BGD

BGRBIH

BLR

BOL

BRA

BWA

CAF

CANCHE

CHL

CHNCIV

CMR COG

COLCZE

DEU

DNK

ECUEGY

ESP

EST

ETH

FIN

FRA

GAB

GBR

GEO

GHAGIN

GMB

GNB

GNQ

GRC

HKGHUN

IDNIND

IRL

IRN

IRQ

ISR

ITAJOR

JPN

KAZ

KEN

KGZKHM

KOR

KWT

LAO

LBN

LBR

LKA

LSO

LTU

LVAMAR

MDAMDG

MEX

MKD

MLI

MNGMOZ

MRT

MUS

MWI

MYS

NAM

NER

NGA

NLD

NOR

NPL

NZL

OMN

PAK

PER

PHL

POL

PRT

PRY

ROM

RUSRWA SAU

SDN

SEN

SGPSLE

SRB

SVKSVN

SWE

SWZSYR

TCD

TGO THA

TJK

TUNTUR

TWN

TZA

UGA

UKR

URY

USA

VEN

VNMYEM

ZAF

ZAR

ZMB

ZWE

Shar

e of

Ser

vice

s (d

omes

tic p

rices

)


Correlation: 0.60

The share of services in GDP increases with income


Real Share of Services

5 6 7 8 9 10 11 120

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AGO

ALB

ARG

ARM

AUSAUTAZE

BDI

BELBENBFA

BGD

BGR

BIHBLR

BOL

BRA

BWA

CAF

CANCHECHL

CHN

CIV CMR

COGCOL CZE

DEUDNKECU

EGY

ESPEST

ETH FINFRA

GAB

GBR

GEO

GHA

GIN

GMB

GNB

GNQ

GRC

HKG

HUN

IDNIND

IRL

IRNIRQ ISR

ITAJORJPN

KAZKEN

KGZ

KHM

KOR

KWT

LAOLBN

LBR

LKA

LSO

LTULVA

MAR

MDA

MDGMEX

MKDMLI

MNGMOZ MRT

MUSMWI

MYS

NAM

NER NGA

NLD

NOR

NPL

NZL

OMN

PAKPER

PHL

POL

PRTPRY

ROM

RUS

RWA

SAUSDN

SENSGP

SLE

SRBSVK

SVN

SWESWZ

SYR

TCD

TGOTHA

TJK

TUNTUR

TWN

TZA

UGA

UKR

URY USAVENVNM

YEM

ZAF

ZAR

ZMB

ZWE

Real

Sha

re o

f Ser

vices


Correlation: −0.06

The real share does not vary systematically with income


Heterogeneity in the Service SectorCross-Country Income Elasticity of Relative Prices


Elasticity Standard ErrorPersonal Consumption Expenditures

Clothing and FootwearCleaning and repair of clothing -0.02 0.03Repair and hire of footwear 0.08 0.03

Housing and WaterActual and imputed rentals for housing 0.21 0.05Maintenance and repair of the dwelling -0.15 0.04Water supply -0.21 0.06Miscellaneous services relating to the dwelling -0.18 0.04

Furnishings, Household Equipment, andRoutine Maintenance of the House

Repair of furniture, furnishings and floor coverings -0.16 0.04Repair of household appliances -0.19 0.03Domestic services 0.40 0.04Household services -0.14 0.02

HealthMedical services 0.28 0.04Dental services 0.23 0.04Paramedical services 0.14 0.05Hospital services 0.18 0.03

TransportMaintenance and repair of personal transport equipment -0.12 0.03Other services in respect of personal transport equipment -0.17 0.03Passenger transport by railway -0.10 0.04Passenger transport by road -0.08 0.03Passenger transport by air -0.59 0.04Passenger transport by sea and inland waterway -0.28 0.02Combined passenger transport -0.20 0.03Other purchased transport services -0.15 0.03

Heterogeneity in the Service SectorCross-Country Income Elasticity of Relative Prices


Elasticity Standard ErrorCommunication

Postal services -0.15 0.04Telephone and telefax services -0.36 0.03

Recreation and CultureRepair of audio-visual and other equipment -0.08 0.04Veterinary and other services for pets -0.14 0.02Recreational and sporting services 0.07 0.04Cultural services -0.02 0.02Games of chance -0.13 0.02Package holidays -0.06 0.03

Education 0.22 0.04Restaurants and Hotels

Catering services -0.10 0.02Accommodation services -0.24 0.03

Miscellaneous Goods and ServicesHairdressing salons and personal grooming establishments 0.24 0.03Prostitution 0.26 0.04Social protection -0.10 0.02Insurance -0.14 0.01Financial intermediation services indirectly measured -0.14 0.02Other financial services n.e.c. -0.14 0.03Other services n.e.c. -0.13 0.02

Government 0.20 0.03Production of Health Services 0.20 0.04Education 0.28 0.04Collective Services 0.18 0.03

Heterogeneity in the Service Sector


We divide services into two categories: traditional andnon-traditional services

Traditional services includes service categories for which therelative price increases with income (government and, frompersonal consumption expenditures, rents for housing, healthservices, and education services)

Non-traditional services includes the service categories in personalconsumption expenditures for which the relative price declineswith income (transportation, communication, financial and relatedservices)

Relative Prices

Traditional Non-Traditional

5 6 7 8 9 10 11 120

0.2

0.4

0.6

0.8

1

AGO ALB

ARG

ARM

AUSAUT

AZE

BDI

BEL

BEN

BFA

BGD

BGR

BIH

BLRBOL

BRA

BWA

CAF

CAN

CHE

CHL

CHNCIV

CMR

COG

COL CZE

DEU

DNK

ECU

EGY

ESP

EST

ETH

FINFRA

GAB

GBR

GEO

GHAGIN

GMB

GNB

GNQ

GRC

HKG

HUNIDN

IND

IRL

IRN

IRQ

ISR

ITA

JOR

JPN

KAZKEN

KGZKHM

KOR

KWT

LAO

LBN

LBR

LKALSO

LTU

LVA

MAR

MDAMDG

MEX

MKD

MLIMNG

MOZ

MRT

MUS

MWI

MYSNAM

NER

NGA

NLDNOR

NPL

NZLOMN

PAK

PERPHL POL

PRT

PRY

ROM

RUSRWA

SAU

SDN

SEN

SGP

SLE

SRB

SVK

SVN

SWE

SWZ

SYR

TCD

TGO

THA

TJK

TUNTUR

TWN

TZA UGA

UKR

URY

USA

VEN

VNM

YEM

ZAF

ZAR

ZMB

ZWE

Rela

tive P

rice o

f T

raditio

nal S

erv

ices

GDP per capita (PPP adjusted, log)5 6 7 8 9 10 11 12

0

0.5

1

1.5

2

2.5

3

3.5

4

AGO

ALBARGARM AUSAUT

AZE

BDI

BEL

BENBFABGD

BGRBIH

BLR

BOL BRA

BWA

CAF

CANCHE

CHLCHNCIV CMRCOG

COLCZE

DEUDNKECUEGY

ESPESTETH

FINFRA

GAB

GBRGEO

GHAGIN

GMB

GNB

GNQ

GRCHKG

HUNIDN

INDIRL

IRN

IRQISRITA

JOR

JPNKAZ

KEN

KGZ

KHM

KOR KWTLAO

LBN

LBR

LKA

LSO

LTULVAMAR

MDA

MDG

MEXMKD

MLI

MNG

MOZ

MRT

MUS

MWI

MYS

NAM

NERNGA

NLDNOR

NPL

NZLOMN

PAK

PER

PHL

POLPRT

PRY

ROM

RUS

RWA

SAUSDN

SEN

SGP

SLE

SRB

SVKSVN SWE

SWZ

SYR

TCD

TGO

THA

TJK

TUNTUR

TWN

TZA

UGA

UKR

URY

USAVEN

VNM

YEMZAF

ZAR

ZMB

ZWE

Rela

tive P

rice o

f N

on−

Tra

ditio

nal S

erv

ices



Real Share of Non-traditional Services

5 6 7 8 9 10 11 120

0.1

0.2

0.3

0.4

0.5

AGO

ALB

ARG

ARM

AUS

AUT

AZE

BDI

BEL

BEN

BFA

BGD

BGR

BIHBLR

BOL BRA

BWA

CAF

CANCHE

CHL

CHNCIV

CMR

COG

COL

CZE

DEU

DNK

ECU

EGY

ESP

EST

ETH

FINFRA

GAB

GBR

GEO

GHAGIN

GMB

GNB

GNQ

GRC

HKG

HUN

IDNIND

IRLIRN

IRQ

ISR

ITA

JORJPN

KAZKEN

KGZ

KHM

KOR

KWT

LAO

LBN

LBR

LKA

LSO

LTU

LVAMAR

MDA

MDG

MEX

MKD

MLI MNGMOZ

MRT

MUSMWI

MYS

NAM

NER

NGA

NLD

NOR

NPL

NZL

OMN

PAK

PER

PHL

POLPRT

PRY ROM

RUS

RWA

SAU

SDNSEN

SGP

SLE

SRB

SVK

SVN

SWE

SWZ

SYR

TCD

TGO

THA

TJK

TUN

TUR

TWN

TZA

UGA

UKR

URY

USA

VEN

VNM

YEMZAF

ZAR

ZMB

ZWE

Real

Sha

re o

f Non−T

radi

tiona

l Ser

vices

(in

Tota

l Ser

vices

)


Real share of non-trad. services increases with income


U.S. Evidence: Share of Non-traditionalServices

1950 1960 1970 1980 1990 2000 201020

25

30

35

40

45Sh

are

of N

on−t

radi

tiona

l Ser

vice

s in

Tot

al S

ervi

ces

realnominal


U.S. Evidence: Relative Price ofNon-traditional to Traditional Services

1950 1960 1970 1980 1990 2000 20100.9

1

1.1

1.2

1.3

1.4

1.5

1.6R

elat

ive

Pric

e of

Non−t

radi

tiona

l to

Trad

ition

al S

ervi

ces


Development AccountingBasic Framework


Minimal structure

Key assumptions:

competitive marketslinear technology in laborperfect labor mobility across sectors

Development Accounting


Linear technologies in each sector

Yi = AiLi, ∀i

Competitive markets and perfect labor mobility across sectors

maxLi

piAiLi − wLi, ⇒ piAi = w,

With∑

i Li = L, it follows:

∑i

piYi = wL; w =

∑i piYiL



One-to-one mapping between income elasticity of relative priceand income elasticity of sectoral productivity

Ai =w/p

pi/p

log(Ai) = log(w/p)− log(pi/p)

Income elasticity of sectoral productivity is one minus incomeelasticity of relative price



Example: income elasticities of relative prices of -0.20 and 0.20,imply income elasticities of sectoral productivity 1.2 and 0.80

Real GDP per capita ratio (rich to poor) is a factor of 49.3-fold,hence, implied sectoral productivity ratios a factor of 107.5-fold(exp(1.2× log(49.3))) and 22.6-fold (exp(0.8× log(49.3)))

For the manufacturing sector, income elasticity of relative price is-0.07 (income elasticity of manufacturing productivity is 1.07),hence, productivity ratio of 64.8-fold (exp(1.07× log(49.3)))

These are stark differences in relative productivities derived fromrelative price behavior within service categories, even compared tothe manufacturing sector

Development Accounting – Results


Relative AiGDPpc m s sT sN

D10 0.89 0.74 0.94 1.04 0.81D9 0.66 0.51 0.74 0.83 0.61D5 0.13 0.06 0.23 0.31 0.14D2 0.03 0.02 0.05 0.08 0.02D1 0.02 0.01 0.03 0.05 0.01

Ratio D10/D1 49.3 70.5 27.8 21.0 73.1Income elasticity – 1.07 0.86 0.79 1.12

Discussion


Some evidence on productivity gaps larger in segments of serviceindustries (Retail, Telecom, Banking, Software,...) – Baily andSolow (2001)

Related evidence for the U.S. over time – productivity growth fastin (market) services relative to manufacturing (e.g., Triplett andBosworth, 2004)

Baumol et al (1985)

Development AccountingInput-Output Structure


Technologiesqi = Bil

1−αii hαii , ∀i

Bi - productivity in sector ili - total labor hours in sector ihi - intermediate composite used in sector i

Labor and goods markets are competitive

Intermediate Composites


Intermediate composite used in sector i

hi =∏j

(gjiϕji

)ϕji

gji - use of intermediate input j in the production of i

Characterization


Representative firm in sector i solves

maxli,gji

piqi −∑j

pjgji − wli

(1)

subject to qi and hi

First two terms is value added

pyi yi ≡ piqi −∑j

pjgji. (2)

The first order condition of intermediate input use gji implies,

αiϕjipiqi = pjgji, (3)

Characterization


Use optimal demand for intermediate inputs into qi to obtaingross output as a function of only labor and prices,

qi = B1

1−αii li

(αipiphi

) αi1−αi

, (4)

where phi =∏j p

ϕjij

Using definition of value added and substituting for output andintermediate inputs, obtain

pyi yi = pi

(piphi

) αi1−αi

(1− αi)ααi

1−αii B

11−αii li,

TFP in value added Ai is given by (1− αi)ααi

1−αii B

11−αii , where Bi

is total factor productivity in gross output

Characterization


The first order condition of profit maximization with respect tothe labor allocation across sectors is given by

pyiAi = w; Ai =w

pyi

where

pyi = pi

∏j

(pipj

)ϕjiαi

1−αi

.

Characterization


Hence, sector productivities expressed as a simple function ofrelative income and relative sector gross output prices, and a termincluding the input-output structure,

Ai =w/p

pi/p· 1(

pip

) αi1−αi

[∏j

(pjp

)−ϕji] αi1−αi

. (5)

log(Ai) = log(w/p)−log(pi/p)−αi

1− αi

∑j

ϕji[log(pj/p)−log(pi/p)]

(6)

Need to calibrate αi and ϕji

Share of Intermediate Inputs

USA over Time Manufacturing across Countries

1995 2000 2005 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

_

Manuf.Trad. Svc.Non−trad. Svc.

7 7.5 8 8.5 9 9.5 10 10.5 110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUSAUT

BELBGR

BRA CAN

CHN CZE

DEUDNK

ESPEST

FINFRA

GBRGRC

HUN

IDN

IND

IRLITA

JPN

KOR

LTULVAMEX NLDPOL PRT

ROM RUS

SVK

SVN SWETUR

TWN

USA

_m

GDP per capita (PPP adjusted, log) − 2005

Traditional Services across Countries Non-Traditional Services across Countries

7 7.5 8 8.5 9 9.5 10 10.5 110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUSAUTBEL

BGRBRA

CAN

CHN

CZE

DEUDNKESP

ESTFIN

FRA

GBR

GRCHUN

IDN

IND

IRL

ITA

JPNKORLTULVA

MEX

NLD

POL PRT

ROM

RUS

SVKSVN

SWETUR

TWN

USA

_s T

GDP per capita (PPP adjusted, log) − 20057 7.5 8 8.5 9 9.5 10 10.5 110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUS

AUT

BELBGR

BRACAN

CHN

CZE

DEU

DNK

ESP

EST

FINFRAGBR

GRC

HUN

IDN

IND

IRL

ITA

JPN

KOR

LTU

LVA

MEX

NLDPOL PRTROM

RUS

SVKSVN SWE

TUR TWNUSA

_s N



Intermediate Inputs in Manufacturing


1995 2000 2005 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

q jm


7 7.5 8 8.5 9 9.5 10 10.5 110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUS

AUTBEL

BGR

BRA CAN

CHN CZE

DEU

DNK

ESPEST

FINFRA

GBRGRC

HUN

IDNIND

IRL

ITA

JPN

KOR

LTU

LVAMEX

NLD

POL

PRT

ROMRUS

SVK

SVN

SWE

TUR

TWN

USA

q mm



7 7.5 8 8.5 9 9.5 10 10.5 110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUSAUTBELBGRBRA CANCHN CZE DEUDNKESPEST FINFRAGBRGRCHUNIDNIND IRLITAJPNKORLTULVAMEX NLDPOL PRTROM RUS SVK SVN SWETUR TWN USA

q s Tm


0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUSAUTBEL

BGRBRA

CAN

CHN

CZE

DEUDNK

ESPESTFIN

FRAGBR

GRC

HUNIDN

IND

IRL

ITA

JPN

KOR

LTU

LVA

MEX

NLD

POL

PRTROM RUS SVK SVN

SWE

TUR

TWN

USA

q s Nm



Intermediate Inputs in Trad. Services


1995 2000 2005 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

q js T


7 7.5 8 8.5 9 9.5 10 10.5 110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUSAUTBEL

BGR

BRACAN

CHN

CZE

DEU

DNK

ESPEST

FINFRAGBR

GRC

HUNIDN

IND

IRLITA

JPN

KOR

LTU

LVA

MEX

NLD

POLPRT

ROM

RUSSVK

SVN

SWE

TUR

TWN

USA

q ms T



7 7.5 8 8.5 9 9.5 10 10.5 110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUSAUT

BELBGR

BRA

CAN

CHN CZE

DEUDNKESPEST

FIN

FRA

GBR

GRC

HUN

IDNIND

IRL

ITA

JPNKORLTULVAMEX

NLDPOL

PRT

ROM

RUSSVK

SVNSWE

TUR TWNUSA

q s Ts T


0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUS

AUTBEL

BGR

BRA

CAN

CHN

CZE

DEU

DNK

ESP

EST

FINFRA

GBR

GRCHUNIDN

IND

IRL

ITA

JPN

KORLTU

LVA

MEX

NLD

POL

PRT

ROM

RUS

SVK

SVN

SWETUR TWN

USA

q s Ns T



Intermediate Inputs in Non-Trad. Services


1995 2000 2005 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

q js N


7 7.5 8 8.5 9 9.5 10 10.5 110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUSAUTBEL

BGRBRA

CAN

CHN

CZE

DEUDNKESP

EST FIN

FRAGBR

GRC

HUNIDN

IND

IRLITAJPN

KOR

LTU

LVA

MEX

NLD

POL

PRT

ROMRUS

SVKSVN SWE

TUR

TWN

USA

q ms N



7 7.5 8 8.5 9 9.5 10 10.5 110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUSAUTBELBGRBRA CANCHN CZE DEUDNKESPEST FINFRAGBRGRCHUNIDNIND IRLITAJPNKORLTULVAMEX NLDPOL PRT

ROMRUS

SVKSVN SWE

TUR TWN USA

q s Ts N


0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUS

AUT

BEL

BGR

BRA

CAN

CHN

CZE

DEUDNK

ESPEST

FIN

FRAGBR

GRCHUN

IDN

IND

IRL

ITAJPN

KORLTU

LVA

MEX

NLD

POL

PRT

ROMRUS

SVK SVNSWE

TUR

TWN

USA

q s Ns N



Development Accounting with I-O Linkages

Am AsT AsNWith intermediate inputs:

Income elasticity 1.06 0.67 1.14Ratio D10/D1 69.3 12.4 78.0

Without intermediate inputs:Income elasticity 1.07 0.79 1.12Ratio D10/D1 70.5 21.0 73.1


Robustness

Am AsT AsN AoWith intermediate inputs:

Income elasticity 1.05 0.65 1.14 1.14Ratio D10/D1 67.6 11.5 77.9 74.2

Without intermediate inputs:Income elasticity 1.07 0.79 1.12 1.11Ratio D10/D1 70.5 21.0 73.1 73.1


Conclusions


A non-trivial subset of service categories features a falling relativeprice with income (non-traditional services)

A standard development accounting uncovers the importance ofheterogeneity in services for productivity implications

Labor productivity differences in non-traditional services are muchlarger than those in manufacturing

The process of development involves a reallocation tonon-traditional services

Facilitating development requires solving the productivity problemin non-traditional services

Doing so may require reforms that are more elaborate than thetypical “openness-to-trade” recipe

Documents

Relative Prices and Sectoral Productivity