PRODUCTIVITY ANALYSIS IN GLOBAL MANUFACTURING PRODUCTION

TLDR

Manufacturing is crucial for development, yet cross‑country studies of the sector are scarce. The study analyzes manufacturing production across many developing and developed economies to address this gap. The empirical framework models heterogeneous production technology while correcting for endogeneity and cross‑section dependence. Results show that production‑technology differences drive cross‑country labour‑productivity gaps, invalidating intercept‑based TFP estimates and prompting a new robust measure.

Abstract

Despite the widely recognised importance of the manufacturing industry for successful development few studies investigate this sector in cross-country analysis. We fill this gap in the literature by analysing manufacturing production across a large number of developing and developed economies. Our empirical framework allows for heterogeneous production technology and accounts for endogeneity as well as cross-section dependence in the panel. Our results imply that differences in production technology are of crucial importance for understanding cross-country differences in labour productivity and their underlying causes. In the light of these findings the interpretation of regression intercepts as TFP level estimates collapses and we introduce an alternative measure which is robust to parameter heterogeneity.