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Relative Prices and Sectoral Productivity

Margarida Duarte and Diego Restuccia ()

Working Papers from University of Toronto, Department of Economics

Abstract: The relative price of services rises with development. A standard interpretation of this fact is that cross-country productivity differences are larger in manufacturing than in services. The service sector comprises heterogeneous categories. We document that the behavior of relative prices is markedly different across two broad classifications of services: traditional services, such as health and education, feature a rising relative price with development and non-traditional services, such as communication and transportation, feature a falling relative price with income. Using a standard model of structural transformation with an input-output structure, we find that cross-country productivity differences are much larger in non-traditional services (a factor of 106.5-fold between rich and poor countries) than in manufacturing (24.5-fold). Moreover, this relative productivity difference is reduced by more than half when abstracting from intermediate inputs. Development requires an emphasis on solving the productivity problem in non-traditional services in poor countries.

Keywords: Productivity; services; traditional; non-market; structural transformation; input-output structure. (search for similar items in EconPapers)
JEL-codes: O1 O4 E0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff, nep-mac and nep-opm
Date: 2015-01-21
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Working Paper: Relative Prices and Sectoral Productivity (2019) Downloads
Working Paper: Relative Prices and Sectoral Productivity (2017) Downloads
Working Paper: Relative Prices and Sectoral Productivity (2017) Downloads
Working Paper: Relative Prices and Sectoral Productivity (2016) Downloads
Working Paper: Relative Prices and Sectoral Productivity (2015) Downloads
Working Paper: Relative Prices and Sectoral Productivity (2012) Downloads
Working Paper: Relative Prices and Sectoral Productivity (2011) Downloads
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