Productivity across industries and countries: Time series theory and evidence

We examine whether convergence in aggregate productivity is also occurring at the industry level in 14 OECD countries from 1970-1987. Using both cross-section and time series methods, we find convergence in some sectors, such as services. However, surprisingly, we find that convergence does not hold for the manufacturing sector. Decomposing aggregate convergence into industry productivity gains and changing sectoral shares of output, we find the service sector to be responsible for the bulk of cross-country convergence to the United States. We develop a new result on the asymptotic normality of panel unit root estimators to formally test within sector convergence.