DP17085 New Evidence on Sectoral Labor Productivity: Implications for Industrialization and Development

Author(s): Berthold Herrendorf, Richard Rogerson, Akos Valentinyi
Publication Date: March 2022
Keyword(s): Agriculture, convergence, Industrialization, Manufacturing, productivity gaps, Spillovers
JEL(s): O47, Q10
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17085

Moving labor from agriculture to manufacturing - "industrialization" - is often viewed as essential for the development of poor countries. We present new evidence on the channels through which industrialization can help poor countries close the productivity gap with rich countries. To achieve this, we leverage recent data releases by the Groningen Growth and Development Centre and build a new dataset of comparable labor productivity levels in agriculture and manufacturing for 64 mostly poor countries during 1990--2018. We find two key results: (i) cross-country labor productivity gaps in manufacturing are larger than in the aggregate and (ii) there is no tendency for manufacturing labor productivity to converge. While these results challenge the notion that expanding manufacturing employment is essential for the development of today's poor countries, we also find that higher labor productivity growth in manufacturing is associated with higher labor productivity growth in the aggregate and in several key sectors.