Accounting for productivity convergence: the role of sectors and structural change

This paper examines the sources of aggregate labour productivity convergence across countries during 1990-2018, proposing a method to account for the contributions of sectors and structural change. Using newly developed purchasing power parities (PPPs) for sectoral value added, we analyse 66 countries and find that agriculture plays a predominant role in explaining aggregate labour productivity convergence. This is driven by two factors: strong labour productivity convergence within agriculture and substantial labour reallocation away from agriculture, especially in developing countries. Our analysis reveals minimal convergence in the non-agricultural economy, underscoring agriculture's importance. We also document a declining role of resource misallocation over time in explaining cross-country productivity differences. These findings challenge an emphasis on manufacturing-led development pathways, suggesting that agricultural productivity growth and subsequent labour reallocation have been the primary drivers of aggregate productivity convergence in recent decades.