Market Structure, Technology Spillovers, and Persistence in Productivity Differentials

Using data from 11 manufacturing industries in 17 OECD countries, this paper empirically investigates the determinants of cross-country differences in the persistence of productivity differentials. Specifically, the paper focuses on the effects of product market structure and technology diffusion. It is found that the manufacturing industries display a wide range of convergence rates. Consistent with theories, the persistence of productivity differentials is found to be positively correlated with the price-cost margin—the proxy for market monopolistic behavior. The proxies for technology diffusion, however, do not exhibit consistently significant effect. Among the conditioning macro variables, productivity convergence appears to be enhanced by human capital but deterred by government spending.