Growth and convergence of the OECD countries: A multi-sector production-frontier approach

Kumar and Russell (2002), Henderson and Russell (2005), and Badunenko, Henderson and Russell (2013) have proposed a production-frontier methodology to analyze the economic growth and the convergence of growth rates across countries. They see two main advantages to this methodology: (1) it reconstructs the world production frontier without relying on any particular (typically unverifiable) assumptions on any aspects of the growth process, and (2) it allows to decompose labor productivity growth into several parts. In this paper, I extend the previous approach by considering a multi-sector setting. This setting allows to propose a more realistic and complete country-level analysis, while keeping the same advantages as with the previous methodology. I also tackle the criticism of less reliable data at the sector level than at the country level by showing how the multi-sector approach can easily be adapted. I apply it to the OECD countries from 1995 to 2008. The results confirm the non-neutrality of technological change. I also find that capital accumulation plays the biggest role in the increase of output-labor productivity, while technological change and human capital accumulation also play an important role, but it is twice as small as capital accumulation. Interestingly, these results suggest the emergence of two groups: eastern and central European countries; and the EU15 and Korea. The two groups seem to diverge over time.