Labour productivity growth and convergence in manufacturing: A nonparametric production frontier approach

Abstract

Labour productivity growth in manufacturing is decomposed into technical efficiency change (movement towards or away from the frontier), technological progress (shifts in the production frontier), and capital accumulation (movement along the frontier) using a nonparametric production frontier method. The results suggest that labour productivity growth is primarily driven by capital accumulation and to a lesser extent technological progress, while technical efficiency is deteriorating over the period 1995–2014. We find that technological progress appears to be non-neutral, as the world manufacturing production frontier expands only at higher capital intensities, benefiting highly industrialized nations. We also find evidence of unconditional convergence in labour productivity for the manufacturing sector. Capital accumulation is the main driver of the observed unconditional convergence, whereas technological change is contributing to divergence rather than convergence. The findings suggest that expanding manufacturing activities through capital accumulation is essential for developing countries to catch-up with developed countries.