International Productivity Differences in Manufacturing Industry

Problems with Existing Theory and Some Suggestions for a Theoretical Restructuring

by Richard R. Nelson

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An examination of the formal theory purporting to explain international differences in output per worker in manufacturing, particularly differences between developed and underdeveloped countries, and suggestions for a theoretical restructuring to explain these differences. A case is presented for abandoning two central assumptions of existing theory — that all firms can be considered as on the same neoclassical production function, and that factor markets are perfect and competitive. The technological lead, product-cycle theory suggests a different analysis: manufacturing development should be modeled on an inter- and intranational diffusion process. An empirical analysis of productivity differences between the United States and Colombia supports the argument.

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