Essays on Productivity and Structural Change within the Services Sector

My PhD thesis consists of three chapters. The first chapter revisits the results in Bernard and Jones (1996) that argue that a group of 14 OECD countries does not converge in the manufacturing sector. For an updated dataset I show that the non-catch-up in the manufacturing sector result still prevails for the standard estimators, but when I allow for parametrical heterogeneity it is overturned. I conclude that the estimators allowing for parametrical heterogeneity, for example MG and CDMG, can deal with the cross-country level measurement issues inherent for the manufacturing sector and reverse the pathological results about the convergence. The second chapter focuses on the role of the services sector for aggregate productivity growth and cross-country productivity differences. I show that, because of the substitutability between high- and low-productivity growth services sectors (progressive and stagnant services sectors), structural change would not take down aggregate productivity growth further in the future for developed countries. My results also reveal that this substitutability within the services sector contributes to productivity differences between the US and other developed countries. In the third chapter of my PhD thesis I want to understand the deeper causes behind the substitutability between progressive and stagnant services sectors. My results reveal that the substitutability of the progressive services with other sectors in the economy remains robust to the changes in input/output table and structural change within the investment value added. I note that the positive correlation between the nominal and real value added shares reflects the presence of progressive services. Modelling the progressive services separately can alone account for 30% of the income effects.