Accounting for Cross‐Country Differences in Output Per Worker: A Sectoral CES Perspective

ABSTRACT The standard macroeconomic literature suggests that richer countries employ more productive technologies. Removing technological disparities between countries would hence narrow the substantial variation in output per worker across countries. But technology is factor‐neutral in this standard development accounting approach, which is at odds with important macroeconomic frameworks and empirical results. We hence develop a CES production structure with factor‐biased technologies and revisit the question: how much would the variation in output per worker across countries narrow if all countries had access to the same menu of production technologies? Our results for the aggregate market sector suggest: probably not at all. But there are remarkable differences for this result across five subsectors. We use those to illustrate that our presumably surprising finding results from an interplay of complementary production factors, factor bias of technologies, and the menu of available technologies.