Labor productivity and output convergences in South Asia: are they capable to develop an outfit for respective economies?

Purpose This study empirically examines the states of labor productivity convergence and output convergence at the aggregate and disaggregate levels in six major South Asian countries covering Bangladesh, Bhutan, India, Nepal, Pakistan and Sri Lanka. Design/methodology/approach This study applies quantitative research tradition to reach the research goal. It uses World Development Indicators and Groningen Growth and Development Center databases from 1980 to 2023 for output convergence at the aggregate and disaggregate levels and from 1991 to 2023 for labor productivity convergence at the aggregate and disaggregate levels. The convergence model used in this study is based on Barro’s neoclassical growth model. The study deploys the random effects model as suggested by the Hausman test to understand the convergence at aggregate (GDP growth) and disaggregate (sectors) levels with its potential impact on economic growth. Findings The study finds that output convergence exists at both the aggregate and disaggregate levels. It also finds that the impact of foreign direct investment (FDI) inflows to all three sectors (agriculture, industry and services) are favorable. At the industry level, tariffs have an inverse relationship with sectoral labor productivity while higher tariffs are associated with lower labor productivity, higher total output, more establishments and more workers. Employability and exports are positively related to sectoral labor productivity, while imports are negatively related to productivity. Export expansion increases worker productivity in agriculture and manufacturing but has a smaller and negative impact on the service sector. Practical implications The study recommends deploying more focus and bringing improvements in export and FDI inflow to benefit the respective economies from labor productivity and output convergences. Originality/value This study argues that labor productivity acts as an important parameter to accelerate the development of an economy and supports per capita economic growth comparisons. This study makes a solid contribution in understanding convergences at aggregate and disaggregate levels with the drivers of labor productivity in agriculture, manufacturing and services sectors.