Intermediate inputs and cross-country productivity differences

Abstract

Agricultural productivity is important in accounting for international income differences. Both real and nominal intermediate input intensity in agriculture are highly positively correlated with agricultural productivity across countries. However, models with only exogenous price variations are not able to generate any cross-country variation of nominal intermediate input intensity. Therefore, structures that can generate variations in nominal intermediate input intensity are needed in these models. We add a minimum structure to such a model and show that intermediate inputs could account for substantially more cross-country differences in both agricultural and aggregate productivity.