How different are the production functions of the European manufacturing sectors? New empirical evidence

Abstract

The Neo-classical model of international trade assumes that the total factor productivity (TFP) of a sector is common across countries, that returns to scale are constant and that the sectoral production of the countries differs by virtue of the factor endowments. In this paper we consider whether the differences in production can also be explained by the economies of scale in the national industries and by the technological differences across countries. To test this hypothesis we estimate three models proposed in Harrigan (1999) with data for eight EU Member States covering the period 1978-1992 and analyse how the TFP changes from country to country.