Manufacturing Productivity and The Convergence Gap

This is a summary of a paper delivered by Dani Rodrik at a Jackson Hole conference. He argues that the convergence gap between developed and developing countries depends upon closing the manufacturing productivity gap. Developing countries that reach a certain point in manufacturing, for example production of autos, productivity increases rapidly. Continued increases in productivity depend upon absorbing technologies that are on the technology frontier. Only a few developing countries have closed the convergence/productivity gap. He argues that China's export based strategy helps it to absorb new technologies by manufacturing advanced products for advanced economies. It would be a mistake for China to move towards more domestic consumption and services. Most countries will not increase their productivity at a rate that closes the productivity gap. Many are not focused on manufacturing which has the potential for growth in productivity. Governance is also important. Some countries have done a better job of governing which has enabled them to avoid the mistakes that have tended to retard the growth in some emerging market economies. Countries that have focused on manufacturing productivity do well despite low governance quality.