Sectoral Energy- and Labour-Productivity Convergence

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XGS_i ∑ XGS_i

Balassa index:         χ4⁴ = -10-------^{i i}=1 ₁₀-------

∑XGS₁,s ∕∑∑XGS₁,s
s=1          / i=1 s=1

Economies of scale:  x5_t = Y

^t 13
∑ Y
s=1

where sectoral indices are omitted for reasons of expositional clarity and with energy prices
( x¹_1t^a ) or wages ( x¹_1t^b ) included, respectively, in case of explaining energy-productivity growth
or labour-productivity growth. We expect energy prices and wages to be positively correlated
with, respectively, energy- and labour-productivity growth. We took a three-year moving
average for the energy price and wages to avoid capturing the effect of short-term price
fluctuations, assuming that investments in energy- and labour-augmenting technologies do
respond to a structural trend in energy price/wage developments rather than to short term
fluctuations. By including the investment share as an explanatory variable we test for the so-
called embodiment hypothesis or a vintage effect, assuming that higher investment will
contribute to increasing energy- and labour-productivity growth via technological change
embodied in new capital goods (see, for example, Howarth et al. 1991 and Mulder et al.
2003). We expect openness to have a positive impact on productivity growth, since an open
sector faces relatively strong competition as well as exchange of knowledge, which we both
assume to have a stimulating effect on productivity growth. The Balassa index is an indictor
measuring relative specialization patterns. We expect that if a country specializes in a
particular sector, that that sector will be technologically relatively advanced, and hence we
expect a positive effect on productivity. Finally, including an indicator for the relative size of
a sector within a country captures the potential effect of economies of scale on productivity
growth, assuming that a large sector is able to invest relatively much in R&D and in new
capital goods and, hence, might be a technological leader displaying relatively high
productivity growth rates.

The results of regressing average energy-productivity growth rates on initial energy
productivity levels and these additional explanatory variables, according to equation 6, are
presented in Table 4.¹⁷

¹⁷ We also controlled for different specifications of energy prices (current prices, 5-year moving average, and
log 3-year and log 5-year moving average), investment share ((I/Y)_t_1 (I/K), (I/K)_t_1 and ln(I/K)_t_1), as well as an
interaction term of investment share and log initial energy productivity (ln(Y/E)0* (I/Y)). All these specifications
did not substantially alter the estimates. Details are available upon request.

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