Income differences across countries primarily reflect differences in total factor productivity (TFP). More disaggregated data show that the TFP gap between rich and poor countries varies systematically across industrial sectors of the economy: Poor countries are particularly unproductive in tradable and investment goods sectors. In this paper, we develop a quantitatively-oriented framework to explain such cross-country patterns in aggregate and sectoral TFP. We start by documenting that an important distinction between sectors is their average establishment size. For example, establishments in tradable and investment goods sectors operate at much larger scales than those in the non-tradable sector. In our model, sectors with larger scales of operation have more financing needs, and are hence disproportionately affected by financial frictions. Our quantitative exercises show that financial frictions account for a substantial part of the observed cross-country patterns in TFP, both at the aggregate and at the sectoral level. Our model also has novel implications for the impact of financial frictions on the relative scale between the tradable and the non-tradable sectors, which are shown to be consistent with the data.

The authors gratefully acknowledge the support of the National Science Foundation under grant number SES-0820318. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

The purpose of this article is to get mathematicians interested in studying a number of partial differential equations (PDEs) that naturally arise in macroeconomics. These PDEs come from models designed to study some of the most important questions in economics. At the same time, they are highly interesting for mathematicians because their structure is often quite difficult. We present a number of examples of such PDEs, discuss what is known about their properties, and list some open questions for future research.

Two traditional explanations for structural changes are sector-biased technological progress and non-homothetic preferences. This paper integrates both into an otherwise standard growth model and quantitatively evaluates them vis-a-vis time series. The exercise identi…es a set of puzzles for standard theories: (i) the model cannot account for the steep decline in manufacturing and rise in services in the later data; (ii) the standard model requires implausibly low elasticity of substitution across goods to match the consumption and output data; and (iii) the behavior of consumption and output shares di¤ers signi…cantly from that of employment shares. We argue that models that incorporate home production, sector-speci…c factor distortions, and di¤erences across sectors in the accumulation of human capital are promising avenues to amend the standard models.UCLA,

This paper shows that state contingent debt can be syntethically constructed using non-contingent debt of di¤erent maturities. A main policy implication of this principle is that the Ramsey allocation with complete markets can be sustained with non-contingent debt only by properly managing its maturity structure. The numerical experiments, however, suggest that this policy implication ought to be taken with care. We …nd that the debt positions that sustain the Ramsey allocation are very high (on the order of a few hundred times total GDP for a very simple four state economy) and increasing in the number of states. In addition, they are very sensitive to small variations in the parameters of the model.