The current study investigates the trends in labour productivity of the major developing and developed economies of the Asia‐Pacific region and examines its determinants over the period 1980–2014. The study analyses capital deepening, human capital, technology, share of agriculture in GDP, financial development, institutional quality, inflation as well as macroeconomic variables as potential determinants of productivity, and identifies the differences in the impact of these factors on the productivity of developing and developed countries. Using panel cointegration and group‐mean fully modified ordinary least squares estimation, the study finds that capital deepening, human capital, technology, institutional quality and macroeconomic variables (i.e. government size and openness) are significant determinants of labour productivity of both developing and developed economies of the Asia‐Pacific region. The study further finds that while both trade openness and foreign direct investment affect productivity of developing economies positively, only trade openness has a positive and significant impact on the productivity of developed economies. The share of agriculture in GDP affects the labour productivity of developing Asia‐Pacific economies significantly but not that of developed economies. Furthermore, capital deepening has a much higher impact on the productivity of developing Asia‐Pacific economies than that of developed economies.

Purpose The study aims to empirically investigate the trends and determinants of labour productivity of the two broad sectors –industry and services – and their components, namely, manufacturing and market services sectors, in the case of major developing and developed economies of Asia-Pacific over the period 1980-2014 and make a comparison thereof. Design/methodology/approach The study uses econometric methodology of panel unit root tests, panel cointegration and group-mean full modified ordinary least squares (FMOLS). Findings The study finds that while capital deepening, government size, institutional quality, productivity of the other sector and financial openness affect productivity of all the sectors significantly, the impact of human capital and trade openness varies across sectors in the case of developing economies. Furthermore, the impact of technological progress becomes significant in the post-liberalization reforms period in the developing economies. The study further finds that capital deepening, human capital, government size, institutional quality, productivity of the other sector, government size and trade openness are significant determinants of productivity of all sectors of developed economies under consideration. However, the impact of technological progress is stronger for manufacturing sector than services and its components. Furthermore, while both equity and debt liabilities (as measures of financial openness) influence sectoral productivity of industry and manufacturing sectors positively and significantly in case of developed economies, only equity liabilities have a significant influence on the productivity of developing economies. This may indicate existence of more developed financial markets in the case of developed economies. Originality/value The study identifies important structural differences in determinants of productivity both across sectors and across developing and developed economies of Asia-Pacific.

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