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Natural Resources and Missing Inputs in International Productivity Comparisons *
Author(s) -
Freeman Daan,
Inklaar Robert,
Diewert W. Erwin
Publication year - 2021
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12451
Subject(s) - productivity , natural resource , economics , production (economics) , reservation , resource (disambiguation) , partial productivity , relative price , resource productivity , natural resource economics , econometrics , microeconomics , total factor productivity , resource allocation , macroeconomics , computer science , market economy , ecology , computer network , biology
Standard theory for cross‐country productivity comparisons assumes all countries use the same factor inputs in production. This assumption is violated when including natural resources, such as oil, gas and gold, because countries do not extract the full set of resources. In this paper we propose a solution by viewing it as a “missing goods” problem and assigning missing inputs a reservation price equal to the world resource price. We show that this has a substantial impact on relative productivity levels for countries heavily reliant on natural resources for generating their income. Under our new productivity measure, resource‐rich countries are no longer uncommonly productive.