This paper examines the role of sectors in aggregate convergence for 14 OECD countries during 1970-1987. The major finding is that manufacturing shows little evidence of either labor productivity or multifactor productivity convergence, while other sectors, especially services, are driving the aggregate convergence result. To determine the robustness of the convergence results, the paper introduces a new measure of multifactor productivity which avoids many problems inherent to traditional measures of total factor productivity when comparing productivity levels. The lack of convergence in manufacturing is robust to the method of calculating multifactor productivity.

In this paper, we test whether aggregate productivity movements, especially convergence, are also reflected at the industry level.Using a new result on the asymptotic normality of panel unit root estimators, we find evidence for convergence in total factor productivity for sectors such as services and construction in 14 OECD countries from 1970-1987.However, surprisingly, we find that convergence does not hold for the manufacturing sector.Convergence in total industry occurs as a result of the declining share of manufacturing and the growing share of sevices in these countries.