We study the importance of input-output (IO) linkages and sectoral productivity (TFP) in determining cross-country income differences. We find that while highly connected sectors are more productive than the typical sector in poor countries, the opposite is true in rich ones. To assess the quantitative role of linkages and sectoral TFP differences in cross-country income differences, we decompose cross-country income variation using a multisector general equilibrium model. We find that IO linkages substantially amplify fundamental sectoral TFP variation, but this amplification is significantly weaker than the one suggested by a simple IO model with an aggregate intermediate good.
Fadinger, Harald, Christian Ghiglino, and Mariya Teteryatnikova.
"Income Differences, Productivity, and Input-Output Networks."
American Economic Journal: Macroeconomics,
General Equilibrium and Disequilibrium: Input-Output Tables and Analysis
General Aggregative Models: Social Accounting Matrix
Macroeconomic Analyses of Economic Development
Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence