Sectoral Capital–Labor Ratios and Total Factor Productivity: Evidence from Asia

Abstract

This paper examines the relationship between sectoral capita-labor ratios and total factor productivity (TFP) for six Asian economies in the context of the Balassa-Samuelson model. A strong prediction of the model is that the capital-labor ratios in both the traded- and nontraded-goods sectors depend on the TFP in the traded-goods sector. Both single-equation and panel cointegration tests support this implication of the model.