 |
This paper analyzes the common drivers of sectoral productivity cycles in 13 advanced economies across 15 sectors during the past three decades. We estimate a dynamic factor model that decomposes fluctuations in sectoral productivity into four distinct components: (i) a global factor, which captures fluctuations common to all countries and sectors; (ii) sector-specific factors, which capture fluctuations common across countries within each sector; (iii) country-specific factors, which capture fluctuations common across sectors within each country; and (iv) idiosyncratic factors, which are specific to each sector in each country. We report two major results. First, the common factors (global and sector-specific) constitute an important source of variation in sectoral productivity cycles, providing evidence for a global productivity cycle. Specifically, the global and sector-specific factors together account for about one-fourth of the variation in sectoral productivity cycles, ranging from 13 percent in the United States to 35 percent in France. Second, the global and sector-specific components of productivity fluctuations play a significant role in driving business cycle fluctuations. They, on average, account for about 42 percent of sectoral output volatility, explaining from 30 percent of the forecast error variance in Denmark to 56 percent in Germany for the one-year horizon. These findings are consistent with the predictions of a dynamic multi-country multi-sector general equilibrium model with productivity process comprising a global, sector-specific, and country-specific factors, that is calibrated to match the bilateral input-output trade linkages of 13 countries and 15 sectors.
