International productivity differences, infrastructure, and comparative advantage

This paper provides an empirical analysis of the effect of infrastructure provision on industry-level productivity and international specialization, as suggested by Clarida and Findlay's (1992) model. We calculate total factor productivity (TFP) for 18 developed and developing countries and 10 manufacturing industries, and study the effects of supplies of roads, telecommunications and electric power on international variations in sectoral TFP, i.e. comparative advantage. We also examine the effects of infrastructure on the sectoral composition of output across countries. Using a three-stage least-squares estimation strategy to control for endogeneity of infrastructure provision, we find that infrastructure, especially roads, helps to explain patterns of comparative advantage and international specialization.