Welfare effects of technological convergence in processed food industries.

[Received November 2006; accepted July 2007.]

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(1) Relaxing the assumption of constant fixed cost complicates the analysis but does not affect our basic results.

(2) Note that complete factor price equalization requires convergence in both fixed cost and marginal cost. Here, marginal cost convergence reduces the technological and wage gap.

(3) If both fixed and marginal costs converge, the follower's global production share and relative wage will rise, while its imported share of consumption will fall. Terms of trade remain unchanged in both countries. However, both countries benefit from the increased number of goods.

(4) The terms "technological" and "productivity" convergence are used here synonymously.

(5) Recall in our theoretical model that a country's technological level is measured by its labor productivity (x/l or [x.sup.*]/[l.sup.*]). However, technological level is measured empirically here by total factor productivity (based on inputs of both capital and labor) rather than by labor productivity. The latter does not allow one to identify the separate influences of technology and capital growth (Bernard and Jones 1996b).

(6) Estimates of equation (4) can be used to decompose not only the follower's relative but absolute TFP growth.

(7) Some countries' data are in certain years available in both revisions. These data enable us to test the average difference between the data reported in Revision 3 and those converted, from the U.S. industry correspondence, from Revision 2 to Revision 3. Results of t-tests indicate that none of the data differences in value-added, employment, or gross fixed capital formation is significantly different from zero at the 5 % significance level. Hence, we apply to other countries the U.S. correspondence between the two revisions.

(8) Manufacturing value-added price index and output price index are computed as the ratio of current to constant manufacturing value added; gross-fixed-capital-formation price index is computed as the ratio of current to constant gross fixed capital formation in the aggregate economy; and the consumer price index (CPI) of the aggregate economy is used to deflate wages.

(9) We follow Hall et al.'s (1988) procedure to obtain base-year capital stock data, given that [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] is base-year investment, initial capital stock [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] equals [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII], where g is pre-sample annual growth rate of new capital. Country-specific pre-sample capital growth rates are derived as the average annual growth rates of gross fixed capital formation in the aggregate economy during the ten-year pre-sample period (WDI 2005). We set the depreciation rate (d) at 8% per year.

(l0) The import (export) price index is calculated as the ratio of current to constant imports (exports) of goods and services in the aggregate economy.

(11) Except for ISIC 1542, U.S. production time-series data are unavailable in the five industries (ISIC 1532, 1541, 1543-44, 1549) for which the United States is not the technological leader.

(12) In most industries and countries, TFP grew during the 1993-2001 interval. Exceptions include ISIC 1553, followers in ISIC 1514 and 1544, and leader in 1551. The relatively large decline in followers' TFP in ISIC 1544 can be explained by a sudden drop in Austrian output in 2000.

(13) We tested whether the intercepts in equation (4) are industry-specific. At the 5% significance level, an F-test cannot reject the null hypothesis that intercepts are identical across industries.

(14) Although [R.sup.2] is difficult to interpret in FGLS settings, our OLS fit of equation (6) explains 94.8% of the variation in growth rates of followers' global value-added shares.

(15) About 21.8% of the variation in followers' imported consumption shares is explained by the OLS regression of equation (8), since other factors, such as tariffs and other trade barriers, may also explain imported consumption share.

Jun Ruan is a graduate research assistant and Ph.D. student, and Munisamy Gopinath and Steven Buccola are professors in the Department of Agricultural and Resource Economics at Oregon State University. The authors thank Mark Gehlhar at ERS/USDA for providing COMTRADE data. Table 1. Estimates of the Value-Added Equation (Dependent Variable: Log of Value-Added Per Worker, 1993-2001) Independent Estimates Variable Log of capital 0.226 *** (18.99)

per labor Log of -0.045 *** (-4.46)