Common and idiosyncratic shocks to labor productivity across sectors and countries: Is climate relevant?

We use two methodologies, the least square dummy variables approach and the dynamic factor models, to decompose the labor productivity growth rate for a large sample of countries into common, i.e. global, and idiosyncratic, i.e. country, components. We find that country specific effects are much more important than common effects in explaining labor productivity. The interesting result is that, when splitting the sample of countries into those located in temperate zones and those located in tropical zones, we find that the common component plays a larger role in temperate countries. Thus, given the wide gap in labor productivity between the two climatic zones, policy should be targeted on developing technologies for tropical zones and/or on helping them to absorb R&D targeted for temperate countries