and input price, as well as their effects on unit cost, are indeed quite different among the three countries.
For 1979 (the most recent point in our data) we can summarize the above finding of country-specific features as follows. Germany has on average the highest TFP level, as well as the highest input price level. It has a cost advantage in those sectors whose TFP levels are high enough to offset the highest input price level. Germany has a cost disadvantage in sectors in which this offsetting process does not work.
While Japan has as many sectors with the highest TFP level as Germany, it also has an equally large number of sectors with the lowest TFP level. Although on average the Japanese input price level exceeds the U.S. level in 1979, Japan has the remarkable feature that the sectors with the highest TFP level have also, on average, the lowest input price level. Therefore, the Japanese cost advantage is based on the mutually reinforcing effects of high TFP and low input price levels. The United States has the smallest number of sectors with the highest TFP level, and the smallest number with the highest input price level as well. The United States is thus characterized by moderate TFP and input price levels. As a result this country has a cost advantage in sectors for which Germany has too high input prices and Japan too low TFP levels. Both the United States and Japan have a cost disadvantage in sectors in which the TFP level is on average the lowest and the input price level is of a moderate level.
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