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We may obtain ordinary productivity growth by ignoring the differences in the observed qualities, i.e., λ=1.
Note that ordinary productivity gain may include innovative contributions embodied in the factor inputs, which we call foreign innovations.
Note that we only obtain ordinary productivity if we use the deflator that measures changes in the quantity-weighted nominal prices.
We distinguish the productivity gain that reflects the local innovation of an industry (in this case, the car industry) from the ordinary productivity gain estimated via the standardized price change of the output.
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Table 4 China's productivity of ordinary export OLS, FE, and GMM estimates (1) (2) (3) (4) (5) (6) Dependent variable: China's EXPY of ordinary export OLS OLS FE FE GMM GMM L agged).
The gap is large when the productivity of ordinary exports is lower than the world average.
Productivity of ordinary export is a significant factor only in OLS classifications.
It also shows a learning effect of processing exports to the productivity of ordinary exports.
If this quality gap positively affects the productivity of ordinary exports in dynamics, the higher productivity of processing firms transfers to other firms in the sector.
The model predicts a low productivity of ordinary exports, far from the processing exports, will generate a leverage (or an incentive) of processing trade.
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