over 1 percent per year in all countries except Spain, where it averaged 0.5 percent. The strongest rates of technical change, in excess of 4 percent per year, were registered in France, which is usually found to be a high-productivity country in most cross-country studies, and in the United Kingdom, which had 2.2 percent average TFP growth in manufacturing over this time period.

Before discussing the results on reallocation, note that the residual is sizeable and we decide to allocate it to the aggregate distortion, reallocation, and technology growth component in proportion to their relative size. In Table 11 we report the proportion of aggregate productivity accounted for by each component, after this adjustment. The results suggest, ...rst, that in most countries most of productivity growth is accounted by technology growth. More speci...cally, technological progress accounts for the totality of productivity growth in Great Britain and in France, for a large fraction in Italy (.66%) and for a sizeable, but smaller fraction in Belgium and Spain (43% and 21% respectively). Second, aggregate distortions are quite important in Spain Belgium, and Italy, where they account for 85%, 55%, and 33% of productivity growth respectively. They are, instead rather small in Great Britain and in France. The reallocation terms for primary factors or materials accounts for a small proportion of productivity growth in all countries.<sup>14</sup> It follows that, unless one is willing to treat the entire residual as part of reallocation term, factor reallocation does not appear to be an important component of productivity growth.<sup>15</sup> Here the nature of the sample may work against ...nding strong results, since most of the ...rms are quite large in all the years they are observed. Reallocation e¤ects are most clearly apparent when ...rms that are small initially grow to a large size due to their superior productivity. There are probably fewer such ...rms in our sample than in the population, thus reducing the quantitative impact of reallocation. Petrin, White and Reiter (2009) come to the di¤erent conclusion that reallocation represents a large fraction of productivity growth, using manufacturing plant level data for the US. They calculate their reallocation term as the di¤erence between a Divisia index of ...rm level productivity growth and a Divisia index of technology growth. Thus, they include aggregate distortions as part of reallocation, which should not be the case if one wants to estimate and index of allocative e¢ ciency strictly de...ned. We also ...nd that aggregate distortions can be substantial for some countries.<sup>16</sup> Finally, although reallocation of factors towards uses where they have a higher social valuation has not been a large part of the improvement in productivity and welfare for the sample period we have analyzed, does not mean that a benevolent central planner could not achieve large welfare improvement from factor reallocation. This distinction between the historical decomposition we have presented and what could be potentially obtained should be kept in mind when drawing inferences from these results.

> 14 Because the reallocation term is so small, not much is learned from presenting its the decomposition in a within and between component.

> 15 If we treat the residual as re‡ecting the di¤erence in primary factor prices faced by ...rms and treat it entirely as part of the reallocation term, as in Basu and Fernald (2002), reallocation would account for approximately a third of productivity growth in Great Britain.

> 16 Petrin, White and Reiter (2009) implement the decomposition proposed by Petrin and Levinsohn (2008) which is a variant of the Basu and Fernald (2002) decomposition.

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