We document and account for two facts regarding the relation between international interest rates and total factor productivity (TFP) in a sample of developing countries. First, there is a negative correlation between both variables at quarterly frequency. Second, the share of agricultural labor...

Detrended Total Factor Productivity (TFP), net of changes in capital utilization, fell by 3.3% after the Korean 1997 financial crisis. Detrended real GDP per working age person fell by 11.9%. We construct a two-sector small open economy model that can account for 30.0% of the fall in TFP in...