Where TFP is an index constructed from equation (14). R/K is the log ratio of the R&D capital stock to the physical capital stock, and H/K is the ratio of non-production to total workers (we test for both levels and differences in R/K and H/K). The industry fixed effects help to capture differences in steady-state levels of relative TFP. The productivity gap, log Theta, is the log level of US TFP in industry i minus the log level of Japanese TFP in industry i, and is set to zero if the Japanese level is that of the USA.