This paper investigates the relationship between sectoral capital-labor ratios, total factor productivity (TFP) and wages based on the contemporary Balassa-Samuelson model. To proceed, first, we identify a tradable and nontradable sector using an average of export to value added ratio for a group of developed and developing countries over the period 2001 to 2014. After accounting for cross-sectional dependence in the data, we find strong evidence that TFP of the tradable sector and wages significantly determines sectoral capital-labor ratios in both developed and developing countries. The long-run elasticities show that improvement in TFP declines the capital-labor ratios, whereas wages increase the capital-labor ratios in both tradable and nontradable sectors across developed and developing countries. © 2020, © 2020 Taylor & Francis Group, LLC.