The productivity growth slowdown in advanced economies: causes and policy recommendations

Wroński, Marcin

doi:10.2478/ijme-2019-0020

Abstract

The growth of total factor productivity (TFP) in advanced economies has slowed significantly after the 1970s. The global financial crisis (GFC) has resulted in the second productivity growth slowdown. This paper, on the basis of a broad literature review, identifies the structural forces and legacies of the financial crisis, explaining the productivity growth slowdown and providing possible policy solutions. The mismeasurement hypothesis is also discussed. The slowing pace of innovations, population aging, slowing human capital accumulation, limits of structural transformation, capital misallocation, and firm-level factors are identified as structural forces slowing TFP growth. Lack of capital deepening, financial frictions, and slowdown of international trade are the most important legacies of GFC affecting productivity growth.

References

Acemoglu, D., Restrepo, P. (2017), Secular stagnation? The effect of aging on economic growth in the age of automation, American Economic Review, Vol. 107, No. 5, pp. 174–179.
Search in Google Scholar Back to article
Adler, G., Duval, R., Furceri, D., Celik, S.K, Koloskova, K., Poplawski-Riberio, M. (2017), Gone with the headwinds: global productivity, IMF Staff Discussion Note SDN/17/04, International Monetary Fund.
Search in Google Scholar Back to article
Aghion, P., Akcigit, U., Bergeaud, A., Blundell, R., Hemous, D. (2019), Innovation and top income inequality, The Review of Economic Studies, Vol. 86, No. 1, pp. 1–45.
Search in Google Scholar Back to article
Ahmad, N., Ribarsky, J., Reinsdorf, M. (2017), Can potential mismeasurement of the digital economy explain the post-crisis slowdown in GDP and productivity growth?, OECD Statistics Working Papers, OECD.
Search in Google Scholar Back to article
Aiyar, S., Ebeke, Ch., Shao, X. (2016), The impact of workforce aging on European productivity, IMF Working Paper WP/16/238, International Monetary Fund.
Search in Google Scholar Back to article
Alcala, F., Ciccone, A. (2004), Trade and productivity, The Quarterly Journal of Economics, Vol. 119, No. 2, pp. 613–646.
Search in Google Scholar Back to article
Andrews, D., Cingano, F. (2014), Public policy and resource allocation: evidence from firms in OECD countries, Economic Policy, Vol. 29, No. 78, pp. 253–296.
Search in Google Scholar Back to article
Andrews, D., Criscuolo, C., Gal, P.N. (2016), The best versus the rest: the global productivity slowdown, divergence across firms and the role of public policy, OECD Productivity Working Papers No. 05, OECD.
Search in Google Scholar Back to article
Bank of England (2016), A millennium of economic data, Bank of England.
Search in Google Scholar Back to article
Barnett, A., Chiu, A., Franklin, J., Sebastiá-Barriel, M. (2014), The productivity puzzle: a firm-level investigation into employment behavior and resource allocation over the crisis, Bank of England Staff Working Paper No. 495, Bank of England.
Search in Google Scholar Back to article
Barro, R., Lee, J. (2013), A new data set of educational attainment in the world, 1950–2010, Journal of Development Economics, Vol. 104, pp. 184–198.
Search in Google Scholar Back to article
Bergeuad, A., Cette, G., Lecat, R. (2016), Productivity trends in advanced countries between 1890 and 2012, The Review of Income and Wealth, Vol. 62, No. 3, pp. 420–444.
Search in Google Scholar Back to article
Besley, T., Roland, I., Van Reen, J. (2016), Credit market frictions and the productivity slowdown, in: I. Roland, (Ed.), Essays on financial frictions and productivity, London School of Economics and Political Science, London.
Search in Google Scholar Back to article
Brynjolfsson, E., McAfee, A. (2014), The second machine age: work progress and prosperity in times of brilliant technologies, W.W. Norton & Company, New York.
Search in Google Scholar Back to article
Bughin, J., Kotz, H., Mischke, J. (2018), Strong aggregate demand: critical for reaping benefits of digitization, voxEU, CEPR, London.
Search in Google Scholar Back to article
Caballero, R., Hoshi, T., Kashyap, A. (2008), Zombie lending and depressed restructuring in Japan, American Economic Review, Vol. 98, No. 5, pp. 1943–1977.
Search in Google Scholar Back to article
Caliendo, L., Rossi-Hansberg, E. (2012), The impact of trade on organization and productivity, The Quarterly Journal of Economics, Vol. 127, No. 3, pp. 1393–1146.
Search in Google Scholar Back to article
Cardarelli, R., Lusinyan, L. (2015), U.S. total factor productivity slowdown: evidence from the U.S. states, IMF Working Paper WP/15/16, International Monetary Fund.
Search in Google Scholar Back to article
Cette, G., Fernald, J., Mojon, B. (2016), The pre-great recession slowdown in productivity, Working Papers 586, Banque de France.
Search in Google Scholar Back to article
Choudhri, E., Hakura, D. (2000), International trade and productivity growth; exploring the sectoral effects for developing countries, IMF Working Papers 00/17, International Monetary Fund.
Search in Google Scholar Back to article
Decker, R., Haltiwanger, J., Jarmin, R., Miranda, J. (2016), Declining business dynamism: implications for productivity?, Brookings Institution, Washington, DC.
Search in Google Scholar Back to article
Del Gatto, M., Di Liberto, A., Petraglia, C. (2011), Measuring productivity, Journal of Economic Surveys, Vol. 25, No. 5, pp. 952–1008.
Search in Google Scholar Back to article
De Loecker, J., Eeckhout, J. (2017). The rise of market power and the macroeconomic implications. NBER Working Paper Series No. 23687 NBER.
Search in Google Scholar Back to article
Diewert, W., Fox, K. (2018), A decomposition of US business sector TFP growth into technical progress and cost efficiency components, Journal of Productivity Analysis, Vol. 50, No. 1, pp. 71–84.
Search in Google Scholar Back to article
Duranton, G. (2008), Viewpoint: from cities to productivity and growth in developing countries, Canadian Journal of Economic, Vol. 41, No. 3 pp. 689–736.
Search in Google Scholar Back to article
Duval, R., Hong, G., Timmer, Y. (2017), Financial frictions and the great productivity slowdown, IMF Working Paper WP 17/129, IMF.
Search in Google Scholar Back to article
European Central Bank (2017), The slowdown in Euro area productivity in a global context, ECB Economic Bulletin Issue 3/2017, European Central Bank.
Search in Google Scholar Back to article
European Council (2016), National productivity boards backed by Council, Press release 521/16, European Council.
Search in Google Scholar Back to article
Fernald, J., Wang, J. (2016), Why has the cyclicality of productivity changed? What does it mean? Federal Reserve Bank of San Francisco Working Paper 2016-07, FED San Francisco.
Search in Google Scholar Back to article
Feyrer, J. (2007). Demographics and productivity, Review of Economics and Statistics, Vol. 89, No. 1, pp. 101–109.
Search in Google Scholar Back to article
Goldin, I., Koutroumpis, P., Lafond, F., Rochowicz, N., Winkler, J. (2018), Why is productivity slowing down? Oxford Martin School Working Papers, University of Oxford.
Search in Google Scholar Back to article
Goolsbee, A., Klenow, P. (2006), Valuing consumer products by the time spent using them: an application to the internet, American Economic Review, Vol. 96, No. 2, pp. 108–113.
Search in Google Scholar Back to article
Gopinath, G., Kalemli-Ozcan, S., Karabarbounis, L., Villegas-Sanchez, C. (2017), Capital allocation and productivity in Southern Europe, The Quarterly Journal of Economics, Vol. 132, No. 4, pp. 1915–1964.
Search in Google Scholar Back to article
Gordon, R. (2016), The rise and fall of American growth: the US standard of living since the civil war, Princeton University Press, Princeton and Oxford.
Search in Google Scholar Back to article
Gouveia, A., Osterhold, Ch. (2018), Fear the walking dead: zombie firms, spillovers and exit barriers, OECD Productivity Working Papers 2018-13, OECD Publishing.
Search in Google Scholar Back to article
Greenstein, S., McDevitt, R. (2009), The broadband bonus: accounting for broadband internet’s impact on U.S. GDP, NBER Working Paper 14758, NBER.
Search in Google Scholar Back to article
Grifell-Tatjé, E., Lovel, C., Sickler, R. (Ed) (2018), The Oxford handbook of productivity analysis, Oxford University Press, New York.
Search in Google Scholar Back to article
Guvenen, F., Mataloni, R., Rassier, D., Ruhl, K. (2018), Offshore profit shifting and domestic productivity measurement, Federal Reserve Bank of Minneapolis Working Paper 751, FED Minneapolis.
Search in Google Scholar Back to article
Hall, R., Jones, Ch. (1999), Why do some countries produce so much more output per worker than others? The Quarterly Journal of Economics, Vol. 114, No.1, pp. 83–116.
Search in Google Scholar Back to article
Haskel, J., Westlake, S. (2017), Capitalism without capital. The rise of the intangible economy, Princeton University Press, Princeton, NJ.
Search in Google Scholar Back to article
Hsieh, C.-T. (2002), What explains the industrial revolution in East Asia? Evidence from the factor markets, American Economic Review, Vol. 92, No. 3, pp. 502–526.
Search in Google Scholar Back to article
Hsieh, C.-T., Klenow, P. (2009), Misallocation and manufacturing TFP in China and India, The Quarterly Journal of Economics, Vol. 124, No. 4, pp. 1403–1448.
Search in Google Scholar Back to article
Hulten, C. (2001), Total factor productivity: a short biography, in: C. Hulten, E. Dean, M. Harper, (Eds), New development in productivity analysis, Chicago University Press, Chicago, IL.
Search in Google Scholar Back to article
Krugman, P. (1994), The age of diminished expectations, MIT Press, Cambridge, MA.
Search in Google Scholar Back to article
Levenko, N., Kaspar, O., Staehr, K. (2018), Total factor productivity growth in Central and Eastern Europe before, during and after the global financial crisis, Post-Communist Economies, Vol. 31, No. 2, pp. 137–160.
Search in Google Scholar Back to article
Mazzucato, M. (2013), The entrepreneurial state debunking public vs. private sector myths, Anthem Press.
Search in Google Scholar Back to article
McGowan, M., Andrews, D., Millot, V. (2017), The walking dead? Zombie firms and productivity performance in OECD countries, OECD Economics Department Working Papers, OECD.
Search in Google Scholar Back to article
Morrisson, Ch., Murtin, F. (2013), The Kuznets curve of human capital inequality: 1870–2010, The Journal of Economic Inequality, Vol. 11, No. 3, pp. 282–301.
Search in Google Scholar Back to article
Neto, A., Ribeiro, R. (2019), A neo-Kaleckian model of skilled-biased technological change and income distribution, Review of Keynesian Economics, Vol. 9 No. 4, pp. 292–307
Search in Google Scholar Back to article
Nevo, A., Turner, J., Williams, J. (2016), Usage-based pricing and demand for residential broadband, Econometrica, Vol. 84, No. 2, pp. 411–443.
Search in Google Scholar Back to article
OECD (2001), OECD manual measuring productivity. Measurement of aggregate and industry-level productivity growth, OECD, Paris.
Search in Google Scholar Back to article
OECD (2017a), The next production revolution – implications for governments and business, OECD, Paris.
Search in Google Scholar Back to article
OECD (2017b), Making trade work for all, OECD, Paris.
Search in Google Scholar Back to article
Ollivaud, P., Guillemett, Y., Turner, D. (2016), Links between weak investment and the slowdown in productivity and potential output growth across the OECD, OECD Economics Department Working Papers No. 1304, OECD.
Search in Google Scholar Back to article
Peri, G. (2012). The effect of immigration on productivity: evidence from U.S. States, The Review of Economics and Statistics, Vol. 94, No. 1, pp. 348–358.
Search in Google Scholar Back to article
Queralto, A. (2010), Financial market frictions, productivity growth and crises in emerging economies, Society of Economic Dynamics Annual Meeting 2011, Society of Economics Dynamics, Ghent, Belgium, July 7–9, 2011.
Search in Google Scholar Back to article
Renda, A., Dougherty, S. (2017), Pro-productivity institutions: learning from national experience, OECD Productivity Working Papers, OECD.
Search in Google Scholar Back to article
Restuccia, D., Rogerson, R. (2017), The causes and costs of misallocation, Journal of Economic Perspectives, Vol. 31, No. 3, pp. 151–174.
Search in Google Scholar Back to article
Riley, R., Rosazza-Bondibene, C., Young, G. (2015), The UK productivity puzzle 2008–13: evidence from British businesses, Bank of England Staff Working Paper No. 531, Bank of England.
Search in Google Scholar Back to article
Solow, R. (1978) We’d Better Watch Out. New York Times Book Review, July 12, p. 36
Search in Google Scholar Back to article
Sorbe, S., Gal, P., Millot, V. (2018), Can productivity still grow in service-based economies?: literature overview and preliminary evidence from OECD countries, OECD Economics Department Working Papers, No. 1531, OECD.
Search in Google Scholar Back to article
Syverson, C. (2011), What determines productivity? Journal of Economic Literature, Vol. 49, No. 2, pp. 325–360.
Search in Google Scholar Back to article
Syverson, C. (2017), Challenges to mismeasurement explanations for the US productivity slowdown, Journal of Economics Perspectives, Vol. 31, No. 2, pp. 165–186.
Search in Google Scholar Back to article
Van Beveren, I. (2012), Total factor productivity estimation: a practical review, Journal of Economic Surveys, Vol. 96, No. 1, pp. 98–128.
Search in Google Scholar Back to article
Varian, H. (2013), Economic value of Google, Google.
Search in Google Scholar Back to article
World Bank (2018), Our world in data, World Bank.
Search in Google Scholar Back to article
World Bank (2019), World development report 2019: the changing nature of work, World Bank, Washington, DC.
Search in Google Scholar Back to article
World Intellectual Property Organization (2017), World intellectual property indicators 2017, World Intellectual Property Organization, Geneva.
Search in Google Scholar Back to article

The productivity growth slowdown in advanced economies: causes and policy recommendations

Abstract

Paradigm

My account