## Productivity Dynamics and Long-Run Growth, Principality of Liechtenstein (sipea2026033)

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**Canonical URL:** [Productivity Dynamics and Long-Run Growth, Principality of Liechtenstein (sipea2026033)](https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026033.pdf)

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### Introduction and headline findings
- Labor productivity in Liechtenstein is among the highest in Europe but productivity growth has been weak for an extended period.
- Productivity measure: real GDP per full-time equivalent (including cross-border commuters).
- Growth-model characteristics:
  - Export-oriented, highly specialized manufacturing and financial sectors.
  - Heavy reliance on skilled cross-border commuters.
- Observed trends:
  - Productivity levels remain comparable to Switzerland and above most European peers.
  - Productivity growth has been limited for more than two decades and relative productivity has declined versus peers including Switzerland and the United States.
  - GDP per worker has remained broadly flat, indicating a prolonged structural slowdown rather than cyclical weakness.
- Administrative/metadata:
  - Completed on March 5, 2026.
  - Prepared by Tara Iyer and Andinet Woldemichael. SIP/2026/033.

### Sectoral analysis and key statistics
- Sector shares and composition:
  - Services account for 58 percent of gross value added and 64 percent of total employment.
  - Manufacturing sector: SMEs account for 95 percent of registered firms and 25 percent of domestic employment in 2023.
  - Financial sector accounts for 17 percent of services value added.
- Productivity patterns:
  - Productivity levels in manufacturing remain high but have shown limited gains over the past decade.
  - Productivity growth in services has been lower, consistent with lower capital intensity and smaller average firm size.
  - The productivity gap between manufacturing and services constrains aggregate productivity growth, especially when labor reallocation across sectors is limited.

### Drivers of long-run growth — innovation, skills, labor, and capital
- Innovation and R&D:
  - Private R&D investment is high and concentrated in manufacturing.
  - R&D investment increased from 6.6 percent of sales in 2013 to 8.5 percent of sales in 2023.
  - About 47 percent of R&D spending is devoted to product development and basic research.
  - A quarter of employees are engaged in R&D (average shares between 2017 and 2023).
  - Public sector R&D spending was around 2 percent of total R&D spending in 2023.
  - Over 2013–23, productivity and innovation indicators relative to the United States declined.
- Intellectual property (IP):
  - In 2022, Liechtenstein was among countries with the highest number of registered IPs on a per capita basis.
  - The average individual in Liechtenstein holds three IPs; the typical Swiss resident holds fewer than one.
  - Recent decades have seen a relative decline in registered IPs per capita, corresponding with reduced productivity.
- Skills and labor market constraints:
  - Persistent shortages of workers with technical and specialized skills, particularly in advanced manufacturing and engineering-related occupations.
  - Cross-border commuters have mitigated skill gaps, but shortages remain and constrain firms’ ability to adopt new technologies and reorganize production.
- Labor input and demographics:
  - A significant share of employment consists of non-resident workers; total employment exceeds the resident population.
  - Cross-border commuters are employed across manufacturing and services, supporting high GDP per capita and a high-wage model.
  - Population aging and low labor force participation among older workers and women (relative to men) limit expansion of the domestic workforce.
  - Infrastructure constraints—transport congestion and limited cross-border capacity—affect scope for further commuter inflows.
  - The wage premium for commuters relative to neighboring regions has narrowed over time.
- Capital accumulation:
  - Capital deepening is conceptually important, but lack of detailed capital stock data and firm-level investment information prevents a detailed assessment for Liechtenstein.
  - Available information indicates investment supports a capital-intensive production structure.
  - Persistent transport congestion reflects high reliance on cross-border commuters and infrastructure capacity pressures.

### Reform options and policy recommendations
- Human capital and skills upgrading:
  - Expand STEM and digital skills and strengthen skills-based training systems.
  - Modernize and expand the vocational and dual-training system.
  - Scale mid-career reskilling for older workers.
  - Comparative public education spending: about 5 percent of GDP in Switzerland and Austria, closer to 4 percent of GDP in Liechtenstein (World Development Indicators, IMF, 2025b).
- Innovation and firm capability upgrading:
  - Support applied research, facilitate technology adoption, and promote SME innovation.
  - Strengthen linkages between large multinational firms and smaller domestic enterprises to diffuse technology and productivity gains.
  - Increase public R&D spending through public-private partnerships to supplement private sector R&D and potentially reverse declining IP per capita.
  - Example cited: Swiss Innovation Park (public-private innovation partnership).
- Labor supply expansion:
  - Policies to raise female labor force participation and extend working lives, including lifelong learning, reskilling programs in technological fields, greater workplace flexibility, expanded parental leave, and improved childcare and after-school care.
  - Higher female labor force participation is associated with sizeable growth gains (IMF, 2018).
- Physical and digital infrastructure investment:
  - Address transport congestion and cross-border capacity constraints to support commuter inflows and broader labor market functioning.
  - Expand digital infrastructure to support firm connectivity and efficient factor use.

### Data limitations and suggested data actions
- Data constraints:
  - Available data are limited to measure the full extent of private sector productivity, including total factor productivity across firms of different sizes.
  - Example data point: there were around 4860 SMEs in 2024 with 10 or less employees creating employment opportunities and value addition.
- Suggested use of existing microdata:
  - Available tax data—which has detailed information on firm characteristics, sales, material and wage cost, etc.—could be leveraged to perform such analysis.
- Implication:
  - Limitations in capital stock and firm-level data constrain deeper assessment of total factor productivity dynamics and the relative contributions of capital, labor, and technology, underscoring the need for improved data to support more granular analysis.

### Conclusion — summary of core findings and priorities
- Core finding: Productivity growth in Liechtenstein "has stalled over an extended period."
- Salient constraints identified:
  - "skills shortages"
  - "demographic pressures"
  - "transport constraints"
- Structural and sectoral factors shaping the environment:
  - "Sectoral productivity gaps"
  - "relatively low public sector R&D investment"
  - "reliance on cross-border labor"
  - "infrastructure pressures"
- Priority reform areas to sustain productivity and long-run growth:
  - labor supply expansion
  - human capital upgrading
  - public-private innovation partnerships
  - infrastructure reforms
- Specific policy directions:
  - Address transport bottlenecks, improve congestion management, and expand digital infrastructure to support skilled labor mobility, firm connectivity, and efficient factor use.
  - Strengthen public sector R&D investment and public-private innovation partnerships to bolster innovation and productivity.
- Emphatic quotations from the analysis:
  - "Sustaining high living standards will require continued productivity improvements."
  - "Measuring productivity, firm dynamism and examining key driving factors could shed some light on this important sector of the economy."

*PRINCIPALITY OF LIECHTENSTEIN — INTERNATIONAL MONETARY FUND (sipea2026033). Completed on March 5, 2026. Prepared by Tara Iyer and Andinet Woldemichael. SIP/2026/033.*

### Section 1

### Productivity Dynamics and Long-Run Growth, Principality of Liechtenstein

### Introduction
- Labor productivity in Liechtenstein is among the highest in Europe but productivity growth has been weak for an extended period.
- Productivity measure: real GDP per full-time equivalent (including cross-border commuters).
- Key characteristics of the growth model:
  - Export-oriented, highly specialized manufacturing and financial sectors.
  - Heavy reliance on skilled cross-border commuters.
- Observed trends:
  - Productivity levels remain comparable to Switzerland and above most European peers.
  - Productivity growth has been limited for more than two decades and relative productivity has declined versus peers including Switzerland and the United States.
  - GDP per worker has remained broadly flat, indicating a prolonged structural slowdown rather than cyclical weakness.
- Completion date of the paper: March 5, 2026.

### Sectoral Analysis of Productivity
- Sector composition and shares:
  - Services account for 58 percent of gross value added and 64 percent of total employment.
  - Manufacturing sector: SMEs account for 95 percent of registered firms and 25 percent of domestic employment in 2023.
  - Financial sector accounts for 17 percent of services value added.
- Productivity patterns:
  - Productivity levels in manufacturing remain high but have shown limited gains over the past decade.
  - Productivity growth in services has been lower, consistent with lower capital intensity and smaller average firm size.
  - The productivity gap between manufacturing and services constrains aggregate productivity growth, especially when labor reallocation across sectors is limited.

### Drivers of Long-Run Growth
- Innovation and R&D:
  - Private R&D investment is high and concentrated in manufacturing.
  - R&D investment increased from 6.6 percent of sales in 2013 to 8.5 percent of sales in 2023.
  - About 47 percent of R&D spending is devoted to product development and basic research.
  - A quarter of employees are engaged in R&D (average shares between 2017 and 2023).
  - Public sector R&D spending was around 2 percent of total R&D spending in 2023.
  - Over 2013–23, productivity and innovation indicators relative to the United States declined.
- Intellectual property (IP):
  - In 2022, Liechtenstein was among countries with the highest number of registered IPs on a per capita basis.
  - The average individual in Liechtenstein holds three IPs; the typical Swiss resident holds fewer than one.
  - Recent decades have seen a relative decline in registered IPs per capita, corresponding with reduced productivity.
- Skills and labor market constraints:
  - Persistent shortages of workers with technical and specialized skills, particularly in advanced manufacturing and engineering-related occupations.
  - Cross-border commuters have mitigated skill gaps, but shortages remain and constrain firms’ ability to adopt new technologies and reorganize production.
- Labor input and demographics:
  - A significant share of employment consists of non-resident workers; total employment exceeds the resident population.
  - Cross-border commuters are employed across manufacturing and services, supporting high GDP per capita and a high-wage model.
  - Population aging and low labor force participation among older workers and women (relative to men) limit expansion of the domestic workforce.
  - Infrastructure constraints—transport congestion and limited cross-border capacity—affect scope for further commuter inflows.
  - The wage premium for commuters relative to neighboring regions has narrowed over time.
- Capital accumulation:
  - Capital deepening is conceptually important, but lack of detailed capital stock data and firm-level investment information prevents a detailed assessment for Liechtenstein.
  - Available information indicates investment supports a capital-intensive production structure.
  - Persistent transport congestion reflects high reliance on cross-border commuters and infrastructure capacity pressures.

### Reform Options
- Priority reform areas to sustain productivity and long-run growth:
  - Human capital and skills upgrading:
    - Expand STEM and digital skills and strengthen skills-based training systems.
    - Modernize and expand the vocational and dual-training system.
    - Scale mid-career reskilling for older workers.
    - Comparative public education spending: about 5 percent of GDP in Switzerland and Austria, closer to 4 percent of GDP in Liechtenstein (World Development Indicators, IMF, 2025b).
  - Innovation and firm capability upgrading:
    - Support applied research, facilitate technology adoption, and promote SME innovation.
    - Strengthen linkages between large multinational firms and smaller domestic enterprises to diffuse technology and productivity gains.
    - Increase public R&D spending through public-private partnerships to supplement private sector R&D and potentially reverse declining IP per capita.
    - Example cited: Swiss Innovation Park (public-private innovation partnership).
  - Labor supply expansion:
    - Policies to raise female labor force participation and extend working lives, including lifelong learning, reskilling programs in technological fields, greater workplace flexibility, expanded parental leave, and improved childcare and after-school care.
    - Higher female labor force participation is associated with sizeable growth gains (IMF, 2018).
  - Physical and digital infrastructure investment:
    - Address transport congestion and cross-border capacity constraints to support commuter inflows and broader labor market functioning.

### Conclusion
- Liechtenstein retains high productivity levels but faces a prolonged slowdown in productivity growth and declining relative performance.
- Structural constraints include demographic pressures, skills shortages, reliance on cross-border commuters, and infrastructure bottlenecks, despite strong private innovation and high private R&D investment.
- Sustaining high living standards will require targeted structural reforms: upgrading human capital, expanding labor supply, strengthening public-private innovation partnerships, and improving physical and digital infrastructure.

*Prepared by Tara Iyer and Andinet Woldemichael. SIP/2026/033. Completed on March 5, 2026.*

### Section 2

### sipea2026033 - Section 2

### Conclusion — summary of core findings
- Productivity growth in Liechtenstein "has stalled over an extended period."
- Salient constraints identified:
  - "skills shortages"
  - "demographic pressures"
  - "transport constraints"
- Structural and sectoral factors shaping the current environment:
  - "Sectoral productivity gaps"
  - "relatively low public sector R&D investment"
  - "reliance on cross-border labor"
  - "infrastructure pressures"
- Limitations in analysis:
  - "limitations in capital stock and firm-level data constrain deeper assessment of total factor productivity dynamics and the relative contributions of capital, labor, and technology"

### Data limitations and suggested data actions
- Data constraints noted:
  - Available data are limited to measure the full extent of private sector productivity, including total factor productivity across firms of different sizes.
  - Example data point: "there were around 4860 SMEs in 2024 with 10 or less employees creating employment opportunities and value addition."
- Suggested use of existing microdata:
  - "Available tax data—which has detailed information on firm characteristics, sales, material and wage cost, etc.—could be leveraged to perform such analysis."
- Implication:
  - "underscoring the need for improved data to support more granular analysis."

### Policy implications and priority reform areas
- Sustaining high living standards requires continued productivity improvements.
- Cross-country European evidence highlights priority reform areas, including:
  - labor supply expansion
  - human capital upgrading
  - public-private innovation partnerships
  - infrastructure reforms
- Specific policy directions signaled by the analysis:
  - Address transport bottlenecks, improve congestion management, and expand digital infrastructure to support skilled labor mobility, firm connectivity, and efficient factor use.
  - Strengthen public sector R&D investment and public-private innovation partnerships to bolster innovation and productivity.

### Key quotations and emphasis from the section
- "Sustaining high living standards will require continued productivity improvements."
- "Measuring productivity, firm dynamism and examining key driving factors could shed some light on this important sector of the economy."

*PRINCIPALITY OF LIECHTENSTEIN — INTERNATIONAL MONETARY FUND (sipea2026033 - Section 2)*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026033.pdf_