The New Normal: A Sector-level Perspective on Productivity Trends in Advanced Economies
Staff Discussion Notes, March 18, 2015
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Bibliographic details
- Authors: Era Dabla-Norris, Si Guo, V. Haksar, Minsuk Kim, Kalpana Kochhar, Kevin Wiseman, Aleksandra Zdzienicka
- Published: March 18, 2015
- Series: Staff Discussion Notes
- DOI: https://doi.org/10.5089/9781498334181.006
Overview
- Total factor productivity growth was stagnant or slowing in many advanced countries even prior to the crisis.
- This paper documents sector-level productivity patterns across advanced economies prior to the crisis and examines the role of product and labor market rigidities as well as innovation and investments in information technology and human capital in driving productivity differences across sectors and countries.
- Since productivity payoffs of reforms evolve over time, the paper focuses on large changes in the structural indicators and examines their dynamic impact on productivity, employment, and output.
- The results suggest that reform priorities depend on country-specific settings, including the scale of specific policy distortions and the distance from the technology frontier.
- Productivity gains from reforms are large and materialize predominantly in the medium term, with some important variations across industries and countries.
Key findings and empirical patterns
- Sector-level productivity patterns across advanced economies show stagnation or slowing of total factor productivity growth prior to the crisis.
- Product and labor market rigidities, innovation, and investments in information technology and human capital are identified as drivers of productivity differences across sectors and countries.
- Dynamic analysis of large changes in structural indicators reveals impacts on productivity, employment, and output that unfold over time.
- Reform payoffs:
- Depend on country-specific settings.
- Are influenced by the scale of policy distortions.
- Are influenced by distance from the technology frontier.
- Tend to materialize predominantly in the medium term.
- There are notable variations in the magnitude and timing of productivity gains across industries and countries.
Policy implications and recommendations
- Reform priorities should be tailored to country-specific settings, taking into account:
- The scale of specific policy distortions.
- The country’s distance from the technology frontier.
- Emphasize reforms that reduce product and labor market rigidities to foster productivity.
- Promote innovation and investments in information technology and human capital to drive sector-level productivity improvements.
- Recognize that productivity gains from reforms are likely to be large but typically materialize in the medium term, requiring sustained policy commitment.
- Anticipate heterogeneity: design industry- and country-specific sequences and mixes of reforms given variation in responses across industries and countries.
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