Selected Issues Papers

Belgium’s total factor productivity (TFP) growth slowdown since the late 1990s has been worse than peers’ despite significant spending on innovation. This is largely explained by subdued business dynamics, insufficient firm access to financing, labor and capital misallocation, and the predominance of small firms. Further product-market reforms to reduce barriers to entry and lower exit costs are needed to raise TFP. Reforming the wage-setting mechanism to better align wage and productivity developments would improve labor allocation. Deepening the European single market and advancing the capital market union would contribute to higher Belgian firm productivity and facilitate firm scale up.