Gone with the Headwinds: Global Productivity
Staff Discussion Notes, April 3, 2017
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Bibliographic details
- Authors: Gustavo Adler, Romain A Duval, Davide Furceri, Ksenia Koloskova, Marcos Poplawski Ribeiro
- Published: April 3, 2017
- Series: Staff Discussion Notes
- DOI: https://doi.org/10.5089/9781475589672.006
Summary
- Productivity growth—the key driver of living standards—fell sharply following the global financial crisis and has remained sluggish since, adding to a slowdown already in train before.
- The note finds that the productivity slowdown reflects both crisis legacies and structural headwinds.
- Reviving productivity growth requires addressing remaining crisis legacies in the short run while pressing ahead with structural reforms to tackle longer-term headwinds.
Major findings: crisis legacies and mechanisms
- In advanced economies, the global financial crisis has led to “productivity hysteresis”—persistent productivity losses from a seemingly temporary shock.
- Key crisis-related drivers behind hysteresis:
- Balance sheet vulnerabilities.
- Protracted weak demand.
- Elevated uncertainty.
- These factors jointly triggered an adverse feedback loop:
- Weak investment → weak productivity → bleak income prospects.
Major findings: structural headwinds
- Structural headwinds, already present before the crisis, include:
- A waning ICT boom.
- Slowing technology diffusion.
- An aging workforce (as a contributing factor to slowing diffusion).
- Slowing global trade.
- Weaker human capital accumulation.
Policy implications and recommendations
- Short run: Address remaining crisis legacies to interrupt the adverse feedback loop of weak investment and weak productivity.
- Medium to long run: Press ahead with structural reforms to tackle headwinds such as:
- Policies that boost technology diffusion.
- Measures to strengthen human capital accumulation.
- Reforms that mitigate effects of an aging workforce and support trade dynamism.
- Overall approach: Combine crisis-remedial measures with structural reforms to revive productivity growth.
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