The Sources of Economic Growth in OECD Countries

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25 Feb 2003
9789264199460 (PDF) ;9789264199453(print)

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Understand growth disparities between OECD countries over the past twenty years through identification and analysis of underlying factors.

Growth patterns through the 1990s and into this decade have turned received wisdom on its head. For most of the post-war period, OECD countries with relatively low GDP per capita grew faster than richer countries. Since the late 1990s, however, that pattern has broken down with the United States notably drawing further ahead of the field. This publication provides a comprehensive overview of growth drivers across the OECD and the extent to which disparities are attributable to factors like new technology and R&D, macroeconomic policy, education and training, labour market flexibility, product market competition, and barriers to business start-up and closure.

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  • Summary and Policy Conclusions

    Strong economic growth in some OECD countries over the 1990s, most notably in the United States, led many commentators to speculate that a "new economy" had emerged, largely driven by the spread of information and communication technology (ICT). In particular, economic performance in the United States included a combination of strong output and productivity growth, together with falling unemployment and low inflation. These patterns were all the more surprising for a country already at the technology frontier in many industries, and had no similar counterpart in other affluent OECD economies. Indeed, over the 1990s, large continental European countries, and Japan, experienced slow economic growth and rising, or persistently high unemployment.

  • Economic Growth: the Aggregate Evidence

    This chapter presents an overview of growth performance in OECD countries over the past two decades. Special attention is given to developments in labour productivity, allowing for human capital accumulation and multi-factor productivity (MFP), allowing for changes in the composition and quality of physical capital. The chapter suggests wide (and growing) disparities in GDP per capita growth, while differences in labour productivity have remained broadly stable. Countries that have managed to improve their growth performance share some common elements: improvements in labour utilisation; a generalised enhancement of human capital; and a rapid adoption of the new information and communication technology by many industries.

  • Policy Settings, Institutions and Aggregate Economic Growth

    This chapter sheds some light on the possible policy determinants of the observed growth disparities across the OECD countries discussed in the previous chapter. In addition to the "primary" influences of capital accumulation and skills embodied in human capital, the econometric analysis confirms the importance for growth of R&D activity, the macroeconomic environment, trade openness and welldeveloped financial markets. The empirical results also confirm that many of the policy influences operate not only "directly" on growth but also via the mobilisation of resources for fixed investment.

  • What Drives Productivity Growth at the Industry Level?

    This chapter extends the analysis of how policy influences growth by exploring industry-level data. In particular, it assesses how different policy and institutional settings in both product and labour markets affect productivity and innovation activity. Aggregate productivity patterns are largely the result of within-industry performance in the OECD countries, and the latter is negatively affected by strict product market regulations, especially if there is a significant technology gap with the technology leader. There is also evidence of an indirect negative effect of strict product market regulations on productivity via their impact on innovation activity. Likewise, by raising labour adjustment costs, strict employment protection legislation tends to hinder productivity, unless these higher costs are offset by lower wages and/or more internal training. However, strict employment protection legislation does not affect innovation activity, but rather tends to tilt sectoral specialisation towards industries where technological enhancement can be accommodated with internal training.

  • Firm Dynamics, Productivity and Policy Settings

    This chapter moves one step further in the examination of the policy determinants of economic growth by exploiting a new firmlevel database for ten OECD countries. It shows that the contribution to productivity growth from firm dynamic processes should not be overlooked, most notably in high-tech industries where new firms tend to boost overall productivity. There is evidence that burdensome regulations on entrepreneurial activity as well as high costs of adjusting the workforce negatively affect the entry of new small firms. Overall, there are a number of different features of entrant and exiting firms across countries. In particular, in the United States entrant firms tend to be smaller and with lower than average productivity, but those which survive the initial years expand rapidly. By contrast, firms tend to enter with a relatively higher size and productivity in Europe, but subsequently do not expand significantly. These findings tend to support the hypothesis of greater market experimentation in the United States, compared to many continental European countries, which in turn is likely to be the result of differences in regulatory settings across the Atlantic.

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