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OECD Productivity Working Papers

The OECD Productivity Papers are associated with the Global Forum on Productivity that provides a forum for mutual exchange of information and fosters international co-operation between public bodies with responsibility for promoting productivity-enhancing policies, including in undertaking joint policy analysis. It offers a platform for exchanging views, experiences and information, institutional and governance arrangements and government structures, with a view towards developing better policies. The Forum extends existing work in the OECD through a well-prioritised and coherent stream of analytical work serving the policy research needs of participants on the drivers of productivity growth.

English

The Best versus the Rest

The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy

In this paper, we aim to bring the debate on the global productivity slowdown – which has largely been conducted from a macroeconomic perspective – to a more micro-level. We show that a particularly striking

feature of the productivity slowdown is not so much a lower productivity growth at the global frontier, but rather rising labour productivity at the global frontier coupled with an increasing labour productivity divergence

between the global frontier and laggard (non-frontier) firms. This productivity divergence remains after controlling for differences in capital deepening and mark-up behaviour, suggesting that divergence in measured multi-factor productivity (MFP) may in fact reflect technological divergence in a broad sense. This divergence could plausibly reflect the potential for structural changes in the global economy – namely digitalisation, globalisation and the rising importance of tacit knowledge – to fuel rapid productivity gains at the global frontier. Yet, aggregate MFP performance was significantly weaker in industries where MFP divergence was more pronounced, suggesting that the divergence observed is not solely driven by frontier firms pushing the boundary outward. We contend that increasing MFP divergence – and the global productivity slowdown more generally – could reflect a slowdown in the diffusion process. This could be a reflection of increasing costs for laggard firms of moving from an economy based on production to one based on ideas. But it could also be symptomatic of rising entry barriers and a decline in the contestability of markets. We find the rise in MFP divergence to be much more extreme in sectors where pro-competitive product market reforms were least extensive, suggesting that policy weaknesses may be stifling diffusion in OECD economies.

English

Keywords: firm dynamics, regulation, knowledge diffusion, technological change, productivity
JEL: O30: Economic Development, Innovation, Technological Change, and Growth / Innovation; Research and Development; Technological Change; Intellectual Property Rights / Innovation; Research and Development; Technological Change; Intellectual Property Rights: General; O57: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies / Comparative Studies of Countries; O40: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Economic Growth and Aggregate Productivity: General; O43: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Institutions and Growth; M13: Business Administration and Business Economics; Marketing; Accounting; Personnel Economics / Business Administration / New Firms; Startups
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