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CHAPTER 2
GLOBAL PRODUCTIVITY
FIGURE 2.1 Innovation Economies characterized by formal innovation activities—such as more patents per capita and R&D expenditure—tend to grow faster after controlling for the initial productivity level. Measures of innovation are lower in EMDEs than in advanced economies—the number of new patents per capita was six times larger in advanced economies than EMDEs in 2017. Although the gap between advanced economies and EMDEs has been narrowing since 2000, the convergence in patents per capita and R&D expenditure is largely driven by China. A. Productivity growth by innovation activity
B. Innovation activities Patents per million population
Percent 3
600
Advanced economies EMDEs EMDEs ex. China
Percent of GDP 3
2
400
2
1
200
1
0 0
0 1985
Highest
Lowest
Patents per capita
Highest
Lowest
R&D expenditure
2000
2017
Patents per capita
2000
2017
R&D expenditure (RHS)
Sources: United Nations Educational, Scientific and Cultural Organization; World Bank. Note: EMDEs = emerging market and developing economies; R&D = research and development. A. Average annualized labor productivity growth grouped by the initial level of each indicator. “Highest”/“Lowest” group contains countries whose indicator is in top/bottom 25 percent. The effect of initial productivity has been partialled out. See annex 2A for detail. “Patents per capita” is the number of new patent applications per capita. The samples include 32 advanced economies and 74 EMDEs for patents per capita from 1995 to 2018, and 31 advanced economies and 49 EMDEs for R&D expenditures from 2000 to 2018. B. Aggregates are calculated using GDP weights at 2010 prices and market exchange rates. The samples include 23 advanced economies and 37 EMDEs for patents per capita, and 26 advanced economies and 40 EMDEs for R&D expenditures.
Pacific (EAP), rapid output growth has been closely linked to high investment. In the empirical literature, there is a robust cross-section association between the investment rate and labor productivity, which may even have strengthened over time (Beaudry, Collard, and Green 2005). Research based on the nonparametric estimation of global production frontiers, tracking their movement over time, also finds a major role for capital accumulation in productivity growth (Kumar and Russell 2002). Most private sector firms rely on services provided by infrastructure. Investment in infrastructure can complement new technologies, and raise productivity and well-being.4 Infrastructure needs in EMDEs remain high and relate to transport, water and sanitation, power, and telecommunications. Achieving infrastructure-related Sustainable Development Goals in low-income and middle-income countries will require average yearly investment of 2 to 8 percent of GDP during 2015-30 (Rozenberg and Fay 2019; Vorisek and Yu 2020). The contribution of capital accumulation to output growth has been higher for EMDEs than for advanced economies (chapter 1). The quality of labor. The productivity of an economy depends partly on the quality of its labor force, which can be improved in several ways. Other things being equal, a 4 For a discussion of infrastructure investment, see, for example, Aschauer (1989); Calderón, Moral-Benito, and Servén (2015); Martins (2019); Melo, Graham, and Brage-Ardao (2013); and Pereira and Andraz (2013).
