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CHAPTER 2
GLOBAL PRODUCTIVITY
and experienced workers tend to be more productive (Fox and Smeets 2011). New capital goods enable faster productivity growth, through embodied technical progress (Sakellaris and Wilson 2004). •
Management. Good management can improve the efficiency of production. The best managerial practices include setting clear targets, monitoring progress, and rewarding performance (Bloom and Van Reenen 2010; Lazear 2000). Incentives for team production, cross-training, work experience, and frequent employeemanager communication can also raise firm productivity (Bandiera, Barankay, and Rasul 2011).
External drivers. Outside forces influence productivity within and between firms. These external factors can allow each firm to improve its efficiency (the “within” effect) and stimulate more efficient firms to grow faster than others (the “between” effect). •
Regulatory and operating environments. Institutions and regulations influence firm productivity partly through incentives to invest in human and physical capital, and to acquire technology (Bartelsman and Doms 2000; Kouamé and Tapsoba 2018). Firm productivity tends to be lower in poorly regulated markets: weaker enforcement of competition laws can allow a large inefficient firm to drive productive competitors out of the market by abusing its market power; higher barriers of entry can prevent creative destruction (Goldberg et al. 2010). Private firms may be reluctant to undertake costly R&D when competitors, especially those in the informal sector, can infringe intellectual property rights (Amin and Islam 2015; Amin, Ohnsorge, and Okou 2019). The enforcement of property rights, and public-private partnerships to create technology extension centers in sectoral clusters, can increase firm participation in global value chains and raise productivity (Cirera and Maloney 2017). Improvements in the business environment and conducive regulatory practices—fair competition, increased business freedom— support growth of TFP and labor productivity.
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Spillovers and input markets. The presence of highly productive firms can have spillover effects and raise the productivity of other firms. These spillovers occur as knowledge and innovation are transferred through trade, FDI, and agglomeration channels (Aitken and Harrison 1999; Combes and Gobillon 2015). Flexible and integrated capital and labor markets can promote the reallocation of inputs toward the most productive firms (Bartelsman, Haltiwanger, and Scarpetta 2013).
Box 2.1 reviews the literature on firm-level TFP in more detail.
Summary of stylized facts In summary, there are positive associations between several drivers and labor productivity growth, after controlling for the initial productivity level (figure 2.8). Growth of labor productivity has been faster in countries that began with a larger working-age population share, greater economic complexity, lower income inequality, more patents per capita, deeper financial markets, higher educational attainment, higher
