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CHAPTER 2
GLOBAL PRODUCTIVITY
BOX 2.1 Review of recent firm-level total factor productivity literature
A large literature identifies various sources of firm total factor productivity (TFP) growth, which has slowed over the last decade. Enhancing firm capabilities, easing the efficient reallocation of input factors, and fostering the net entry of highproductivity firms are key to raising TFP growth.
Introduction The literature on firm productivity is extensive (Bloom et al. 2010). This box reviews the literature on total factor productivity (TFP), a measure of efficiency in translating a combination of inputs into value added (Cusolito et al. 2018). It addresses the following questions: •
How has firm-level TFP varied over time and across countries?
•
What factors drive firm TFP growth?
Firm TFP patterns Research provides a range of empirical findings on firm TFP growth patterns (Dall’Olio et al. 2014; di Mauro et al. 2018). Longitudinal evidence. The post-GFC slowdown in productivity reignited the debate on firm-level drivers of TFP growth. In the United States, TFP growth has slowed since the 2000s, reflecting a loss of momentum in job reallocation and entrepreneurship, exacerbated by adverse shocks from the crisis (Cardarelli and Lusinyan 2015; Decker et al. 2016). Japan has experienced a longer-term decline in TFP growth since the early 1990s, with headwinds from an aging population and a gradual reduction in the statutory workweek (Hayashi and Prescott 2002). In EMDEs, TFP growth has also slowed down, though by less than in the advanced economies (Cusolito and Maloney 2018; Papa, Rehill, and O’Connor 2018). Cross-sectional evidence. Variation in aggregate TFP is often found to account for nearly half the variation in output per capita across economies (Bartelsman, Haltiwanger, and Scarpetta 2013). Studies of firm-level TFP in Organisation for Economic Co-operation and Development (OECD) member countries reveal dispersion between the frontier and lagging firms. a This is true as well within particular sectors and across firms in advanced economies and EMDEs (Bartelsman and Doms 2000). The typical “frontier firm” is more productive, more innovative, more capital intensive, with larger sales revenue, and more Note: This box was prepared by Cedric Okou. a. At the firm level, revenue-based productivity measures use total sales as a proxy for output.
