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INTRODUCTION
GLOBAL PRODUCTIVITY
these three dimensions.5 It combines these dimensions with a comprehensive review of the literature in each area and state-of-the-art empirical methodologies that have in most cases previously been applied only to advanced economies. Throughout the book, unless otherwise indicated, productivity refers to real gross domestic product (GDP) per worker. To ensure as large and comparable a sample as possible over time and across countries, this book uses the number of people employed rather than the number of hours worked as the measure of labor input. A second measure, total factor productivity (TFP), is also examined. TFP measures the efficiency with which factor inputs are combined; in “growth accounting” exercises, estimates of TFP growth are often used to proxy the rate of technological progress.
Key findings and policy messages Using multiple data sets assembled expressly for this study, the book examines trends in productivity growth since the 1980s. The analysis shows that productivity growth has become more synchronized, with steeper declines and shallower recoveries, and that cyclical factors have played a large role in driving these trends. The study of crosscountry sectoral data establishes that the slowdown in productivity growth after the 2007-09 GFC has partly reflected fading reallocation gains due to the increased role of employment in some services sectors, where productivity tends to be lower than in the industrial sector. It concludes that labor productivity growth has been driven by innovation, better education, and investment in physical capital. It also finds that adverse shocks—such as natural disasters, epidemics, wars, and financial crises—have weakened productivity growth. A recurring theme of the book is the long-standing and broad-based nature of the productivity growth slowdown that began before the COVID-19 pandemic. This highlights that any policy package to rekindle productivity growth needs to be similarly broad-based. A comprehensive approach is needed to facilitate investment in physical and human capital; encourage reallocation of resources toward more productive sectors and enterprises; foster firm capabilities to reinvigorate technology adoption and innovation; and promote an inclusive, sustainable, and growth-friendly macroeconomic and institutional environment. Within this comprehensive approach, specific policy priorities will depend on country circumstances.
A decade of slowing productivity growth Before the outbreak of the COVID-19 pandemic, the global economy featured a broad-based decline in productivity growth. Global labor productivity growth slowed from its peak of 2.8 percent in 2007, just before the GFC, to a postcrisis trough of 1.4 percent in 2016 and remained below 2.0 percent a year in 2017-18 (figure 1). The 5 For macroeconomic analysis, see Adler et al. (2017) and Kim and Loayza (2019). For sectoral analysis, see McMillan, Rodrik, and Sepulveda (2017) and McMillan, Rodrik, and Verduzco-Gallo (2014). For firm-level analysis, see Cirera and Maloney (2017); Cusolito and Maloney (2018); and Fuglie et al. (2020).
