Synopsis

G L O B A L P R O D U C T I V I T Y I N T R O D U C T I O N 13

reconstruction activities, and to use policy efficiently and in a timely manner as well as to help vulnerable sectors that can in turn support productivity growth. Well-designed and enforced policies and regulations concerning the prudent management of financial institutions, construction, and environmental protection can help reduce the likelihood and impact of adverse shocks.

When pursuing these policy steps, it is important to keep in mind that their interactions, as well as the preexisting policy frameworks, can lead to unintended consequences. For instance, on the one hand, trade liberalization can increase the exposure of private sector firms to foreign knowledge and frontier technologies, thus boosting productivity. On the other hand, however, trade liberalization could be associated with greater informality in the short term if labor markets are not flexible, thus counteracting policies that aim at facilitating the reallocation of resources toward more productive sectors (Bosch, Goni, and Maloney 2007; World Bank 2019; Wu et al. 2019). Such potential interactions underscore how policy reforms complement each other, which needs to be taken into account when designing a country’s appropriate policy mix.

The remainder of this introduction presents a summary of each chapter. After presenting the motivation of the chapter, each summary explains the main questions, contributions to the literature, and analytical findings. After these summaries, a brief discussion of future research directions is presented.

Part I: Productivity Trends and Explanations

Part I examines the evolution of productivity growth, as well as its main drivers and implications. Chapter 1 documents the evolution of productivity over the past four decades, globally and across various country groups. In particular, it highlights the broad-based productivity growth slowdown over the past decade. Chapter 2 explores the role of a large number of long-term correlates of productivity growth in this productivity growth slowdown. Chapter 3 focuses on the role of short-term adverse events in depressing productivity growth. Chapter 4 shows the implications of the productivity growth slowdown for income convergence.

Chapter 1: Global Productivity Trends

In chapter 1, Dieppe, Kilic Celik, and Kindberg-Hanlon show that a broad-based slowdown in labor productivity was already under way before the collapse in global activity due to the COVID-19 pandemic (figure 2). In EMDEs, the slowdown that followed the GFC set back progress toward Sustainable Development Goals. The pace of convergence slowed even as labor productivity gaps with advanced economies remained substantial, with workers in the average EMDE producing less than one-fifth of the output of those in advanced economies.