Policies for Productivity Growth

Growth, investment and trade are the outcomes of the processes by which people with ideas start firms. Butwhere does the productive capacity of firms come from? What are the barriers that prevent resources toflow to the firms with the greatest potential? Why is it that not all people that possess entrepreneurial talentchoose to start firms? This paper reviews the micro forces that matter for aggregate productivity growthfocusing on six issues: costs to reallocating labour and capital, the influence of firm ownership andpolitical connections, informality, the allocation of talent across the economy, barriers to internal trade andthe working of housing markets. It concludes that the forces are complex but matter tremendously formacro productivity and addressing them requires a wide combination of policies.