A country’s productivity performance is central to its standard of living. While strong, sustained productivity growth is an important foundation of a resilient economy, attaining it can be elusive as productivity opportunities are uncertain in nature and timing. Adverse events such as the global pandemic, which has decelerated growth trends, weaken not only national productivity performance but also its drivers. As the crisis has changed the way we work, countries need to focus on productivity drivers to achieve sustainable, inclusive recovery.

Productivity growth is a central driver of long-term economic growth and living standards but, in recent years, its contribution to growth has declined significantly in most countries. The COVID-19 crisis has not helped, as heightened uncertainty has impacted investment, and slowed or even reverted the pace of globalisation. However, the crisis has also accelerated the digitalisation of economies, potentially boosting productivity. Reigniting the productivity engine is more important than ever if economies are to achieve sustainable, inclusive and resilient growth. To move in this direction, it is key to understand the role of productivity in economic growth as well as the underlying driving forces.

Productivity growth has been sluggish in many OECD and APO economies, with the slowdown in productivity preceding the global financial crisis in some countries. The COVID-19 pandemic and more recently the war in Ukraine, together with rising geopolitical tensions, have increased uncertainties around economic developments, threatening the economic recovery. Concerns have risen that these developments may lead to a pronounced and long-standing fall in productivity growth.

The pandemic triggered the most severe and abrupt global recession since the end of the Second World War. Concerns have risen that this would lead to a pronounced and long-standing fall in productivity growth. As productivity growth rates in many OECD and APO economies had been declining prior to the pandemic, the downturn could potentially drive productivity growth into zero or negative territory, lowering living standards. Rising uncertainties from the war in Ukraine and enhanced geo-political tensions have intensified those concerns. This chapter seeks to review the potential impact of the COVID-19 crisis on productivity in the short and long term, drawing on recent data and insights from the economic literature. Given the large uncertainties surrounding the pace of the recovery, the analysis remains explorative.

Productivity growth reflects changes in the volume of output that are not explained by corresponding changes in the volume of observable inputs. While the simplest productivity measures are single-factor ratios where output is divided by the amount of a single input, e.g. labour in the case of labour productivity, such measures are affected by changes in the volume of other inputs. This is why Multifactor Productivity, sometimes called Total Factor Productivity, where output is divided by a combination of observable inputs, is often preferred. This chapter discusses the importance of multifactor productivity for economic growth and the associated measurement issues drawing on the economic literature.

A pre-requisite to reinvigorate the productivity engine is to identify its underlying driving forces. This chapter reviews the most important drivers of multifactor productivity growth: those that boost innovation and experimentation of new knowledge and technologies, such as research and development, digitalisation and investment in intangible assets; those that contribute to the diffusion of existing knowledge and technologies, including human capital and public infrastructure; and those that facilitate the allocation of resources within or between sectors and firms, such as competition, globalisation and financial development. This chapter also discusses the importance of good governance and institutions, which emerge as a cross-cutting factor affecting all three dimensions.