Gross Domestic Product (GDP) is the standard measure of the value of final goods and services produced in a country during a given period of time minus the value of imports. GDP per capita is a core indicator of economic performance and commonly used as a broad measure of average living standards or economic well-being.

Gross Domestic Product (GDP) per capita measures economic activity or income per person and is one of the core indicators of economic performance. Growth in GDP per capita can result from changes in labour productivity (GDP per hour worked) and labour utilisation (hours worked per capita). A slowing or declining rate of labour utilisation combined with high labour productivity growth can be indicative of a greater use of capital and/or of structural shifts to higher-productivity activities.

GDP per capita convergence, often described as the catch-up process, refers to the process by which less advanced economies with lower-income per capita converge towards more advanced economies through higher growth rates, as they capitalise on technology transfer, inward investment, and relatively lower labour costs.

Labour productivity is the most frequently computed productivity indicator. It represents the volume of output produced per unit of labour input. The ratio between output and labour input depends to a large degree on the presence of other inputs, such as physical capital and increasingly intangible fixed assets used in production, and technical efficiency and organisational change. Labour productivity is a key dimension of economic performance and an essential driver of changes in living standards.

Labour productivity is most appropriately measured as a volume of output generated per hour worked. However the number of persons employed (i.e. total employment) is often used as a proxy for labour input, in particular, when data on total hours worked cannot be estimated.

It is a stylised fact that intangible capital plays an increasingly important role in growth and productivity. But less well known are the potential measurement challenges these bring, in particular with regards to whether the underlying use of the intangible is recorded in the accounts as generating cross-border services flows – which increase gross domestic product (GDP) – or cross-border flows of primary income, recorded in gross national income (GNI). This matters for labour productivity measures. In this regard, productivity measures based on GNI are able to provide a complementary view that may shed light on possible measurement distortions.

Capital productivity shows how efficiently capital is used to generate output. Investment in information and communication technologies (ICT) enables new technologies to enter the production process and is seen as an important driver of productivity growth. Investment in intellectual property products, such as R&D, not only contributes to expand the technological frontier but also enhances the ability of firms to adopt existing technologies, playing an important role in productivity performance.

Economic growth can be fostered either by raising the labour and capital inputs used in production, or by improving the overall efficiency with which these inputs are used together, i.e. higher multifactor productivity growth (MFP). Growth accounting involves decomposing total output growth, measured here as GDP growth, into these three components. As such, it provides an essential tool for policy makers to identify the underlying drivers of growth.

Multifactor productivity (MFP) reflects the overall efficiency with which labour and capital inputs are used together in the production process. Labour productivity growth represents a higher level of output for every hour worked. This can be achieved if more capital per labour unit, i.e. capital deepening, is used in production, or by improving the overall efficiency with which labour and capital are used together, i.e. higher MFP.