Sectors differ from each other with respect to their productivity growth. Such differences may relate, for instance, to the intensity with which sectors use skilled labour and physical and knowledge-based capital in their production, the scope for product and process innovation, the absorption of external knowledge, the degree of product standardisation, the scope for economies of scale, and the exposure to international competition through their participation in global value chains.

Understanding the drivers of productivity growth in the business sector requires an awareness of the contribution that each industry makes. The contribution of an individual sector depends not only on its productivity growth but also on its share in total value added and total hours worked.

The manufacturing sector has historically been the main driver of aggregate productivity growth in most economies. While its contribution to aggregate productivity growth has become less important in recent years, it remains a key driver of productivity growth.

Developments in information and communication technologies (ICT) combined with internationally fragmented production processes are making business services increasingly dynamic, transportable and tradeable. As a result, several business sector services show characteristics similar to high-productivity manufacturing industries; they intensively use ICT and knowledge-based capital, exploit economies of scale, and are increasingly exposed to international competition.

The business services sector has contributed significantly to GDP growth across OECD countries in recent decades, driven in large part by an increase in firms providing intermediate services to other firms, also in the manufacturing sector. This process of outsourcing activities previously conducted in-house has increased efficiencies, and hence, labour productivity, of both outsourcing firms and specialised intermediary firms. Over the long term, this may produce a structural shift towards intermediate services industries and a direct positive contribution of high productivity business services to productivity growth of the total economy.

Many examples of productivity analyses typically focus on relatively aggregated industries, masking the heterogeneity in productivity among firms within the same sector and, in particular, the contribution of SMEs, recognised as important drivers of growth as they scale-up. In this sense, firm heterogeneity matters for productivity. To the extent that large firms can exploit increasing returns to scale, productivity tends to increase with firm size. However, new small firms are often found to spur aggregate productivity growth as they enter with new technologies and stimulate productivity-enhancing changes by incumbents.