Identifying the Main Drivers of Productivity Growth
A Literature Review
This report represents the second outcome of the collaboration between the Asian Productivity Organization (APO) and the Organisation for Economic Co-operation and Development (OECD) to improve the measurement and analysis of productivity developments across APO and OECD member economies. The report discusses the potential impact of COVID-19 on productivity and examines the role of Multifactor Productivity (MFP) as a major driver of economic growth and changes in living standards. It then identifies the most important factors influencing MFP growth and describes the most important challenges affecting the measurement of each of these factors as well as the estimation of their impact on MFP. The report provides key recommendations to improve the reliability and interpretation of the empirical evidence for economic analysis.
The importance of MFP for economic growth
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.
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