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 key drivers of MFP growth
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.
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