Publication: Productivity Growth: Patterns and Determinants across the World
Date
2019-05
ISSN
Published
2019-05
Author(s)
Kim, Young Eun
Loayza, Norman V.
Abstract
This is the background paper for the
productivity extension of the World Bank’s Long-Term Growth
Model (LTGM). Based on an extensive literature review, the
paper identifies the main determinants of economic
productivity as innovation, education, market efficiency,
infrastructure, and institutions. Based on underlying
proxies, the paper constructs indexes representing each of
the main categories of productivity determinants and,
combining them through principal component analysis, obtains
an overall determinant index. This is done for every year in
the three decades spanning 1985–2015 and for more than 100
countries. In parallel, the paper presents a measure of
total factor productivity (TFP), largely obtained from the
Penn World Table, and assesses the pattern of productivity
growth across regions and income groups over the same
sample. The paper then examines the relationship between the
measures of TFP and its determinants. The variance of
productivity growth is decomposed into the share explained
by each of its main determinants, and the relationship
between productivity growth and the overall determinant
index is identified. The variance decomposition results show
that the highest contributor among the determinants to the
variance in TFP growth is market efficiency for Organisation
for Economic Co-operation and Development countries and
education for developing countries in the most recent
decade. The regression results indicate that, controlling
for country- and time-specific effects, TFP growth has a
positive and significant relationship with the proposed TFP
determinant index and a negative relationship with initial
TFP. This relationship is then used to provide a set of
simulations on the potential path of TFP growth if certain
improvements on TFP determinants are achieved. The paper
presents and discusses some of these simulations for groups
of countries by geographic region and income level. An
accompanying Excel-based toolkit, linked to the LTGM,
provides a larger set of simulations and scenario analysis
at the country level for the next few decades.
Citation
“Kim, Young Eun; Loayza, Norman V.. 2019. Productivity Growth; Productivity Growth: Patterns and Determinants Across the World : Patterns and Determinants across the World. Policy Research Working Paper;No. 8852. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/31710 License: CC BY 3.0 IGO.”
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