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Solving the Productivity Puzzle: The Role of Demand and the Promise of Digitization

Jaana Remes, Jan Mischke and Mekala Krishnan

International Productivity Monitor, 2018, vol. 34, 28-51

Abstract: What is behind exceptionally weak productivity growth across many developed economies? We analyze seven countries (United States, Germany, France, UK, Italy, Spain, and Sweden) across six sectors (automotive, technology, retail, electric power, tourism, and finance) and examine supply and demand factors in the period from 2010 to 2014 compared to 2000 to 2004. For each sector, we combine economic analyses with McKinseys industry expertise to shed light on the microeconomic causes behind industry productivity performance. We find three waves collided to drive productivity growth across sectors: the waning of the impact of the 1990s information technology revolution; financial crisis aftereffects, including weak demand and uncertainty; and digital disruption which offers substantial opportunities to boost productivity growth but comes with lags and transition costs. We calculate that the first two waves dragged down productivity growth by 1.9 percentage points across countries since the mid-2000s, from 2.4 per cent to 0.5 per cent. As financial crisis aftereffects recede and more companies incorporate digital solutions, we expect productivity growth to recover, with productivity growth potential of at least 2 per cent per year across countries over the next decade.

Keywords: productivity; digitization; demand; technology (search for similar items in EconPapers)
JEL-codes: L86 O47 (search for similar items in EconPapers)
Date: 2018
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