Beyond Competitiveness: Is Productivity Everything?

Abstract

This study examines and compares the predictive power of competitiveness, approximated by the Global Competitiveness Index (GCI), and productivity for economic growth. Using a panel dataset of 62 countries over the period 2007–2019 and the local projections (LP) approach, we find that both higher productivity and higher GCI contribute to higher economic growth over the next 5 years. However, productivity has a stronger predictive power for economic growth than the GCI. We find evidence that this divergence between productivity and GCI could be explained by ‘productivity beyond competitiveness’: As economies develop and converge towards the world technological frontier, the GCI, unlike productivity, no longer captures the key determinants of economic growth. We then examine the determinants of ‘productivity beyond competitiveness’ that can help economies increase their productivity, and by extension growth, even as they approach the technological frontier. We find that higher financial development, institutional quality, as well as some cultural traits explain the divergence between productivity and competitiveness in advanced economies.