Productivity drivers and pro-productivity policies: G20 economies, India and South Korea

Abstract

In this article we look at productivity trends, drivers of productivity growth and pro-productivity policies across the G20 economies since 1970. We distinguish between three sub-groups of G20 economies: a “leading but slowing” group of the most developed economies, a “lagging but growing” group of economies that have shown rapid growth and a “muddling through” group of economies with no sustained improvement in productivity performance. We find distinctly different dynamics between the sub-groups regarding the contributions of capital deepening and total factor productivity (TFP) to labour productivity growth. The slowdown in labour productivity growth since the 2010s has been underpinned by lower TFP growth. India is the only G20 economy which has experienced a significant improvement in TFP growth over the past few decades. We develop a typology distinguishing five domains of pro-productivity policies (accumulation of the factors of production, markets and resource allocation, technological and structural change, internationalisation, and foundational policies) and explore how these have been applied across countries and over time. We also provide a more detailed analysis of productivity and related policies for two G20 countries: India and South Korea. We argue that a revival of productivity growth in the G20 requires a greater focus on policies which balance technological progress with knowledge diffusion; more investment in intangibles and public assets; and improvements in the quality of human capital.