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This chapter provides a link between the efficiency issues raised in Chapters 1-3 of this volume and the traditional measures of productivity and productivity growth. One of the key insights this link provides is the identification of the contributions of innovation (technical change or shifts in the frontier of technology) and diffusion and learning (catching up or efficiency change) to productivity growth. Topics discussed include duality and efficiency theory, productivity, decomposition of productivity, aggregation of indexes and indicators of efficiency and productivity, empirical estimation of the distance function-based productivity measures, and advantages and disadvantages of the various indexes and indicators.

As countries develop, their labor force shifts from agriculture to industry and services, and in the process, the well-being of the people improves. This essay sheds some light on the economic logic that drives the process and on the important role that agricultural productivity plays in it. It argues that agricultural productivity growth is the key to poverty alleviation, and then discusses the policy implications for developing countries. The first section shows how the process of secular decline in poverty is inevitably associated with a movement of labor from agriculture to other sectors, and how agricultural productivity growth facilitates such a movement. The second section discusses the importance of international trade in this process. Both agricultural and trade policies tend to generate political battles because they redistribute incomes from one group to another. This political economy question is addressed in the third section, which also discusses the causes (and consequences) of the observed policy bias against agriculture. The fourth section discusses the two main determinants of agricultural growth-technology and crop diversification, and reflects on the policy options available to poor countries to induce agricultural growth without causing domestic upheavals.

This chapter focuses on the third of the book's four paradoxes. It looks at the relationship of skills, education, and computerization to productivity growth and other indicators of technological change at the industry level. The chapter is organized as follows. Section 4.2 reviews some of the pertinent literature on the role of skill change and computerization with regard to productivity changes in the US economy. Section 4.3 presents descriptive statistics on postwar productivity trends and key variables that shaped the pattern of productivity growth in the postwar period, while Section 4.4 concludes.

Economic policy in developing and post‐socialist economies during the last 10–15 years of the 20th century had one dominating theme: packages aimed at liberalizing the balance of payments, on both current and capital accounts. Together with large but highly volatile foreign capital movements, this wave of external deregulation was the central feature of globalization for the nonindustrialized world. In two recent research projects, the implications of external liberalization have been investigated through the use of quantified narrative histories for a number of countries, based on a methodology developed by the author to decompose and analyse changes in effective demand, productivity growth, employment, and the sectoral/functional income distribution over time; one of these studies concentrates on countries in Latin America and the Caribbean, while the other includes Argentina, Colombia, Cuba, India, South Korea, Mexico, Russia, Turkey, and Zimbabwe. After a summary of the results of the studies, with possible interpretations, the chapter develops a model of the likely effects of liberalization. The decomposition methodologies are then presented, and used to check the outcomes that the model generates; a substantial overlap is shown between observed phenomena and the model projections, and this discussion leads naturally to policy alternatives and suggestions about the future course of the liberalization process.

We examine whether underlying industry innovation dynamics are an important driver of the large dispersion in productivity across firms within narrowly defined sectors. Our hypothesis is that periods of rapid innovation are accompanied by high rates of entry, significant experimentation and, in turn, a high degree of productivity dispersion. Following this experimentation phase, successful innovators and adopters grow while unsuccessful innovators contract and exit yielding productivity growth. We examine the dynamic relationship between entry, productivity dispersion, and productivity growth using a new comprehensive firm-level dataset for the U.S. We find a surge of entry within an industry yields with a lag an increase in productivity dispersion and then after a subsequent lag an increase in productivity growth. These patterns are more pronounced for the High Tech sector where we expect there to be more innovative activities. These patterns change over time suggesting other forces are at work during the post-2000 slowdown in aggregate productivity.

As discussed in Chapter 3, investments in R&D are positively related to total factor productivity (TFP) or productivity growth. Stated differently, empirical studies have consistently found a positive statistical relationship between numerous proxies for innovation (e.g., R&D employment, R&D expenditures, and patents) and indicators of performance (e.g., accounting profits, stock prices, and productivity). This statistical finding appears to hold both over various levels of aggregation (plant, firm, industry, and country levels) and over alternative econometric specifications (production, cost, and profit function). This chapter expands upon this statistical finding in two ways. First, it discusses the nature of R&D activity. It then reviews in detail the extant literature on R&D and firm performance. These extensions are critical because many of the studies in the literature demonstrate that the impact of R&D on firm performance depends on the type of R&D that is conducted or the source of R&D funding. That is, it is critical to analyze the various components of R&D, in order to accurately assess firm-level returns to R&D, as well as the impact of innovative activity on society.

There are two principal topics in this section: factor allocation and productivity growth in the perspective of teams, which are both central to the study of rural development. Supporting the understanding of the mechanisms in the team level is the reward method discussed in the following chapter. These two areas are believed to be interrelated with one another, such that the causes of growth are increased production inputs, improved technical knowledge, and enhanced efficiency in the allocation of resources. In order to measure the indicators of growth and productivity, the author estimates and examines production curves, technical efficiency functions, and specific accounting techniques. Despite clear objectives and determined actions, problems regarding the differences in production schemes, aggregate product pricing, and shifts in the organizational structure are yet to be resolved.

Chapter 10 discusses the growth slowdown of the Mexican economy during the reform and postreform periods. After reviewing the role of international trade integration, productivity growth and human capital formation, the chapter focuses on the primary determinant of the growth slowdown, the low rate of physical capital accumulation. The chapter's argument is that, together with the contraction of bank credit following the financial crisis of the mid-1990s, three main factors are constraining investment: the low level of public investment (particularly in the area of infrastructure), an appreciated real exchange rate for most of the period since 1988, and the dismantlement of industrial policy during the reform period.

Singapore has undergone a great deal of economic growth since it gained political independence in 1959, and this is made evident through their 8.4% per annum real GDP growth, and how the country's income level successfully went beyond the average level articulated by the OECD. With this growth, the country also improved and expanded their manufacturing endeavours, specifically those that involved the production of ICT goods. This chapter analyzes how the diffusion and adoption of ICT and the expansion in ICT production has brought about significant effects on Singapore's growing economy. This is done through clarifying the contribution of ICT in economic development, going over the trends in ICT production, and examining the contributions to productivity growth and GDP.

This chapter seeks to synthesize and extend the emerging literature on the connection between micro- and aggregate productivity growth dynamics. It focuses primarily on the empirical findings and shows that the measured quantitative contribution of reallocation to aggregate productivity growth varies significantly across studies. The objective is to understand the sources of the differences in results across studies. It pursues this objective in two ways. First, it compares the results carefully across studies, taking note of differences on a variety of dimensions including country, sectoral coverage, time period, frequency, and measurement methodology. Second, it exploits establishment-level data for the U.S. manufacturing sector as well as for a few selected service sector industries to conduct an independent investigation of the relevant issues. A commentary is also included at the end of the chapter.

This chapter places the interwar experience in the context of economic growth in the 20th century. The story starts with a description of living standards in the 1890s and goes on to describe the spread of “modern economic growth” from its European beginning. The rate of economic growth was similar before the interwar period and since the early 1970s. In between there was slow growth during the interwar years and a rebound after the Second World War. Tables reveal a slowdown in international trade and a rise in unemployment during the interwar years, coupled paradoxically with stable or rising rates of productivity growth. The chapter also describes changes in the relative economic weight (GDP and trade) amongst the world's main areas.

There are systematic long-run differences in the performance of firms. This chapter argues that such persistent performance gaps can be explained by the fact that firms employ different R&D-strategies. Controlling for unobservable heterogeneity, past performance and other firm characteristics, that labour productivity is shown to be, on average, 13 percent higher among firms with persistent R&D commitment and 4 percent higher among firms which make occasional R&D efforts when compared with firms which do not invest in R&D. Furthermore, firms which employ a strategy with persistent R&D efforts are rewarded with a productivity growth rate that, on average, is about 2 percent higher than for other firms. The results are similar when firm performance is measured as total sales or exports per labour input.