Differentials in Countries’ Total Factor Productivity and the Factors Influencing Them

Abstract

The diminishing potential for enhancing productive resources in order to sustain economic growth demands greater emphasis on how efficiently they are used as measured by total factor productivity (TFP). Long-term trends, differences between countries, and macro-level factors were assessed using qualitative and quantitative analysis of economic and financial indicators for a sample of 74 countries from 1978 to 2022. The article confirms that Russia and most other countries have been experiencing a steady downturn in total factor productivity. In some cases, productivity has been falling since the 2008 global financial crisis because key factors changed in the post-crisis period. In particular, growth of TFP has become correlated with increasing fixed investment, a high level of domestic financial development and protection of property rights, and limitation of state intervention in the economy, as well as with following a model of capitalism that allows for a moderate level of state ownership. Those developing countries of Central and Eastern Europe that have consistently implemented market-oriented reforms have also been able to sustain growth. The increasing importance of highly country-specific variables suggests that countries are trying to make greater use of domestic economic policies to support TFP growth and thus counteract the global productivity decline observed by many economists. Although individual countries may succeed in maintaining their growth, such measures are not sufficient to prevent a global slowdown.