Productivity and Economic Growth in Australia, New Zealand and Ireland

Abstract

t is generally accepted that productivity growth is a major source of economic growth and welfare improvement. Labour productivity has accounted for roughly half of the growth in per capita GDP in the OECD over the last two decades, with the other half primarily accounted for by increases in labour utilisation, that is, changes in the demographics, unemployment and labour force participation rates. For this reason, productivity is of vital interest to economists and policymakers. An understanding of technical and efficiency change, two key factors in productivity growth, is thus important in policy decision-making. Academics and policy makers continue to debate the relative contributions of shocks and policy changes impacting on population growth, capital accumulation, microeconomic behaviour and technological advance. Different policy settings impact on both aggregate performance and the productivity of sectors and factors. This paper presents an analysis of the relative growth performance of Australia, New Zealand and Ireland concentrating on the underlying components of labour productivity, particularly efficiency change and technical change. Such analysis is important to policy decisions of countries seeking to improve their relative international position and outlook. It is important that policymakers identify sustainable productivity changes (largely driven by technological change) separately from measured productivity change. This separation facilitates assessment of the extent to which technology adoption and diffusion contribute to a productivity catch-up. This work is similar in many respects to rec ent studies undertaken by the OECD (2004a), but with important methodological differences introduced by Margaritis, Fare and Grosskopf (2005). The individual contributions of industry productivity growth and sectoral composition to aggregate productivity are also considered. The novelty of the productivity measurement and analysis used by Margaritis, Fare and Grosskopf is that it ‘derives from a decomposition of the growth in labour productivity in terms of (a) technical change both neutral and biased, (b) efficiency change, and (c) capital accumulation’. Each component’s contribution to the growth in labour productivity can then be assessed. The paper proceeds as follows. We outline the relative economic growth performance of Australia, New Zealand and Ireland over the period 1979-2002,