Stagnation Vs Singularity: The Global Implications of Alternative Productivity Growth Scenarios

Abstract

Productivity growth has flat-lined in most economies despite rapid advances in technology. Economists suggest competing explanations for this paradox. Some argue the current stagnation will persist given deep structural challenges, arguing that recent technological advances are no match for those of the past. Others argue that the historical time-lag between technological advances and increased productivity means a productivity surge is just around the corner. The paper explores the implications of alternative productivity growth scenarios for the global economy, particularly for growth, labor markets and the flows of trade and capital. The paper explores the appropriate policy response under these alternative scenarios. It highlights the importance of productivity-enhancing reforms and the first-mover benefits that can flow to economies which move closer to the productivity frontier. It explores the factors that constrain an economy’s ability to reap the full benefits of any future productivity boom. It highlights the consequences of asymmetric increases in productivity across countries for both booming and non-booming economies and the role of monetary and fiscal policies, with particular warnings for the stability of the euro zone. Finally, it highlights the implications of asymmetric productivity changes across sectors and the importance of flexibility in labor, capital and product markets.