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Technology and demand drivers of productivity dynamics in developed and emerging market economies

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  • Dieppe, Alistair
  • Francis, Neville
  • Kindberg-Hanlon, Gene

Abstract

Frequently, factors other than structural developments in technology and production efficiency drive changes in labor productivity in advanced and emerging market and developing economies (EMDEs). This paper uses a new method to extract technology shocks that excludes these influences, resulting in lasting improvements in labor productivity. The same methodology in turn is used to identify a stylized example of the effects of a demand shock on productivity. Technology innovations are accompanied by higher and more rapidly increasing rates of investment in EMDEs relative to advanced economies, suggesting that positive technological developments are often capital-embodied in the former economies. Employment falls in both advanced economies and EMDEs following positive technology developments, with the effect smaller but more persistent in EMDEs. Uncorrelated technological developments across economies suggest that global synchronization of labor productivity growth is due to cyclical (demand) influences. Demand drivers of labor productivity are found to have highly persistent effects in EMDEs and some advanced economies. Unlike technology shocks, however, demand shocks influence labor productivity only through the capital deepening channel, particularly in economies with low capacity for counter-cyclical fiscal policy. Overall, non-technological factors accounted for most of the fall in labor productivity growth during 2007-08 and around one-third of the longer-term productivity decline after the global financial crisis. JEL Classification: C30, E32, O40

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  • Dieppe, Alistair & Francis, Neville & Kindberg-Hanlon, Gene, 2021. "Technology and demand drivers of productivity dynamics in developed and emerging market economies," Working Paper Series 2533, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20212533
    Note: 95834
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    More about this item

    Keywords

    advanced economies and emerging and developing economies; productivity; technology and technological diffusion;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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