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The Compositional Nature of Productivity and Innovation Slowdown

Author

Listed:
  • Uwe Cantner

    (FSU Jena)

  • Holger Graf

    (FSU Jena)

  • Ekaterina Prytkova

    (FSU Jena)

  • Simone Vannuccini

    (FSU Jena)

Abstract

A growing number of studies identify a generalized slowdown in labor productivity growth. The very existence of the slowdown ignited a series of academic debates suggesting that secular stagnation or 'mismeasurement' problems are at the root of the observed trends. We posit that the composition of aggregate productivity matters. In a nutshell, we make the analysis of productivity growth slowdown more fine-grained by shifting the focus to the industry level, considering that the downward trend identified at the macroeconomic level emerges from the aggregation of diverse industry-level productivity trends. We perform an analysis of the structural dynamics of labor productivity by conducting a non-parametric dynamic decomposition exercise that separates within (improvement) and between (structural change) effects for 10 OECD countries. By pooling industries in groups identified according to two different taxonomies - one related to R&D intensities rankings, and the other built upon the Pavitt taxonomy of sources of technological change -, this study assess the industry-level contributions to the slowdown and the trends over time of the within and between components. We interpret our findings highlighting common patterns and suggest two related technological explanations for the productivity slowdown: one based on a Baumol-disease-like effect driven by structural change and another based on implementation lags and/or on an exhaustion of technological opportunities - that is, on decreasing returns in innovative activities. To investigate that, we complement our productivity analysis with evidence on innovation slowdown trends, looking at aggregate and compositional trends. We explore the innovation slowdown using an array of indicators based on the notion of 'idea- TFP' and show that there is a generalized evidence for its occurrence. Eventually, we relate productivity and innovation slowdowns deriving tables of trends co-movements, weighted by input-output matrices coefficients, and clustered by Pavitt industry group. We interpret these relationships and highlight patterns and clusters of significant correlations.

Suggested Citation

  • Uwe Cantner & Holger Graf & Ekaterina Prytkova & Simone Vannuccini, 2018. "The Compositional Nature of Productivity and Innovation Slowdown," Jena Economic Research Papers 2018-006, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2018-006
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    More about this item

    Keywords

    productivity slowdown; decomposition; industrial dynamics; innovation;
    All these keywords.

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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