Explaining Productivity and Growth in Europe, America and Asia

This project is co-funded by the Anglo-German Foundation:

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This joint programme between the LSE's Centre for Economic Performance and ZEW, Mannheim, investigated 3 questions:

• Why has European productivity growth been so disappointing over the last decade compared to the acceleration in US productivity growth?
• What can be done to improve European productivity?
• Is there an inevitable trade-off between higher productivity and a deteriorating environment, or are there "win-win" policy scenarios in which environmental efficiency can be combined with productivity improvements?

To address these issues we have built an unprecedented international database on management, environmental, and technological practices across firms, industries and countries. Previous lack of robust data had meant that many of the central questions around sustainable growth were only addressed piecemeal at a national level. Our findings on the factors driving productivity and environmental practices are summarised as 'Headline Findings' and 'Policy Findings' below. Fuller findings by individual projects follow or are downloadable as our final report.

Projects

1. Management and Organisational Practices and their Impact on Productivity and Growth
2. Economic Growth and Environmental Consequences
3. Information and Communication Technologies
4. Innovation
5. Globalisation

Headline Findings
The study of differences in management practices across firms and countries found that the management of firms is an important element in determining an economy’s productivity. Moreover, while the management and organisation of firms has an effect on productivity in its own right, perhaps more importantly it also facilitates the effective use of other levers of economic growth such as good use of ICT or product and process innovations. Conversely, improving the quality of management quality appears to come with fairly few ‘side effects’ in terms of other, less desirable outcomes. The degree of heterogeneity across firms, not just economies, is considerable.
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Policy Findings
How can policy-makers use this new knowledge to shape policies that can help lift groups of firms, regions, or entire economies to achieve sustainable growth? Sustainable in this context means not only that investments in capabilities and skills are not sacrificed in favour of short-term exploitation of existing resources, but also that the growth is not in conflict with other goals of society such as sustainable use of energy, or out of tune with the existing skills and demographic structure of an economy. Further, ‘sustainable’ also implies that it has to take into account the likely trend towards more extensive cross-border trade of physical and intangible goods, which will present additional challenges for firms that are not (yet) exposed to international competition.

Policy-makers may wish to consider the following four areas in which policy-making has urgently to catch up with scientific evidence:

• Moving levers to improve management practices
• Facilitating international mobility of goods, employees and services
• Promoting policies to improve environmental performance and evaluating them on their primary aims
• Recognising interactions across productivity drivers

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