Productivity Revisited Productivity Revisited Shifting Paradigms in Analysis and Policy Ana Paula Cusolito and William F. Maloney © 2018 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 21 20 19 18 This work is a product of the staff of The World Bank with external contributions. The fi ndings, interpretations, and conclusions expressed in this work do not necessarily refl ect the views of The World Bank, its Board of Execu- tive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Contents Preface ........................................................................................................................... xi Acknowledgments .....................................................................................................xiii Abbreviations ............................................................................................................... xv Executive Summary: The Elusive Promise of Productivity ...............................xvii 1. The Elusive Promise of Productivity ...................................................................1 The Twin Productivity Puzzles .......................................................................1 The Current Productivity Conjuncture .........................................................3 The Mechanisms of Productivity Growth: Second-Wave Analysis ............15 Plan of the Volume ........................................................................................19 Notes ..............................................................................................................20 References ......................................................................................................22 2. Enhancing Firm Performance ............................................................................27 New Thinking about Within-Firm Productivity .........................................27 Firm Performance: Beyond Efficiency .........................................................29 Concluding Remarks .....................................................................................40 Annex 2A. Quality and Physical Total Factor Productivity Estimation .....41 Notes ..............................................................................................................41 References ......................................................................................................42 3. Misallocation, Dispersion, and Risk ................................................................45 Reconsidering the Hsieh-Klenow Model .....................................................47 What Else Could Be Driving Dispersion? ....................................................50 Dynamic Effects of Distortions ....................................................................58 Concluding Remarks .....................................................................................65 Notes ..............................................................................................................65 References ......................................................................................................66 4. Entry and Exit: Creating Experimental Societies ...........................................69 Drivers of Entry and Exit .............................................................................70 Moving from Opportunity to Entrepreneurship.........................................79 Operating Environment ...............................................................................79 v Capabilities of Entrepreneurs .......................................................................88 Concluding Remarks ..................................................................................104 Notes ............................................................................................................105 References ....................................................................................................106 5. Productivity Policies .........................................................................................115 Summary of Main Lessons from the Second Wave of Productivity Analysis ..........................................................................116 The National Productivity System .............................................................126 Government Productivity and Policy Making ...........................................130 Concluding Remarks ...................................................................................139 Annex 5A. Policy Coherence and Effectiveness Supporting Productivity Growth: A Proposal for World Bank Productivity Public Expenditure Reviews ..............................................................141 Notes ............................................................................................................142 References ....................................................................................................143 Appendix A. Measuring the Productivity Residual: From Theory to Measurement .....................................................................................147 Boxes 1.1 Are the Current Productivity Lags Just the Calm before the Next Productivity Storm? ..................................................................................................8 1.2 Structural Transformation Decompositions ..........................................................16 4.1 Successful Industrializers “Got Out” Early and Often ...........................................77 4.2 Capital Market Development and the Facilitation of Exit—Novo Mercado in Brazil ...............................................................................86 4.3 Is Inherited Culture Stymying Experimentation? ..................................................89 4.4 Changing Culture, Plugging In: Start-Up Chile and Followers ...........................92 4.5 The Nanoeconomics of Entrepreneurial Strategy in Meiji-Era Cotton Spinning: Evidence from Japan’s First Manufacturers .............................99 4.6 Industrial Retrogressions: Insights from Chile and Brazil into the Relative Roles of Learning and the Culture and Business Climate .....................102 5.1 Structural Transformation: What Are the Conclusions for Policy? ....................125 5.2 The Role of a Modern and Efficient Quality Infrastructure Ecosystem in Enhancing Competitiveness and Increasing Productivity ..................................128