Differences between the countries of the world in overall productivity

Abstract

Multifactor productivity, which compares the output to the amount of combined inputs used to produce goods and services, is considered the main source of differences in economic development between countries. However, the scientific consensus is based on estimates that neglected the contribution of inputs not related to living or embodied labor, i.e. the services of natural capital. In addition, estimates for Russia rarely decompose differences in its level of productivity from other countries into efficiency components. The article estimates differences between the countries in how productively they use labor and fixed capital to generate income not related to the exploitation of natural resources. We used the indicators from the Penn World Tables for 1995– 2019, developed for international comparisons, and the Fare-Primont transitive productivity indexes. Their decomposition made it possible to indicate the sources of Russia’s lagging behind other countries in productivity. Russia’s low productivity is not related to the level of its capital-labor ratio. With the same proportion of labor inputs and flow of capital services, Russia’s income would be twice as high if its technical efficiency is at the level of Poland, Bulgaria or Turkey. The growth of Russia’s technical efficiency could be facilitated not by focusing on R&D or investments in fixed assets, but by removing obstacles to the assimilation of already known technologies and supporting training programs or exchange of experience. The contribution of productivity to explaining differences between countries in labor incomes (not related to the exploitation of natural resources) was low prior to the 2007–2008 global financial crisis. This indicates distortions in the distribution of labor within countries or reflects wrong estimates of capital value and therefore flow of its services (stock market bubble). In the post-crisis years, productivity has come to explain much of the difference between countries in non-resource income.