What Determines Productivity?

TLDR

Productivity differences across firms are widespread and have driven research across macroeconomics, industrial organization, labor, and trade, with causes ranging from controllable production practices to external operating environments. The paper surveys and evaluates recent empirical studies on why firms differ in productivity and outlines key future research questions. The study systematically reviews and assesses recent empirical research on the determinants of firm productivity. The paper is classified under JEL codes D24, G31, L11, M10, O30, and O47.

Abstract

Economists have shown that large and persistent differences in productivity levels across businesses are ubiquitous. This finding has shaped research agendas in a number of fields, including (but not limited to) macroeconomics, industrial organization, labor, and trade. This paper surveys and evaluates recent empirical work addressing the question of why businesses differ in their measured productivity levels. The causes are manifold, and differ depending on the particular setting. They include elements sourced in production practices—and therefore over which producers have some direct control, at least in theory—as well as from producers' external operating environments. After evaluating the current state of knowledge, I lay out what I see are the major questions that research in the area should address going forward. (JEL D24, G31, L11, M10, O30, O47)