Productivity and Innovation

Debora Revoltella, Julie Delanote, Tessa Bending, 03 December 2021

The European economic policy response to the COVID-19 pandemic has ensured business continuity and shielded investment, but digital and green transitions are now ever more urgent. This column uses data on 12,000 European firms from the European Investment Bank Investment Survey to show that the pandemic spurred many firms to start accelerating transformation efforts. Policy should seek to support this momentum amid post-pandemic economic recovery.

Xavier Giroud, Simone Lenzu, Quinn Maingi, Holger Mueller, 01 December 2021

It is widely believed that the productivity gains from place-based policies are geographically highly localised. This column argues instead that productivity spillovers from local place-based policies may propagate far beyond the initial target region to the entire economy, through the plant-level networks of multi-region firms. But while these productivity spillovers amplify the aggregate welfare gains from local place-based policies, they widen economic disparities between individual workers and regions in the economy. 

Daron Acemoğlu, 23 November 2021

Over the last decade, artificial intelligence has made great advances and influenced almost all industries. This column argues that the current AI technologies are more likely to generate various adverse social consequences, rather than the promised gains. It provides examples of the potential dangers for product markets, labour markets, and democratic institutions, and emphasises that the main problem is not AI itself, but the way leading firms are approaching data and their use. Policy should focus on redirecting technological change to create new capabilities and opportunities for workers and citizens.

Désirée Christofzik, Steffen Elstner, Lars Feld, Christoph Schmidt, 22 November 2021

Despite massive digitisation efforts, the German economy has experienced a marked slowdown in productivity growth. This column shows that an important share of this trend reflects the combination of strong labour market performance with the structural shift towards services in the German economy. A large part of the productivity paradox can be resolved by the observation that the notable technological progress in the ICT-producing sector tends to stimulate aggregate employment growth in step with production growth, thereby consuming its effect on aggregate productivity. The results suggest that higher productivity growth should not be the sole policy objective.

Lilas Demmou, Guido Franco, 14 November 2021

Loan guarantee programmes have played a key role in reducing Covid-related distortions to market selection, shielding many high-productivity firms and supporting zombie firms only to a limited extent. This column argues, however, that such schemes do not come without risks for future productivity, as sizeable programmes may favour the build-up of misallocation in the medium term. Engineering an effective exit strategy from these schemes – preserving their benefits while reducing their drawbacks – is critical to foster the recovery of the corporate sector.

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