Productivity growth allows economies to increase output without increasing inputs and is a key driver of economic growth and of income per capita. However, productivity growth has been slowing in recent decades, depressing economic growth. This might appear paradoxical given the fast advancement in technological progress and the spread of digital technologies.
Firms’ varied performances during this period of digital transformation help explain this puzzling paradox. While firms at the global frontier of productivity have continued to increase their productivity steadily, the rest of the business population has not kept pace.
The productivity gap between frontier firms and the rest has increased (Figure 1). The gap has widened more in sectors that rely more heavily on the use of knowledge and digital technologies. These trends raise challenges for the inclusiveness of economic growth in the digital era.