Productivity differences between rich and poor countries have widened since 1960 and while some nations made big gains, others have declined, a new study by the Federal Reserve Bank of Richmond found.
The report, published in the latest edition of the Richmond Fed’s quarterly economic review, examined data from 99 countries spanning a period of 36 years.
Productivity, the amount of output per hour of work, measures economic efficiency and governs a country’s ability to raise prosperity and welfare over the long run.
“In 1960, the average worker in the richest 5% of countries in the world produces about 35 times more output than the average worker in the poorest 5%… By 1996, the labour productivity ratio between the richest and poorest countries increased to approximately 46,” the study said.
There were some stand-out performances, including the surge that Hong Kong chalked relative to the US. This lifted its relative productivity ratio from 19% in 1960 to 94% by the end of the period.
But the trend cut both ways. Venezuela suffered a fall from 94% in 1964 to a mere 36% in 1996, “a more than two-fold drop in relative productivity,” noted study authors Margarida Duarte and Diego Restuccia.
The US was used as the benchmark because its labour productivity was the highest for most of the survey period, notching around 2% growth a year.
A number of countries also managed to deliver prolonged periods of faster productivity growth than the US, episodes which the study defined as ‘miracles’.
It charted 13 economies, mostly in Asia, whose annual labour productivity growth was at least double that of the US for a period of
15 years or more.
Botswana topped the ranking, followed by Gabon, Romania, Taiwan, Japan and Hong Kong. China made the cut, but its performance was hampered by the fact that Beijing’s growth only kicked off in 1978.
Chile, India and Ireland would also have counted as economic miracles, but the Richmond Fed said that its study ruled out growth that took off after 1982.
Economic disasters were even more prevalent than miracles, with 17 countries noted for extended declines in relative labour productivity, all from either in Africa or Latin America.
The worst performer was the Democratic Republic of Congo, a country the size of western Europe in central Africa which has been wracked by violence and war since independence in 1960.
Productivity under the rule of DRC dictator Mobutu Sese Seko shrunk from 1971 onward for 25 years, at an annual average of 6.45% a year, the Fed study found.