Analysis of the Main Determinant Factors of Macro-Level Productivity Growth (Essay Sample)

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Analysis of the Main Determinant Factors of Macro-Level Productivity Growth
Introduction
Productivity can be described in two ways; physical productivity and economic productivity. Physical productivity deals with the quantity of output produced by one unit of an input of production per unit time. Economic productivity can be defined as the value of output obtained from one unit of input. It can also be described as the amount of goods and services produced during each hour of a laborer’s time. A country’s living standards depends on its ability to produce goods and services (productivity) and this changes over time. Both technological and market elements can interact to offset economic productivity. Productivity at the macro level depends on several factors but the main ones are human capital, natural resources, technological knowledge, and physical capital. All the mentioned factors can be combined harmoniously to ensure productivity, if done through technology in the production function, it will result to augmentation. Moreover, it is important to note that not only firms regulate the productivity in their respective industries, but also the government policies. This paper will discuss all the mentioned macro-economic factors and how the government can chip in to affect the level of productivity through it policies.
Human Capital
Labor intensive economies are more likely to depend less on technology than capital intensive economies. The two are directly related to technology. Cross-country disparities are usually related to the differences in labor utilization patterns and the skills used by the workforce of a country (Foster, L. 2013, 27). Growth is attributed to the level of skills, knowledge, and utilization of human capital in the economy. Labor augmentation is the process of involving technology in the production function of industries and is quite a great method of increasing efficiency which in turn leads to more growth at a macro level.
A decline in the Gross Domestic Product (GDP) of a country leads to a consequent decline in labor utilization and the converse is true. It is important to note that labor productivity growth takes time to make up for poor employment performance. Training of the labor force also leads to higher productivity and this is evident even from both the macro and micro level (where individual firms are being taken into consideration). The up-skilling works in the same manner in the aggregate economy (Chatzimichael, K. 2011, 7). Therefore, human capital is greatly influenced by education, training, and experience. In fact, many economies invest in human capital through education and training. Besides, the education process is one of the largest physical capital investments for any economy.
Natural Resources
Natural resources form part of the inputs for the production process. Majority of the natural resources are renewable with a small portion being non-renewable. In most cases, a nation does not need to have natural resources for it to face growth in productivity. The resources are just necessary but not essential (Gallup, J. and Mellinger, A. 2011). However, it is evident that nations with important and rare mineral resources such as coal, diamond, gold, precious metals, and such like items expand their productivity indirectly through trade.
Therefore, when it comes to relying on natural resources, it depends on the country at question. Most developing economies do not have the capacity to grow by fully depending on human, technological, and physical capital. In some countries, productivity at the macro-level is achieved through stocks of arable land, minerals, and other resources. However, while the other three factors can be manipulated and harnessed to increase productivity without limit, natural resources are usually constrained with fairly tight limits (Gallup, J. and Mellinger, A. 2011).
Technological Knowledge
Technology brings the best ways of producing goods and services (Chatzimichael, K. 2011, 12). Since the 1990s, a lot of growth has been attributed to technology, especially in the developed economies. The US, for example, majority of the growth in 2001 was due to the technological frameworks present in the economy. It is often argued that technology brings about a strong force towards output and productivity growth. Moreover, it decreases the unemployment rate. In OECD economies, the technological sector constitutes around 11 percent of formal employment.
Year by year, technological progress is made possible in almost all types of economies through reduced prices. Therefore, many nations have invested in technology and the affordability of IT in the makes it easier for nations to expand their industries as time moves on (Foster, L. 2013, 19). For example, over the last decade computer prices have dropped by almost 68 percent in both developed and developing economies. The decline is faster than that of conventional price indexes and this means rapid economic growth. Nations using hedonic indexes thus show more potential in increased productivity than those that do not use them.
Technology is network-based. For example, Information Technology is one of the greatest tools to production efficiency and growth in many economies. Through IT, information is processed faster, communication is made effective, flexibility is increased, and costs are reduced by a great margin. All those factors cause IT to increase productivity of the economy at a macro-level (Foster, L. 2013, 20). Competition is a very important factor when it comes to productivity. In many scenarios, technology has been credited for establishing healthy competition between firms and even economies as they try to outdo each other. This process has led to a lot of innovation which in turn increases productivity (Foster, L. 2013, 20).
Physical Capital
Physical capital is an important factor of production and may include an input that was as a result of an output from a production process or stock and equipment that is used to produce goods/services (Gollop, F. 2006, 113). It includes things like machinery, buildings, and equipment. Each and every industry has its own distinct physical capital needs. For example, in the manufacturing segment, machines controlling temperature, design, speed, and the amount of a good produced are unique to those used in the clothing industry where sewing machines and machines that turn wool to fabric. In anyway, all that constitutes physical capital (Chatzimichael, K. 2011, 12).
More often than not, physical capital is used together with human capital to produce goods/services but they operate independently. In some cases, physical capital can be used on its own to generate products. For example, in the chemical industry, some machines are programmed on how to operate since human capital might be exposed to danger at certain times (Gallup, J. and A. Mellinger 2011). All in all, it is the minimization of costs and maximization of output without limits that causes physical capital to produce goods efficiently and in turn cause growth and increased productivity. Increase in productivity is attained when the input used is able to produce one more unit of output in an efficient manner. Both labor and physical capital can increase productivity in either the qualitative or quantitative aspect (Gollop, F. 2006, 113). However, there is usually a tradeoff between quality and time.
Government Policies that can affect the Factors Raising Productivity
It is possible for the government to raise productivity growth through the factors already discussed. First of all, the government can enable trade practices that can increase productivity growth. North America is one of the largest producers of coal yet it only utilizes about 34 percent of the resource while the rest is exported to China. So much coal has been exported to China that it became one of America’s largest debtors. This practice saw China’s ever increasing demand for industrial energy go down and increase productivity while the US was able to reduce its debts (Frankel, R. 2009, 378).
Education and training is another way the government can increase productivity. Take Rwanda for example, most of the nation’s citizens are only educated to a satisfactory level and the nation does not have many resources for exploitation (Gollop, F. 2006, 101). However, the government outsources professional lecturers and teachers to teach the learning population since it knows very well that this is an investment in human capital. The nation faced a growth of 9.56 percent last year from the previous 8.3 percent in 2011 and is showing signs of an increased professional workforce.
Encouraging investment from abroad is also a key factor in ensuring more productivity in the economy. For example, although Malawi has a very poor technological background and does not do enough to attract foreign direct investment, the government liberalized the exchange rate and also devalued its currency to allow for foreign direct investment, more so in the technological sector. In 2011, the nation faced an eighteen percent increase in the investment rate and higher productivity especially in the energy sector.
Economic Performance of China in the Period 2007-2011
China’s economic power came to light after the global recession hit the world in mid-2008 (Chen, Z. 14, 2010). Apparently, the nation never got affected by the economic crisis at all. The country recorded a growth in their GDP by ten percent per year in the period 2007-2011. In effect, the stock exchange became the fifth largest in the world (Xiaoyi, C. 2010, 123). In fact, the country’s budget deficit was clearly doing well since the export market was showing ro...