The long-term growth of the economy is closely linked to the productivity of the production factors and its evolution. In the last few years, however, growth in labour productivity has decelerated in Europe and in Belgium. This slowdown partially explains the differences in economic performance within the European Union and between Europe and the rest of the world.
Methods and tools
A better understanding of the evolution of productivity requires a specially adapted statistical tool that allows an industry-based analysis of the fundamental trends of the economy. Therefore, the Federal Planning Bureau (FPB) is working with other European institutions on a project, financed by the European Union’s sixth framework programme for research, to develop the EUKLEMS database (see also http://www.euklems.net).
This database contains the variables for analysing the evolution of productivity at industry level according to different methodologies for constructing productivity.
The FPB continues to periodically update the Belgian section of this international database.
Determinants of productivity
In order to forecast productivity, one has to understand its driving factors. The FPB is especially interested in better defining the role of three of these determinants:
- technology and capital deepening
- innovation and technical progress
- entrepreneurship and market functioning
Technology and capital deepening
The quantity and the quality of available capital are both important determinants of labour productivity, the evolution of which conditions long-term economic growth. By investing, companies provide their workers with both more and better equipment, incorporating the latest technological advances.
The FPB studies the impact of investments on the productivity of Belgian companies. Particular attention is given to the contribution of information and communication technologies (ICT).
Innovation and technical progress
The evolution of productivity is closely related to innovation and technical progress. In addition to the technical progress incorporated into a business’s capital from investment, technical progress is also generated by the firm itself through its innovations in products, processes, organisation or marketing. This source of technical progress is important because it is not be governed by the law of decreasing returns and could lead to a sustained long-term improvement in the population’s standard of living.
The FPB analyses the determinants of innovation and evaluates Belgian innovation systems compared with those of our European neighbours.
The FPB, in collaboration with the Walloon Region, has contributed to the development of a database which allows an international comparison of indicators for the Walloon innovation system. Following a similar approach and together with the FPS Science Policy, it is creating a database of the main innovation indicators for Belgium. The database can be consulted on the website www.innovationdata.be.
Entrepreneurship and market functioning
The growth of productivity is partially linked to a country’s capacity to create productive activities, in other words, to create and develop businesses. In that regard, the market structure and the degree of competition play an important role.
The FPB analyses the benchmarks for measuring abstract concepts such as market structure and competition in order to assess possible impediments to competition. It also studies the extent to which market functioning leads to unnecessarily high prices and/or price increases. If market functioning fails, regulation or deregulation are recommended
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