Productivity Level: How Far can Australia Catch Up?

Conference presentation

Graeme Davis (Australian Treasury) gave a presentation, entitled Productivity Level: How Far Can Australia Catch Up?, to the Productivity Perspectives 2006 conference. An accompanying paper by Graeme Davis and Jyoti Rahman, Perspectives on Australia's Productivity Prospects, has also been released.

Abstract

Productivity is the key driver of economic growth and prosperity over the long run. It is possible to think of productivity growth as consisting of two elements: Australia's productivity catching up to its steady state position relative to the global technological frontier; and an outward movement of the frontier.

The United States is often seen as a reasonable proxy for the global technological frontier. Over the past half century, Australia's productivity has been mostly between 75 and 85 per cent of that of the US. This productivity gap can at least in part be explained by a combination of differences in: physical capital per worker; educational attainment; microeconomic policies; and the geographic and historical context in which the two economies operate.

Economic reforms of the recent decades have helped Australia narrow the productivity gap, which has manifested itself as an increase in Australia's productivity growth rate. Further reforms are likely to improve Australia's steady state productivity position relative to the frontier. However, in the long run, Australia's productivity growth will be primarily determined by technological progress in the frontier.