Productivity growth in a new environment. How will the green transition and geopolitics affect productivity?

Abstract

Slow productivity growth has been one of Finland’s main economic challenges since the financial crisis. Though labour productivity growth has slowed in Western countries in general, the gap in productivity to leading countries has widened in recent years.

In step with productivity, wages have also grown more slowly than in reference countries over the past ten years. As a result, the problems in productivity growth have not developed into cost competitiveness problems.

The slowdown in productivity growth is the result of several factors that relate to changes in the global operating environment and to domestic structural issues. However, the Finnish economy is showing some promising signs. According to structural business statistics, investments in tangible capital made by Finnish businesses do not differ significantly from reference countries. Compared internationally, R&D investments by Finnish small and medium-sized enterprises are also at a high level. The availability of skilled labour poses a challenge to growth in R&D activities.

The Finnish economy is also facing rising global challenges relating to climate change and mitigation as well as to the shifting geopolitical environment. Unless effectively addressed, these challenges could undermine productivity growth. The green transition may also have a positive impact on labour productivity. Industrial policy measures may be needed to address the green transition and geopolitical issues.

Publication Information

Huovari, J., Palmén, O., Kuosmanen, N., Kiema, I., Kangaspunta, S., Maliranta, M., & Vanhala, J. (2024), Tuottavuuden kasvu uudessa ympäristössä. Miten vihreä siirtymä ja geopolitiikka vaikuttavat tuottavuuteen? Publications of the Ministry of Finance 2024:47.

• ISSN: 1797-9714 (Online)
• ISBN: 978-952-367-836-1 (Online)