Stagnation vs Singularity: The Global Implications of Alternative Productivity Growth Scenarios

Productivity growth has flat-lined in most economies despite rapid advances in
technology. Economists suggest competing explanations for this paradox. Some argue
the current stagnation will persist given deep structural challenges, arguing that recent
technological advances are no match for those of the past. Others argue that the
historical time-lag between technological advances and increased productivity means a
productivity surge is just around the corner. The paper explores the implications of
alternative productivity growth scenarios for the global economy, particularly for growth,
labor markets and the flows of trade and capital. The paper explores the appropriate
policy response under these alternative scenarios. It highlights the importance of
productivity-enhancing reforms and the first-mover benefits that can flow to economies
which move closer to the productivity frontier. It explores the factors that constrain an
economy’s ability to reap the full benefits of any future productivity boom. It highlights the
consequences of asymmetric increases in productivity across countries for both booming
and non-booming economies and the role of monetary and fiscal policies, with particular
warnings for the stability of the euro zone. Finally, it highlights the implications of
asymmetric productivity changes across sectors and the importance of flexibility in labor,
capital and product markets.