Mumbai (Reuters) – A multi-pronged approach woven into a comprehensive policy intervention is needed to reignite and sustain productivity growth at emerging and developing economies (EMDEs), a deputy governor at the Reserve Bank of India (RBI) said.
Michael Patra, in a speech delivered at the Sixth Asia KLEMS Conference on Sunday, said it is widely believed that structural slowdown has been spreading across the global economy after growth peaked in 2010.
While about half of this slowdown can be attributed to demographic factors, the growth rates of investment and total factor productivity are also declining, he said.
“What is worrisome is that for EMDEs, all the drivers of growth – factor re-allocations, human capital formation, the share of working age population, and investment growth – are losing strength at the same time,” Patra said.
It is believed that east and south Asia will become the world’s centre of gravity and capital accumulation will continue to contribute more than half of GDP growth, while the rest will have to come from productivity, he added.
“The policy response has to be powered by technological capital deepening, accompanied by long-term investment in research and development to nurture a competitive innovation ecosystem,” Patra said.
“EMDEs need to leverage the potential of the services sector to drive productivity growth.”
Investing in information technology infrastructure, securing a reduction in trade costs like those associated with shipping, logistics and regulation and supportive business-enabling reforms could help to engage the private sector in partnering in this endeavour, Patra said.
Raising labour participation rates, especially among women and older workers, could also boost productivity, but this will require investments in workability, retraining and acquisition of new skills in line with changing technology.
“Central banks are stakeholders in this effort in view of their mandates of macroeconomic and financial stability,” Patra said.
“A deeper understanding of productivity trends is needed by them in order to judge the position of the economy on the business cycle so as to fashion appropriate policy responses that ensure sustained non-inflationary economic growth.”