Productivity and Innovation: The MFP Puzzle Considered Through the Lens of Trade Theory
6 Pages Posted: 13 Apr 2016 Last revised: 25 Oct 2016
Date Written: April 9, 2016
Productivity agendas often struggle because they target something that is not explicitly measured – a residual in a growth accounting framework that cannot be directly addressed by policy -- an elusive unknown with an attractive name: multifactor productivity (MFP) There is no mystery about where productivity comes from in modern trade theory -- it comes from innovation and entry into trade and is measured straightforwardly by profitability of firms and their market share. Seen through a trade lens, Canada's disappointing MFP outcomes can be readily understood as the outcome of its industrial policy choices, implemented in a macro- and microeconomic setting that featured biases against the emergence of smaller dynamic firms.
Keywords: Productivity, MFP, Innovation, Trade Theory, Heterogeneous Firms, Canada
JEL Classification: F14, L10, H40
Suggested Citation: Suggested Citation