Scotland’s productivity gap with international countries: research

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Introduction

In 2020, the Business and Skills Strategic Council mandated NIESR produce a report examining Scotland’s recent productivity performance and the drivers of productivity. This work adds to the existing evidence base by closely examining a set of similar reference regions in the EU to examine Scotland’s relative performance and identify the factors driving differences in productivity growth.

The report examines the causes of the underlying productivity gap between Scotland and the comparator regions over the period 2009-2017, providing a robust picture of productivity performance over this period . It is important to note, however, that while the so-called productivity puzzle is a long-standing issue and the long-term drivers of productivity are complex, the economic landscape has changed dramatically since the period covered by this report.

In 2009, all regions selected for benchmarking were in the second quartile of GDP/inhabitant per OECD ranking. In 2017, all the comparison regions had experienced a significant improvement in their GDP per capita, while Scotland’s position had stagnated. Overall, for the period 2009 to 2017, productivity performance deteriorated for both Scotland and UK.

NIESR examined the role played in explaining productivity differences by: capital investment, labor quality, total factor productivity (TFP), innovation and foreign direct investment. TFP is a measure of productive efficiency and is an unobserved residual after accounting for gains in labor productivity and gains due to capital accumulation. TFP is interpreted broadly as a measure of technological progress, but can include technological, cultural and economic factors. The methodological approach and the limitations of the methodology are described in the appendix.

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