Country Risk Concepts: Productivity & The OECD

Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. Paul Krugman, The Age of Diminishing Expectations (1994), OECD Productivity Report

What is productivity?

Productivity is a measure of the production rates associated to a certain county. It is an essential component of country risk analysis, as it offers direct insight to the resources available and the ability of human capital to employ the resources to generate revenue. The map below displays 2014 productivity levels, measured by The Conference Board Total Economy Database. Evidence of the effects of the global economic crisis can be see particularly in the developed economies (i.e. US, EU, Japan) where labor productivity growth (*the change in the amount of goods and services produced, in this calculation GDP/Persons Employed) growth averages near or below 0. Since the development of this infomap, labor productivity growth has slowed further in the developing world (*See current OECD Database).

What is the OECD?

The Organization for Economic Co-operation and Development (OECD) is an international economic organization founded in 1948, based in Paris. Its mission is to coordinate efforts for sustainable economic growth globally. The organization's database is an essential source of economic information for analysts. A brief summary of the OECD's calculation of productivity can be found here. There any many various sources; however, this is one of more referenced sources.

Why does productivity matter?

Productivity can provide significant insight into the overall development of an economy. Trends can be linked to numerous factors (i.e. Policy, FDI, Market/Currency Volatility, Military Conflict, etc.). A thorough analysis should include a review of each of input variable, as well as an exploration of others potential factors. A low productivity level could be a sign of efficiency issues, lack of education, transportation, etc. With a proper understanding, managers can use country-level productivity analysis to aid in international business strategy brainstorming to hedge risks.