Multifactor Productivity Growth Cycles at the Industry Level

This staff working paper (by Paula Barnes) examines multifactor productivity growth cycles at the industry level in Australia. There is considerable variation in industry-specific cycles across industries and the market sector. Moreover, the cycles chosen to examine industry MFP growth can have a considerable effect on the interpretation of industry productivity performance over time. Growth in productivity is a key determinant of long-term economic growth and hence income growth. As Australia’s prospective productivity performance will affect its future prosperity, recent significant declines in productivity growth understandably have been of concern. Closer analysis of industry productivity is key to understanding aggregate productivity performance and to providing policy-relevant insights into how to influence it. The industry-specific cycles presented in this paper, and the methodology for identifying them, are tools that can assist in understanding industry productivity performance. This initial set of cycles, while not intended to be definitive, provides the basis for more refined examinations of productivity in individual industries. The methodology outlined provides a generic approach to the identification of industry cycles, but the results also flag the scope for further refinement of the cycles where more detailed industry-specific information is available. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.