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Businesses are crucial to solving
the UK’s productivity problems.


Long-term productivity trends - UK in an international perspective

The UK’s slow productivity growth since 2007 has been referred to as a “puzzle”, as if it were a particularly UK-specific challenge. This paper highlights how the United States and northern Europe experienced very similar slowdowns. The common slowdown in productivity growth was a slowdown in total factor productivity (TFP) growth; the research shows little evidence that capital deepening was an important independent factor. From a conditional-convergence perspective, most of the UK slowdown follows from the slowdown at the U.S. frontier.

From the mid-1980s to 2007, the UK’s relative productivity level moved closer to the level of the U.S. and northern Europe, driven by essentially complete convergence in market services TFP. In contrast, manufacturing lost ground relative to the U.S. frontier prior to 2007, and remains far below the frontier. The relative ground lost after 2007 is modest—cumulating to about 4 percentage points—and is largely attributable to somewhat unfavourable industry weights and industry-specific issues in mining, rather than a systematic UK competitiveness problem.

Lead Researchers John Fernald (INSEAD), Robert Inklaar (University of Groningen)