The Sources of Productivity Slowdown in Pakistan: A Novel Structural Decomposition Analysis

Abstract

The aggregate labor productivity in Pakistan has deteriorated during the last three decades. The study examines the causes of the slowdown in aggregate labor productivity. By examining the role of structural change in productivity slowdown, the study develops a novel shift-share methodology and decomposes aggregate productivity into within-sector productivity and structured components. The results revealed that within-sector, along with structural labor productivity in the manufacturing and construction sectors has deteriorated over time. Furthermore, within sector productivity growth in the agriculture sector has also declined. Whereas structural productivity level and growth have positively contributed to aggregate agricultural productivity growth. The core findings of the study demonstrate that within-sector productivity of agriculture, manufacturing and construction, along with structural labor productivity of the manufacturing and construction sectors, has deteriorated over time and played a considerable role in the reduction of aggregate productivity. This study also offered evidence for the validity of the novel decomposition, and the results indicate that the novel structural decomposition is more reliable for the identification of the sources of aggregate productivity growth.