Interaction of productivity and business dynamism: its impact on economic growth

Abstract

Continuous productivity growth is an important precondition for sustainable economic growth and social welfare improvement. In this context, it is important to elucidate the interaction of productivity improvement factors and determine its objectives.

The article focuses on the role of business environment and business dynamism as a key factor of ensuring a competitive business environment and productivity growth. According to "Global Competitiveness" report, the market structure in the world has changed over the past decades, and business dynamics indicates a downward trend. Although in 2018-2019 some improvement in business dynamism was shown in Armenia, it is quite low even at the level of the countries of the region. In Armenia, the slowdown trends in labor productivity growth (average growth rate - 5.5%), beginning since 2000, were further deepened as a result of economic shocks in 2020: the average growth rate in 2020, compared to 2019, decreased to 0.95% and it declined to 1.1% up to 2021, as compared with 2020. Under the conditions of inefficient mechanisms for the distribution of added value created in the economy, employees receive salaries below the equilibrium price, whereas they buy goods and services at a price above the equilibrium price.

Here, the total factor productivity (TFP) becomes extremely important as an indicator of the effectiveness of added value distribution among the participants of productivity factors. For an in-depth assessment of the interactions between economic growth and productivity, it is crucial to consider the indicators of GDP and productivity - TFP, labor productivity, as well as the growth rate of real wages in the context of their interdependence. Such approach will help to focus on the deep-seated tasks concerning the interaction between productivity and economic growth, the solution of which is important in the context of the modern imperative of economic development and the improvement of social welfare in RA.