Low investment – another moan

A quick update on my previous post bemoaning low investment in the UK economy. Stian Westlake of NESTA asked a good question: one of the books I cited, Keith Smith’s

, was published in 1984. Was this not just ahead of a long upturn in UK productivity growth, one of the stronger productivity performers in the OECD until the 2000s?

He answered his own question with a link to a NIESR growth accounting paper (pdf) concluding that both capital deepening and skills (human capital) deepening made small contributions to the improved productivity performance from the mid-1980s to 2009. The paper concludes: “The majority of the improvement comes from factors affecting the level of technology and the efficiency of factor use.” This in turn was driven by FDI and openness to trade. The impact of FDI on management skills has been confirmed subsequently by John Van Reenen and others.

Stephen King of HSBC, author of

,  pointed me to the chart below indicating the same thing.

Contributions to annual growth