Productivity as a source of economic growth - current situation and prospects in the Republic of North Macedonia

Abstract

Productivity is an indicator of the use (exploitation) of the potential of inputs for creating new value added in the economy. In the long term, productivity growth is dependent upon innovation, investment in physical capital, and investment in human capital. These immediate factors are shaped by the environment in which enterprises operate: market structures, infrastructure, the institutional framework and the quality of governance. The main objective of this paper is to study productivity growth in the Republic of North Macedonia and to analyses and propose measures that can be taken to stimulate productivity. The analysis include: labor productivity, total factor productivity (TFP) and the level of enterprise productivity. Labour productivity in North Macedonia is low, and in the past five years even negative. The calculations of the total factor productivity using the Solow’s growth model and Cobb-Douglas production function for the past twenty years, shows that GDP average growth is 4,97% and the TFP contribute by 1,69%.The level of enterprise productivity is also low. Therefore, the expectations for the increase of the GDP and reaching economic growth that can be sustainable is possible with increasing total factor productivity in the North Macedonia.