to 2013, productivity at global frontier manufacturing firms – i. e. the top 100 firms globally in each sector in terms of productivity – increased by a quarter. 3 productivity growth at global frontier service sector firms was even higher. and, importantly, the performance of euro area firms at the frontier is on a par with that of other advanced economies. 3 / 7 bis central bankers'speeches it is productivity growth among the non - frontier firms that is poor across the oecd countries, explaining the slowdown in aggregate productivity growth across advanced economies. productivity in non - frontier manufacturing firms increased by just 10 %. and, for the euro area, the picture for non - frontier firms appears even worse, with non - frontier productivity stagnating in manufacturing and even declining in services. overall, the picture appears to be not so much a lack of technological progress per se, but a lack of diffusion of progress from the frontier to other firms. in other words, the laggard firms aren ’ t absorbing the new technology and incorporating it into their production processes to increase their efficiency, possibly due a lack of competitive pressures. but labour productivity growth not only depends on the efficiency gains of each firm in the economy. it also depends on the extent to which capital and labour are allocated to the most productive firms. here, again, there are signs of underperformance in the euro area, particularly in the non - tradable sectors. 4 recent research suggests that this misallocation of capital and labour is trending upwards in many euro area countries. 5 in conclusion, therefore, the euro area ’ s poor productivity appears a result of poor diffusion of technology from the frontier to other firms, and from an inefficient allocation of capital and labour to relatively low productivity firms. such factors are fortunately more receptive to structural reforms than innovation, which is harder to institute. there are two main areas that need to be addressed. first, barriers to knowledge diffusion need to be brought down. this includes fostering a competitive business environment that encourages the adoption of the best management techniques and organisational structures. here, there is a clear role for institutions such as the one whose centenary we are celebrating today to aid this diffusion of knowledge and best 4 / 7 bis central bankers'speeches practice across firms. second, productive firms need to be able to grow, to attract both capital and skilled workers. this requires well - functioning capital, product and labour markets. it is crucial that the single market

mario draghi : the productivity challenge for europe lectio magistralis by mr mario draghi, president of the european central bank, marking the 100th anniversary of the deusto business school, madrid, 30 november 2016. * * * the euro area economy continues to expand at a moderate, but steady, pace and labour markets are gradually improving, including notably here in spain. this gradual upward trend is expected to continue, not least owing to our monetary policy measures. but productivity growth has remained very subdued. in 1995, productivity growth in the euro area was on a par with the rest of the world at about 2 %. but now, at below 0. 5 %, it lags behind the growth rates of the united states, other advanced economies and emerging markets. if it persists, this slowdown in productivity growth will matter greatly for our future prosperity, and will have direct consequences for the conduct of monetary and fiscal policy and the cohesion of the euro area. 1 / 7 bis central bankers'speeches consider first the challenge caused by ageing populations, which many economies will face in the coming decades. the share of working - age persons in the total population is projected to decline across europe, and this is particularly marked in some economies. in the absence of change – if output per worker, structural unemployment, and labour participation remain at current levels – population ageing will result in a stark fall of output per capita. using the oecd ’ s population projections, the decline in output per head by 2050 would be 14 % in germany, 16 % in italy and 22 % in spain. while this scenario is very unlikely to materialise, it shows that current rates of productivity growth are barely sufficient to offset the demographic drag on per capita income. structural reforms are therefore urgently needed to raise productivity growth and unlock unused labour potential and thereby avoid stagnation in per capita income. but the benefits of structural reforms to the welfare of people in the euro area extend beyond increasing aggregate incomes and offsetting the demographic drag. they also empower other policies. 2 / 7 bis central bankers'speeches stronger potential output growth aids monetary policy by increasing the equilibrium real interest rate. higher equilibrium rates provide more room for monetary policy to operate without being constrained by the effective lower bound. this in turn reduces the likelihood that unconventional measures will be required to counteract future downturns. and higher future growth helps monetary policy today. it encourages households to spend more and firms to invest, reducing