Portugal: A Paradox in Productivity

Portugal has a lower level of productivity than advanced economies but, paradoxically, the recent improvement in several of its determinants did not lead to convergence in productivity levels. The objective of this paper is to better understand the larger slowdown in productivity growth in Portugal than the one occurring in those countries by considering its main determinants. It presents a set of different reasons for the divergence with developed economies since the mid-1990s that are associated with an increasing misallocation of capital, labour and skills both at a sectoral and firm level. Moreover, it outlines some policy proposals to enhance aggregate productivity growth in the Portuguese economy within a framework of growing integration in global markets. Portugal is experiencing a slowdown of pro-