This paper, begins with a discussion of the well-known issues
involved in defining and measuring total factor productivity (TFP) and
its contribution to growth (as well as the possible contribution of
growth to productivity), the economic theory underpinning productivity,
and policies that impact on and influence changes in productivity. It is
followed by, first, a selective discussion of the studies on
cross-country variation in productivity levels and growth, and then the
experience of South Asia and China in a comparative perspective across
the region and across the developing world. The share of South Asia in
global GDP and its growth has remained stagnant since the early
nineties. Disturbingly, except India, the rest of South Asia experienced
a decline in TFP growth between 1989-95 and 1995-2003. The paper
concludes that for achieving sustained productivity growth,
well-functioning social and economic institutions are important, since
through their incentive structure they influence, labour force
participation, savings and accumulation of human and physical capital,
risk-taking and innovation as well as efficiency of resource allocation.
Public policies, particularly macro-economic, foreign trade and
investment policies, matter a great deal.