Boosting Productivity in Kazakhstan with Micro-Level Tools: Analysis and Policy Lessons

By Mariana Iootty, Asset Bizhan and Paulo Correa

Like in many other countries, Kazakhstan's economic growth has slowed since the global financial crisis. Strong growth before the crisis--10.2 percent on average from 2000 to 2007--was facilitated by high oil and natural gas prices and a surge in capital inflows, credit, consumption, and investment. As commodity prices weakened with the end of the commodity super cycle, capital flows and investment fell and growth slowed substantially to 4.4 percent on average from 2010 to 2018. While the slowdown reflected weaknesses in expanding labor and capital, the most striking reduction was in productivity growth. Productivity grew at a modest pace of 1 percent, on average, during 2000 through 2007 before slowing to nil since the crisis. In more recent years, total factor productivity (TFP) growth has started to bounce back, albeit at a modest pace, possibly driven by the recovery in commodity prices. Between 2015 and 2018, TFP grew by 1.1 percent in the manufacturing sector and 0.4 percent in the services sector. While slower expansion in productivity has been a global phenomenon, Kazakhstan's subdued productivity performance for a decade reflects more structural problems.

Against this backdrop, this report examines barriers and policy gaps that hinder productivity growth in Kazakhstan. The uniqueness of the task was in its first-time access to administrative firm-level data; the data for the period of 2009 through 2018 covered 70,000 business establishments annually, corresponding to total employment of 1.6 million. The unprecedented access to firm-level data allowed a detailed analysis and deepened the understanding of the microeconomic dynamics and main drivers of aggregate productivity growth in the country, making it possible to identify a wide-ranging set of policy recommendations to boost aggregate productivity growth. These are (1) removing competition distortions in product markets due to state involvement in the economy, (2) reshaping business support policies to prioritize firm productivity growth rather than firm survival, (3) streamlining the investment policy framework to unlock opportunities for efficiency-seeking foreign direct investment, and (4) streamlining the coordination of the national innovation system to maximize the productivity impacts from research and development efforts.

• Language: English
• Publisher: World Bank Publications
• Release date: Jan 10, 2023
• ISBN: 9781464819100

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