The Equation: Are Supply Chains Holding Back Productivity Growth?

In some cases, the ability of a company or sector to innovate depends on its suppliers. A good example can be found in the auto industry, where progress toward all-electric cars hinged on the creation of the lithium-ion battery, with its high energy density, high efficiency, and rechargeability, as a replacement to low-energy-density predecessors. Innovation bottlenecks could explain why US productivity growth has been disappointing since the 1970s, according to research by MIT’s Daron Acemoglu and David Autor and Chicago Booth’s Christina Patterson. In their model, an industry’s technological progress (measured by total factor productivity growth) depends partly on its suppliers’ simultaneous advancements. If some suppliers are innovating at a much faster pace than others, this uneven development across sectors could hinder an industry’s growth. To learn more, read “Lopsided Innovation Causes Productivity Slowdowns.”