Slowdown in total factor productivity of French private companies: Between microeconomic heterogeneity and inappropriate government policies

Abstract

This article aims to find an explanation for the slowdown in the total factor productivity (TFP) of private firms on the one hand, and on the other hand, to show the need for state intervention through government policies whose impacts on TFP were verified in the literature. In this paper, we examined the relationship between different government policies and TFP growth for 78 French firms covering the period 2005 to 2019. Firstly, this study showed that TFP varies considerably over time, suggesting that microeconomic factors may have an important impact on firms' TFP. Secondly, some of the government policies were favorable to TFP growth while others were rather hindering. Indeed, the positive impact of both public infrastructure spending and public subsidies to French firms shows that an expansionary fiscal policy would allow a recovery in TFP. On the other hand, taxes on imported products, the exchange rate and cost‐competitiveness ratio, with a negative impact, show that the competitiveness policies adopted are unfavorable to the resumption of TFP growth. Thirdly, it should be noted that operating, investment and R&D subsidies were channels for the effectiveness of French government policies. Finally, by taking into account a set of macroeconomic indicators, the study confirmed the positive impact of a favorable macroeconomic environment on the recovery of TFP.