In the most immediate sense, productivity is determined by:
- the available technology or know-how for converting resources into outputs desired in an economy; and
- the way in which resources are organised in firms and industries to produce goods and services.
Average productivity can improve as firms move toward the best available technology; plants and firms with poor productivity performance cease operation; and as new technologies become available. Firms can change organisational structures (e.g. core functions and supplier relationships), management systems and work arrangements to take the best advantage of new technologies and changing market opportunities. A nation's average productivity level can also be affected by the movement of resources from low-productivity to high-productivity industries and activities.
National productivity growth stems from a complex interaction of factors. As just outlined, some of the most important immediate factors include technological change, organisational change, industry restructuring and resource reallocation, as well as economies of scale and scope. Over time, other factors such as research and development and innovative effort, the development of human capital through education, and incentives from stronger competition promote the search for productivity improvements and the ability to achieve them. Ultimately, many policy, institutional and cultural factors determine a nation's success in improving productivity.