Productivity in a Changing Economic Landscape: The Role of Investments, Technology, and Market Dynamics

Productivity and innovation are key sources of long-term growth and higher living standards. As Europe’s productivity growth slows and the gap with the US continues to widen, one question becomes clear: how can productivity best be strengthened in a business sector shaped by rapid technological change, particularly artificial intelligence?

Technological shifts are reshaping markets, transforming firms’ conditions, and creating new value for consumers. At the same time, trade barriers and geopolitical uncertainty are growing. The new tariffs introduced in spring 2025 have significant consequences for export-dependent countries such as Sweden.

The report analyzes productivity, investments, and market conditions among Swedish firms, using unique measures of total factor productivity (TFP). Advanced methods and detailed firm-level data are applied to identify what drives productivity and competitiveness in today’s knowledge-intensive and complex economy. The report demonstrates how investments in new technology, R&D, intangible assets, ICT, venture capital, AI, and access to digital infrastructure affect productivity both in the short and long run. It also highlights firms’ innovation capacity and the importance of global markets and competition.

Key Findings

Firms that invest in new technology, R&D, intangible assets, ICT, venture capital, AI, and digital infrastructure achieve future productivity gains. These effects are long-lasting: small improvements today lead to substantial productivity growth over time.

High-productivity firms launch more new products and services, create product and process innovations, and register patents.

Access to global markets strengthens innovation capacity and productivity growth. Trade barriers such as tariffs on Swedish exports reduce firms’ investments in innovation and slow productivity growth, with far-reaching consequences for the entire economy.

New entrants, well-functioning competition, secure digital infrastructure, and access to venture capital strengthen innovation, productivity, and dynamism throughout the economy.

Policy Recommendations

Make new technology a core priority. Take a comprehensive approach to the drivers and consequences of technological change. Strengthen firms’ incentives and conditions to invest, ensure secure digital infrastructure, and safeguard access to relevant skills.

Strengthen incentives for investments in R&D and intangible assets. Tax incentives for R&D, venture capital, and investments in intangible assets enhance productivity and innovation capacity through the creation of new products, services, processes, and patents.

Safeguard access to global markets. For an export-dependent country like Sweden, access to international markets is essential. Restricted export opportunities reduce firms’ willingness to invest in innovation. Trade and innovation policy must therefore be closely aligned.

Promote competition and entrepreneurship. New entrants and competition drive renewal and strengthen economic dynamism. Sweden needs favorable conditions for entry and growth, as well as reduced regulatory burdens.

About the Authors

Florin Maican, Associate Professor of Economics, University of Gothenburg and Research Institute of Industrial Economics (IFN)

Matilda Orth, Associate Professor of Economics, Research Institute of Industrial Economics (IFN)