Spatial Misallocation and Labor Productivity: Sweden

Reviving productivity could strengthen Sweden’s resilience to global shocks while helping accommodate new public spending priorities. Sweden’s institutional framework remains a solid foundation for sustained productivity growth, and reform measures should focus on safeguarding and reinforcing its effectiveness. The reform measures proposed by the authorities’ Productivity Commission and those from past IMF advice, such as simplifying regulations and improving housing market, can deliver sizable aggregate gains. Such reforms would allow Sweden to better harness agglomeration externalities and deepen regional specialization, with relatively higher yields from improving local conditions. To maximize synergies, the reform package should combine measures across different policy areas in a holistic manner. A concerted nationwide push of the agenda would help contain the widening of spatial disparity that could emerge from these reforms.