Economic Convergence and Divergence in Europe
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Economic Convergence and Divergence in Europe

Growth and Regional Development in an Enlarged European Union

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

This highly topical book addresses the challenge of economic convergence within Europe, beginning with a thorough review of the theory of growth and related empirical research. Historical and more recent economic developments within the present EU and current accession countries are discussed, along with the design for the process of further integration of accession countries into the EU and the Euro area. Moreover, the potential to achieve a sustainable catch-up process in Western Balkan countries, the Ukraine and Russia is explored, focusing on the task facing the EU in designing proper policies vis-à-vis these countries. The contributors’ varied perspectives ensure that the theories and policies postulated are linked closely with the actual situation in accession countries and offer up-to-date insights.
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Chapter 19: Searching for Schumpeter: the €nancial sector and economic growth in industrial countries

Joseph Bisignano


19. Searching for Schumpeter: the financial sector and economic growth in industrial countries Joseph Bisignano 19.1. INTRODUCTION1 The study of economic growth is faced with a puzzle. A considerable portion of the measured rate of growth of output per man-hour remains unexplained. The textbook Solow (1956) model of economic growth, which assumes constant returns to scale and perfect competition, describes the growth rate of output per man-hour as dependent on the rate of growth of the capital–output ratio and a residual, called the ‘Solow residual’, or multi-factor productivity growth.2 The puzzle is that for many countries the residual appears to account for a large portion of the growth rate of output, by as much as one-half in some cases. Indeed, economists have found that the Solow residual leaves unexplained much of the cross-country variation in economic growth (Easterly and Levine 2000). There is even evidence that international differences in output per capita cannot be attributed to differences in capital per person (King and Levine 1994). If capital accumulation is not the engine of growth, what is? In recent years there has been a revival of a branch of growth theory which attempts to explain this residual and the growth puzzle, said to have originated with the Austrian economist Joseph Schumpeter (1911). Schumpeter is currently associated to two thriving schools of economic research: endogenous growth theory, which considers how endogenous technical change and innovation improve the quality of intermediate inputs, making obsolete previous inputs (‘creative destruction’), thus contributing...

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