Edited by Gavin Boyd, Alan M. Rugman and Pier Carlo Padoan
Chapter 1: The role of financial markets in economic performance: the EU and the USA
Stefano Manzocchi, Pier Carlo Padoan INTRODUCTION Over the 1990s, the US economy grew at an average rate of 3.7 per cent per year against an average yearly rate of more than a percentage point lower for the EU.1 Ample evidence points to the role of new information technologies as the main determinants of US performance and to the limited role that innovation has played in explaining the more disappointing performance in the larger continental EU countries. Less attention has been devoted to the role of ﬁnancial factors in explaining such differences. After a fall at the end of the 1970s, the capital income share of the private sector in major EU countries, from the mid-1980s, was very much on the rise and indeed larger than the share in the USA, which, while constantly rising, remained well below that of the other EU countries. In principle such an evolution in income distribution would suggest that conditions for sustained accumulation were present in the EU, also given the widespread view that labour market rigidities in Europe were pushing European ﬁrms to shed labour and increase capital accumulation, which, in turn, should have been associated with a higher rate of growth. However capital accumulation has been higher and more sustained in the USA. From 1992 to 2000, private investment in the USA grew at an annual rate of 10 per cent, well above the secular trend of the previous 40 years (3.6 per cent). Can differences in ﬁnancial market performance explain, at least...
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