Past, Present and Future
Edited by D. S.P. Rao and Bart van Ark
Chapter 11: Europe's Productivity Performance in Comparative Perspective: Trends, Causes and Projections
The benefits of the modern knowledge economy differ greatly between advanced economies. The EU–15, that is the 15 European Union countries that constituted the Union up to 2004 that is the focus of this chapter, experienced a slowdown in GDP growth from an annual rate of 3.5 per cent during the period 1973–1995 to 2.3 per cent during the period 1995–2008. At the same time productivity growth (measured as GDP per hour of work) slowed from an annual rate of 2.7 per cent to 1.5 between these two time periods. At the same time, average annual GDP in the United States slightly accelerated from 2.9 to 3.3 per cent and labour productivity sharply increased from 1.3 per cent to 2.1 per cent between 1973–1995 and 1995–2008 respectively. While differences in the timing of business cycles in the United States and the European Union may have some effect on this comparison, they do not explain these divergent trend growth rates. The slower output and labour productivity growth rates in Europe compared to the United States since 1995 reverse a long-term pattern of convergence. This chapter first reviews the growth and productivity performance in Europe since 1950, considering three periods characterized by different drivers of productivity. In the period 1950–1973, European growth was characterized by a traditional catch-up pattern based on the imitation and adaptation of foreign technology, coupled with strong investment and supporting institutions. However, the traditional postwar convergence process came to an end by the mid 1970s (Crafts and Toniolo, 1996; Eichengreen, 2007). Then, in the period from 1973 to 1995, output and productivity growth in both Europe and the United States began to slow.
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