DP15870 Institutions and the Productivity Challenge for European Regions
|Author(s):||Roberto Ganau, Andrés Rodríguez-Pose|
|Publication Date:||March 2021|
|Keyword(s):||Europe, Human Capital, Innovation, institutional quality, labour productivity, Physical Capital, regions|
|JEL(s):||E24, J24, O47, R11|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15870|
Europe has witnessed a considerable labour productivity slowdown in recent decades. Many potential explanations have been proposed to address this productivity 'puzzle'. However, how the quality of local institutions influences labour productivity has been overlooked by the literature. This paper addresses this gap by evaluating how institutional quality affects labour productivity growth and, particularly, its determinants at the regional level during the period 2003-2015. The results indicate that institutional quality influences regions' labour productivity growth both directly -as improvements in institutional quality drive productivity growth- and indirectly -as the short- and long-run returns of human capital and innovation on labour productivity growth are affected by regional variations in institutional quality.