DP7237 The EU-US total factor productivity gap : An industry-level perspective

Author(s): Kieran McMorrow, Werner Röger, Alessandro Antonio Turrini
Publication Date: March 2009
Keyword(s): European Union, growth determinants, total factor productivity
JEL(s): D24, O47, O52
Programme Areas: International Macroeconomics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7237

The EU-US total factor productivity (TFP) growth gap since the mid-1990's is concentrated in a handful of market service industries (most notably retail trade) and in ICT-producing manufacturing, whilst the EU exhibits a stronger performance in a number of the network utilities. This paper explores the industry-specific determinants of the EU-US TFP growth gap using the EU KLEMS database. As found in previous analyses (e.g., Nicoletti and Scarpetta (2003); Griffith, Redding, and Van Reenen (2004); Inklaar, Timmer and Van Ark (2008)), TFP growth appears to be driven by catching-up phenomena associated with the gradual adoption of new-vintage technologies. Compared with previous analyses, TFP growth is also significantly driven by developments taking place at the "technological frontier," increasingly so since the mid-1990's. Industries with higher R&D expenditures and higher adoption rates for ICT-intensive technologies appear to exhibit higher TFP growth rates, whilst human capital has mostly a significant effect across countries. Regarding industry specific determinants, ICT producing industries appear to benefit from R&D in terms of stronger spillovers from TFP gains at the frontier; network utilities are strongly affected by improvements associated with reduced product market regulations; whilst the retail trade industry is significantly influenced by consumption dynamics which permit a better exploitation of scale economies.