Advertisement

Empirical Economics

, Volume 47, Issue 3, pp 999–1027 | Cite as

Productivity in the euro area: any evidence of convergence?

  • David SondermannEmail author
Article

Abstract

Sizable prevailing real economic disparities among countries in a currency union potentially involve costs for those countries for which the aggregate policy stance is not appropriate. This paper contributes to the literature by testing for productivity convergence among euro area countries. While no convergence can be found on the aggregate level, selected service sectors and manufacturing sub-industries indicate evidence of convergence. In a search for factors influencing productivity, investments in research and development as well as a high skill level of employees are shown to be beneficial, whereas regulations constitute a burden.

Keywords

Productivity Convergence Panel unit root test   Manufacturing and service sector 

JEL Classification

C33 O47 J24 L60 L80 

Notes

Acknowledgments

Helpful comments received from two anonymous referees as well as the editors of this journal, from participants of two ECB internal seminars, and specifically Reiner Martin are gratefully acknowledged.

Supplementary material

References

  1. Aitken BJ, Harrison AE (1999) Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. Am Econ Rev 89:605–618CrossRefGoogle Scholar
  2. Altissimo F, Mojon B (2009) Can aggregation explain the persistence of inflation? J Monetary Econ 56(2):231–241CrossRefGoogle Scholar
  3. Arnold J, Nicoletti G, Scarpetta S (2008) Regulation. Industry and firm-level evidence. OECD economics department working papers No, allocative efficiency and productivity in OECD countries, p 616Google Scholar
  4. Bai J, Ng S (2002) Determining the number of factors in approximate factor models. Econometrica 70:191–221CrossRefGoogle Scholar
  5. Bai J, Ng S (2004) A PANIC attack on unit roots and cointegration. Econometrica 72:1127–1177CrossRefGoogle Scholar
  6. Baily MN (1993) Competition, regulation and efficiency in service industries. Brookings Papers Econ Act 2:71–159CrossRefGoogle Scholar
  7. Barro RJ, Sala-i-Martin X (1991) Convergence across states and regions. Brookings Papers Econ Act 22:107–182CrossRefGoogle Scholar
  8. Barro RJ (2001) Human capital and growth. AM Econ Rev 91(2):12–17CrossRefGoogle Scholar
  9. Battisti M, Di Vaio G (2008) A spatially filtered mixture of beta-convergence regressions for EU regions 1980 to 2002. Empir Econ 34(1):105–121CrossRefGoogle Scholar
  10. Belorgey N, Lecat R, Maury PM (2006) Determinants of productivity per employee: an empirical estimation using panel data. Econ Lett 91:153–157Google Scholar
  11. Bernard A, Durlauf S (1996) Interpreting tests of the convergence hypothesis. J Econometr 71:161–173CrossRefGoogle Scholar
  12. Bernard A, Jones C (1996a) Comparing apples and oranges: productivity convergence and measurement across industries and countries. Am Econ Rev 86:1216–1238Google Scholar
  13. Bernard A, Jones C (1996b) Productivity across industries and countries: time series theory and evidence. Rev Econ Stat 78:135–146CrossRefGoogle Scholar
  14. Boylaud O (2000) Regulatory reform in road freight and retail distribution. OECD working paper No. 28Google Scholar
  15. Breitung J (2000) The local power of some unit root tests for panel data. In: Baltagi B (ed) Advances in econometrics Vol 15: nonstationary panels, panel cointegration, and dynamic panels. JAI Press, Amsterdam, pp 161–178Google Scholar
  16. Breitung J, Pesaran MH (2007) Unit roots and cointegration in panels. In: Matyas L, Sevestre P (eds) The econometrics of panel data: fundamentals and recent developments in theory and practice. Kluwer Academic Publishers, BostonGoogle Scholar
  17. Burgess S (2011) Measuring financial sector output and its contribution to UK GDP. Bank of England Quarterly Bulletin 2011:Q3Google Scholar
  18. Busetti F, Forni L, Harvey A, Venditti F (2007) Inflation convergence and divergence within the European Monetary Union. Int J Cent Bank 3(2):95–121Google Scholar
  19. Byrne JP, Fazio G, Piacentino D (2009) Total factor productivity convergence amongst Italian regions: some evidence from panel unit root tests. Reg Study 43(1):63–76CrossRefGoogle Scholar
  20. Byrne JP, Fiess N (2010) Euro area inflation: aggregation bias and convergence. Rev World Econ 146:339–357CrossRefGoogle Scholar
  21. Carlino GA, Mills L (1993) Are US regional incomes converging? J Monetary Econ 32:335–346CrossRefGoogle Scholar
  22. Carree M, Klomp L, Thurik A (2002) Productivity convergence in OECD manufacturing industries. Econ Lett 66:337–345CrossRefGoogle Scholar
  23. Chmelarova V, Nath HK (2010) Relative price convergence among US cities: does the choice of numeraire city matter? J Macro Econ 32:405–414CrossRefGoogle Scholar
  24. Convey P, de Rosa D, Nicoletti G and Steiner F (2006) Product market regulations and productivity convergence. OECD economic studies No. 43Google Scholar
  25. Dowrick S, Nguyen DT (1989) OECD comparative economic growth 1950–1985, catch-up and convergence. Am Econ Rev 79:1010–1030Google Scholar
  26. Dreger C, Kosfeld R (2010) Do regional price levels converge? J Econ Stat 230:274–286Google Scholar
  27. Dullien S, Fritsche U (2008) Does the dispersion of unit labor cost dynamics in the EMU imply long-run divergence? Int Econ Econ Policy 5:269–295CrossRefGoogle Scholar
  28. EU KLEMS (2009) www.euklems.netGoogle Scholar
  29. Evans P, Karras G (1996) Convergence revisited. J Monetary Econ 37:249–265CrossRefGoogle Scholar
  30. Evans P (1998) Using panel data to evaluate growth theories. Int Econ Rev 39:295–306CrossRefGoogle Scholar
  31. Fritsche U and Kuzin V (2007) Unit labor cost growth differentials in the euro area, Germany, and the US: lessons from PANIC and cluster analysis. Discussion papers of DIW Berlin No. 667Google Scholar
  32. Fritsche U, Kuzin V (2011) Analysing convergence in Europe using the non-linear single factor model. Empir Econ 41:343–369CrossRefGoogle Scholar
  33. Galli R (1997) Is there long run industrial convergence in Europe? Int Rev Appl Econ linebreak 11:333–368CrossRefGoogle Scholar
  34. Garcia Pascual A, Westermann F (2002) Productivity convergence in European manufacturing. Rev Int Econ 10:313–323CrossRefGoogle Scholar
  35. Gardiner B, Martin R, Tyler R (2004) Competitiveness, productivity and economic growth across the European regions. Reg Study 38:1037–1059CrossRefGoogle Scholar
  36. Götzfried A (2005) R &D in the business enterprise sector of the European Union. EC Statistics in, Focus No. 4/2005Google Scholar
  37. Granger C, Maasoumi E, Racine JS (2004) A dependence metric for possibly nonlinear time series. J Time Ser Anal 25:649–669CrossRefGoogle Scholar
  38. Gugler K, Pfaffmayer M (2004) Convergence in structure and productivity in European manufacturing. Ger Econ Rev 1:61–79CrossRefGoogle Scholar
  39. Hallett AH and Weymark DN (2002) The cost of heterogeneity in a monetary union. CEPR discussion paper No. 3223Google Scholar
  40. Im KS, Pesaran MH, Shin Y (2003) Testing for unit roots in heterogenous panels. J Econometrics 115:53–74CrossRefGoogle Scholar
  41. Klenow PJ, Rodriguez-Clare A (1997) Economic growth: a review essay. J Monetary Econ 40:597–617CrossRefGoogle Scholar
  42. Konings J (2000) The effects of direct foreign investment on domestic firms: evidence from firm level panel data in emerging economies. CEPR discussion papers No. 2586Google Scholar
  43. Levin A, Lin C, Chu CJ (2002) Unit root tests in panel data: asymptotic and finite- sample properties. J Econometrics 108:1–24CrossRefGoogle Scholar
  44. Lucas RE (1988) On the mechanics of economic development. J Monetary Econ 22:3–42CrossRefGoogle Scholar
  45. Maasoumi E, Racine J, Stengos T (2007) Growth and convergence: a profile of distribution dynamics and mobility. J Econometrics 136:483–508CrossRefGoogle Scholar
  46. Maasoumi E, Wang L (2008) Economic reforms, growth and convergence in China. Econometr J 11:128–154CrossRefGoogle Scholar
  47. National Institute of Economic & Social Research (1996) Capital market liberalization. The single market review series, subseries III dismantling of barriersGoogle Scholar
  48. Nicoletti G, Scarpetta S, Boylaud O (2000), Summary indicators of product market regulation with an extension to employment protection legislation, Economics Department Working Paper No. 226Google Scholar
  49. OECD Development Centre (2008) International Labour Mobility. Policy Insights No. 69Google Scholar
  50. O’Mahony M, Timmer MP (2009) Output, input and productivity measures at the industry level: the EU KLEMS database. Econ J 119:F374–F403CrossRefGoogle Scholar
  51. Pesaran MH (2007) A simple panel unit root test in the presence of cross-section dependence. J Appl Econometr 22:265–312CrossRefGoogle Scholar
  52. Petroulas P (2007) The effect of the euro on foreign direct investment. Eur Econ Rev 51:1468–1491CrossRefGoogle Scholar
  53. Phillips PCB, Sul D (2007) Transition modelling and econometric convergence tests. Econometrica 75:1771–1855CrossRefGoogle Scholar
  54. Pottelsberghe Van, de la Potterie B, Lichtenberg F (2001) Does foreign direct investment transfer technology across borders? Rev Econ Stat 83:490–497CrossRefGoogle Scholar
  55. Quah D (1993) Galton’s fallacy and tests of the convergence hypothesis. Scandinavian J Econ 95:427–443CrossRefGoogle Scholar
  56. Quah D (1997) Empirics for growth and distribution: stratification, polarization, and convergence clubs. J Econ Growth 2:27–59CrossRefGoogle Scholar
  57. Rebelo ST (1991) Long-run policy analysis and long-run growth. J Polit Econ 99:500–521CrossRefGoogle Scholar
  58. Rodrick D (2011) The future of economic convergence. NBER Working Paper No. 17400Google Scholar
  59. Rodrick D (2013) Unconditional convergence in manufacturing. Q J Econ 128:165–204CrossRefGoogle Scholar
  60. Romer P (1986) Increasing returns and long-run growth. J Polit Econ 94:1002–1037CrossRefGoogle Scholar
  61. Romer P (1990) Human capital and growth: theory and evidence. Carnegie-Rochester Ser Public Policy 32:251–286CrossRefGoogle Scholar
  62. Romer P (1994) New goods, old theory, and the welfare costs of trade restrictions. J Dev Econ 43:5–38CrossRefGoogle Scholar
  63. Schreyer P and Koechlin F (2002) Purchasing power parities - measurement and uses. OECD Statistics Brief No. 3Google Scholar
  64. Simpson H (2008) Productivity in public services. J Econ Surv 23:250–276CrossRefGoogle Scholar
  65. Solow RM (1956) A contribution to the theory of economic growth. Q J Econ 70:65–94CrossRefGoogle Scholar
  66. Stengos T and Yazgan ME (2013) Persistence in convergence. MACROECON DYN forthcomingGoogle Scholar
  67. Tsionas E (2000) Productivity convergence in Europe. East Econ J 26:297–320Google Scholar
  68. Van Ark B, Piatkowski M (2004) Productivity, innovation and ICT in old and new Europe. Int Econ Econ Policy 1:215–246CrossRefGoogle Scholar
  69. Van Ark B, Inklaar R (2005) Catching Up or Getting Stuck? Europe’s Troubles to Exploit ICT’s Productivity Potential. Groningen Growth and Development Centre, Working paper No. 7Google Scholar
  70. Villaverde J, Maza A (2008) Productivity convergence in the European regions, 1980–2003: a sectoral and spatial approach. Appl Econ 40:1299–1313CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.European Central Bank (ECB)FrankfurtGermany

Personalised recommendations