Advertisement

Sustainable Economic Growth in the Euro Area: The Need for a “Long View” and “Going Granular”

  • Ettore Dorrucci
Conference paper

Abstract

The lacklustre performance of certain euro area Member States, especially in the South of Europe, in terms of productivity growth and real convergence, dates back to the years preceding the adoption of the euro and is hardly related to the introduction of the single currency. To comprehend these trends we need, therefore, a “long view”. Beside factors related to institutional quality, growth in total factor productivity is probably the ultimate precondition for mature economies such as those in the euro area to avoid falling in the non-convergence trap. Firm-level evidence in turn suggests that technology creation/absorption and allocative efficiency are crucial long-run drivers of TFP growth. Growth-enhancing reforms in the euro area, therefore, should be grounded on a sufficient degree of analytical granularity, in particular by acknowledging the policy implications of firm heterogeneity.

Notes

Acknowledgments

The views expressed in this article are those of the author and do not necessarily reflect those of the ECB. I am very grateful to J.L. Diaz del Hoyo, F. Heinz, S. Muzikarova, P. Lopez Garcia, I. Pablos Nuevo for their inputs, and to participants in the Villa Mondragone International Conference (21–22 June 2017) for their comments.

References

  1. Aghion, P., & Howitt, P. (2006). Joseph Schumpeter lecture appropriate growth policy: A unifying framework. Journal of the European Economic Association, 4(2–3), 269–314.CrossRefGoogle Scholar
  2. Albert, C., García-Serrano, C., & Hernanz, V. (2005). Firm-provided training and temporary contracts. Spanish Economic Review, 7(1), 67.Google Scholar
  3. Andrews, D., & Cingano, F. (2014). Public policy and resource allocation: Evidence from firms in OECD countries. Economic Policy, 29(78), 253–296.CrossRefGoogle Scholar
  4. Bachmann, R., Elstner, S., & Sims, E. R. (2014). Uncertainty and economic activity: Evidence from business survey data. American Economic Journal: Macroeconomics, 5(2), 217–249.Google Scholar
  5. Bas, M., & Strauss-Kahn, V. (2014). Does importing more inputs raise exports? Firm-level evidence from France. Review of World Economics, 150(2), 241–275.CrossRefGoogle Scholar
  6. Barlevy, G. F. (2003). Credit market frictions and the allocation of resources over the business cycle. Journal of Monetary Economics, 50(8), 1795–1818.CrossRefGoogle Scholar
  7. Bartelsman, E., Scarpetta, S., & Schivardi, F. (2005). Comparative analysis of firm demographics and survival: Evidence from micro-level sources in OECD countries. Industrial and Corporate Change, 14(3), 365–391.CrossRefGoogle Scholar
  8. Bartelsman, E., Di Mauro, F., & Dorrucci, E. Eurozone rebalancing: Are we on the right track for growth? Insights from the CompNet micro-based data, Vox.EU. Retrieved from March 17, 2015, from http://voxeu.org/article/impact-structural-reforms-eurozone-firm-level-data.
  9. Bartelsman, E., Lopez-Garcia, P., & Presidente, G. (2017). Factor reallocation in Europe, ECB mimeo.Google Scholar
  10. Bloom, N., Sadun, R., & van Reenen, J. (2012). Americans do IT better: US multinationals and the productivity miracle. American Economic Review, 102(1), 167–201.CrossRefGoogle Scholar
  11. Brynjolfsson, E., & McAfee, A. (2014). The second machine age: Work, progress, and prosperity in a time of brilliant technologies. W. W: Norton & Company.Google Scholar
  12. Busetti, F., Giordano, C., & Zevi, G. (2016). Drivers of Italy’s investment slump during the double recession. Italian Economic Journal.  https://doi.org/10.1007/s40797-016-0028-9.CrossRefGoogle Scholar
  13. Buti, M., & Turrini, A. (2015). Three waves of convergence. Can Eurozone countries start growing together again? Vox.EU (17 April).Google Scholar
  14. Calligaris, S. (2015). Misallocation and total factor productivity in Italy: Evidence from firm-level data. Labour, 29(4), 367–393.CrossRefGoogle Scholar
  15. Chiacchio, F., Gamberoni, E., Gradeva, K., & Lopez-Garcia, P. (2017). The post-crisis TFP growth slowdown in CEE countries: Exploring the role of Global Value Chains, ECB mimeo.Google Scholar
  16. Cœuré, B. (2014). “Investing in Europe: Towards a new convergence process”, speech held at the Panel “The big rethink for a stronger Europe”, The Economist Roundtable with the Government of Greece, Athens, 9 July.Google Scholar
  17. Cohen, W. M., & Levinthal, D. A. (1989). Innovation and learning: The two faces of R&D. The Economic Journal, 99(397), 569–596.CrossRefGoogle Scholar
  18. Dias, D., Robalo Marques, C., & Richmond, C. (2014). Misallocation and productivity in the lead up to the Eurozone crisis. Bank of Portugal Working Paper 201411.Google Scholar
  19. Diaz del Hoyo, J. L., Dorrucci, E., Heinz, F., & Muzikarova, S. (2017). Real convergence in the euro area: A long-term perspective. ECB Occasional Paper No 203, December.Google Scholar
  20. Draghi, M. (2017). “Moving to the Frontier: Promoting the Diffusion of Innovation”, Welcome address at the joint conference by the ECB and the MIT Lab for Innovation Science and Policy “Fostering Innovation and Entrepreneurship in the Euro area”, Frankfurt am Main. Retrieved March 13, 2017, from http://www.ecb.europa.eu/press/key/date/2017/html/sp170313_1.en.html.
  21. Draghi, M. (2012). “A Central Banker’s Perspective on European Economic Convergence,” speech at the Anchor 2013 Conference organised by Magyar Nemzeti Bank, Budapest, 7 December 2012.Google Scholar
  22. ECB. (2017a, March). Firm heterogeneity and competitiveness in the European Union. Economic Bulletin, (2).Google Scholar
  23. ECB. (2017b, May). The slowdown in euro area productivity since the crisis in a global context. Economic Bulletin, (3).Google Scholar
  24. Farhi, E., & Werning, I. (2012). Fiscal multipliers: Liquidity traps and currency unions. NBER Working Paper No. 18381 (September).Google Scholar
  25. Feenstra, R. C., Inklaar, R., & Timmer, M. P. (2015, October). The next generation of the Penn world table. American Economic Review, 105(10).CrossRefGoogle Scholar
  26. Fernandez-Villaverde, J., Garicano, L., & Santos, T. (2013). Political credit cycles: The case of the euro zone. NBER Working Paper No. 18899.Google Scholar
  27. Fernald, J. (2014). Productivity and potential output before, during, and after the great recession. Federal Reserve Bank of San Francisco Working Paper Series (2014–15).Google Scholar
  28. Fidora, M., Giordano, C., & Schmitz, M. (2017). Real exchange rate misalignments in the euro area. ECB Working Papers Series No. 2108 (November).Google Scholar
  29. Foster, L., Haltiwanger, J., & Krizan, C. J. (2006). Market selection, reallocation, and restructuring in the U.S. retail trade sector in the 1990s. Review of Economics and Statistics, 88(4), 748–758.CrossRefGoogle Scholar
  30. Furceri, D., & Zdzienicka, A. (2013). The euro area crisis: Need for a supranational fiscal risk sharing mechanism? IMF Working Paper WP/13/198.CrossRefGoogle Scholar
  31. Fuss, C., & Vermeulen, P. (2008). Firms’ investment decisions in response to demand and price uncertainty. Applied Economics, 40(18), 2337–2351.CrossRefGoogle Scholar
  32. Gamberoni, E., Giordano, C., López-Garcia, P. (2016). Capital and labour (mis)allocation in the euro area: Some stylized facts and determinants. ECB Working Paper No. 1981 (November). See also summary in Vox.EU. Retrieved from http://voxeu.org/article/misallocating-capital-and-labour-across-firms-eurozone.
  33. Garcia-Santana, M., Moral-Benito, E., Pijoan-Mas, J., & Ramos, R. (2015). Growing like Spain: 1995–2007, mimeo.Google Scholar
  34. Gopinath, G., Kalemli-Ozcan, S., Karabarbounis, L., & Villegas-Sanchez, C. (2015). Capital allocation and productivity in South Europe. NBER Working Paper 21453.Google Scholar
  35. Gordon, R. (2016). The rise and fall of American growth: The US standard of living since the Civil War. Princeton University Press.Google Scholar
  36. Hall, B., & Mairesse, J. (2006). Empirical studies of innovation in the knowledge driven economy: An introduction. Economics of Innovation and New Technology, 15(4–5), 289–99.CrossRefGoogle Scholar
  37. Hsieh, C.-T., & Klenow, P. (2009). Misallocation and manufacturing TFP in China and India. Quarterly Journal of Economics, 124(4), 1403–1448.CrossRefGoogle Scholar
  38. Juncker, J.-C., Tusk, D., Dijsselbloem, J., Draghi, M., & Schulz, M. (2015). Completing Europe’s Economic and Monetary Union, also known as the “Five Presidents’ Report”.Google Scholar
  39. Lopez-Garcia & Montero. (2012). Spillovers and absorptive capacity in the decision to innovate of Spanish firms: The role of human capital. Economics of Innovation and New Technology, 21(7), 589–612.CrossRefGoogle Scholar
  40. Malkin, I., & Wilson, D. J. (2013, December). Taxes, transfers, and state economic differences. FRBSF Economic Letter.Google Scholar
  41. Masuch, K., Moshammer, E., & Pierluigi, B. (2016). Institutions and growth in Europe. CEPS Working Document No. 421 (April).Google Scholar
  42. Milano, V., & Reichlin, P. (2017, January). Risk sharing across the euro area: The role of public institutions. Vox. EU.Google Scholar
  43. OECD. (2015). The future of productivity. OECD Publishing.Google Scholar
  44. Osotimehin, S., & Pappadà, F. (2016). Credit frictions and the cleansing effect of recessions. The Economic Journal.  https://doi.org/10.1111/ecoj.12319.CrossRefGoogle Scholar
  45. Praet, P. (2014). The financial cycle and real convergence in the euro area, speech at the Annual Hyman P. Minsky Conference on the State of the US and World Economies, 10 April, Washington D. C.Google Scholar
  46. Restuccia, D., & Rogerson, R. (2013). Misallocation and productivity. Review of Economic Dynamics, 16(1), 1–10.CrossRefGoogle Scholar
  47. Saia, A., Andrews, D., & Albrizio, S. (2015). Productivity spillovers from the global frontier and public policy: Industry-level evidence. OECD Economics Department Working Papers, No. 1238. OECD Publishing.Google Scholar
  48. Schiantarelli, F. (2008). Product market regulation and macroeconomic performance: A review of cross-country evidence. Boston College Working Paper in Economics 623.Google Scholar
  49. Schmitz, J. A. (2005). What determines productivity? Lessons from the dramatic recovery of the U.S. and Canadian iron ore Industries following their early 1980s Crisis. Journal of Political Economy, 113(3), 582–625.CrossRefGoogle Scholar
  50. Sondermann, D. (2012). Productivity in the euro area: Any evidence of convergence? ECB Working Paper Series, No 1431, April. Google Scholar

Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  1. 1.European Central BankFrankfurtGermany

Personalised recommendations