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