Technological Change, Productivity and Economic Integration of the European Union

Many studies have suggested that there is a close correlation between technological development and productivity (see, for example, Abramovitz, 1986; Fagerberg, 1987, 1988, 1994), and economists have analysed different possible views of why productivity growth has declined. These alternative explanations can be grouped into the following categories: (1) the capital factor; for instance, investment may have been insufficient to sustain the level of productivity growth; (2) the technology factor; for instance a decline in innovation might have affected productivity growth; (3) the increased price of raw materials and energy; (4) government regulations and demand policies that affect the productivity level; (5) the skills and experience of the labour force may have deteriorated, or workers may not work as hard as they used to; (6) the products and services produced by the economy have become more diverse; and (7) productivity levels differ greatly across industries. This chapter attempts to measure the relationship between technology and productivity, or more precisely, to investigate the correlation between technological development and the decline in productivity growth. We shall empirically test the technological and catching-up models using data for the EU member states.