Spatial Distribution of Total Factor Productivity (TFP) in the EU Regional Scope

Purpose: The aim of the paper is to analyse the differences in the level of productivity among the EU regions illustrated by the spatial distribution of total factor productivity (TFP). Since the level of productivity has an important geographical component the answer to the question, which regions are characterised with high or low level of productivity is being undoubtedly of high political importance. Design/Methodology/Approach: To calculate TFP defined as the aggregated output-input ratio, we employ the multiplicatively-complete Färe-Primont index. This index satisfies all economically-relevant axioms and tests from index number theory. The research sample consists of 256 European Union (EU) regions at NUTS 2 level. Findings: The results of the study indicate that relatively high TFP values are observed in core Western European regions, while the bottom of the TFP distribution is dominated by regions in Bulgaria, Poland and Romania. This may suggest a polarised specialization of the EU regions and limited interregional diffusion of technological knowledge. Our findings also show a high degree of dispersion in TFP within countries. Practical Implications: Identification of the spatial distribution of Total Factor Productivity (TFP) across European regions has implication for the EU regional and innovation policies. Designing policies basing on smart specialization strategies, which foster linkages to release positive knowledge externalities both within as well as between regions, constitutes the desired strategic development aim to enhance the performance of TFP. In particular, these strategies are crucial for the regions characterized by low TFP levels. Originality/Value: The methodological approach followed in this paper, in contrast to most of the existing studies on productivity differences at the regional level, satisfies all economically-relevant axioms and tests from index number theory.