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The potential growth of the Belgian economy and its determinants

Listed author(s):
  • C. Rigo

    (National Bank of Belgium, Research Department)

Registered author(s):

    The potential growth path of the economy is at the centre of various fundamental economic questions, particularly in connection with the conduct of monetary policy and the management of public finances. It also determines the progress of living standards, so that the adverse population prospects confronting the European economies have rekindled interest in the subject. The first chapter of the article reports on the developments recorded over the past twenty years, using a method derived from the one adopted by the EC and based on the use of a production function. The role played by the three determinants – labour, capital and total factor productivity – is discussed, focusing on the case of the Belgian economy while comparing the results with those recorded in the EU-15. With potential growth averaging 2.2 p.c. for the private sector and 2.1 p.c. in the whole economy, Belgium is in the middle group of European countries. A growth breakdown between labour volume and labour productivity is proposed in chapter 2. Belgium’s advantages and disadvantages are assessed, not only in comparison with the EU-15 average but also in relation to the United States. Particular attention is drawn to the divergent picture in terms of productivity on the two continents. The improving performance in the United States in this respect contrasts with the deceleration recorded in Europe. The slowdown was also experienced in Belgium although, in the past ten years, the weaker growth in labour productivity here was due essentially to a slower increase in capital intensity. Having diminished between 1985 and 1995, the growth of total factor productivity, which in principle measures the overall productive capacity of the economy, stabilised at a level above the European average and close to that of the United States. This relatively good performance could be due to the fairly widespread use of ICT, as Belgium’s investment expenditure on this item is greater than that of the majority of European countries. The highly skilled labour force provides additional support for total factor productivity, although its impact has not been quantified in the case of Belgium. Expenditure on research and development could also yield substantial productivity returns. Particular efforts in these three fields, in a context within which market forces provide appropriate incentives to the economic agents, could hold possibilities for enhancing productivity growth. This could contribute to stimulate growth in view of the anticipated adverse demographic developments in the coming decades, that will also require raising the rates of participation in the labour market.

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    Article provided by National Bank of Belgium in its journal Economic Review.

    Volume (Year): (2005)
    Issue (Month): iii (September)
    Pages: 45-64

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    Handle: RePEc:nbb:ecrart:y:2005:m:september:i:iii:p:45-64
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    1. Robert Inklaar & Mary O'Mahony & Marcel Timmer, 2005. "ICT AND EUROPE's PRODUCTIVITY PERFORMANCE: INDUSTRY-LEVEL GROWTH ACCOUNT COMPARISONS WITH THE UNITED STATES," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 505-536, December.
    2. repec:dgr:rugggd:200368 is not listed on IDEAS
    3. Cette, G. & Kocoglu, Y. & Mairesse, J., 2004. "L’ effet de la diffusion des technologies de l’information et de la communication (TIC) sur la productivité par employé en France," Bulletin de la Banque de France, Banque de France, issue 121, pages 33-46.
    4. Gilbert Cette & Jacques Mairesse & Yusuf Kocoglu, 2002. "Diffusion of ICTs and Growth of the French Economy over the Long-term, 1980-2000," Post-Print hal-01297986, HAL.
    5. repec:dgr:rugggd:200260 is not listed on IDEAS
    6. -, 2005. "United States economic outlook: quarterly developments," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28847, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    7. Timmer, Marcel P. & Ypma, Gerard & Ark, Bart van der, 2003. "IT in the European Union: driving productivity divergence?," GGDC Research Memorandum 200363, Groningen Growth and Development Centre, University of Groningen.
    8. Ark, Bart van & Inklaar, Robert & McGuckin, Robert, 2002. ""Changing gear" : productivity, ICT and services: Europe and the United States," GGDC Research Memorandum 200260, Groningen Growth and Development Centre, University of Groningen.
    9. -, 2005. "United States economic outlook: quarterly developments," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28845, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    10. -, 2005. "United States economic outlook: quarterly developments," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28841, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    11. Cette, Gilbert & Mairesse, Jacques & Kocoglu, Yusuf, 2005. "ICT diffusion and potential output growth," Economics Letters, Elsevier, vol. 87(2), pages 231-234, May.
    12. Bart van Ark & Robert Inklaar & Robert H. McGuckin, 2002. "'Changing Gear' - Productivity, ICT and Services Industries: Europe and the United States," Economics Program Working Papers 02-02, The Conference Board, Economics Program.
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