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The three tier strategy followed by successful European countries in the 1990s

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  • Karl Aiginger

Abstract

In general, the economic performance of European countries was disappointing in the 1990s. However, country differences increased, and in some European countries economic growth matched US rates. This paper uses a set of performance indicators to carve out a group of successful European countries and to compare their economic strategies to those of the more poorly performing, big continental economies. The analysis shows that the successful countries implemented a policy mixture of cost cutting, improving institutions, and investing in future growth. We consider the first two strategy elements to be preconditions, while investment in growth drivers such as research, education and technology diffusion is the sufficient condition for long-run growth. The difference between top and low performers is larger with respect to the dynamics of future investment than in cost cutting. In research expenditures, the top countries surpassed the big continental European countries in 1987, and have been increasing their lead steadily since that time. They are welfare states with a comprehensive social net, which they have maintained in principle, while improving institutions and incentive structures. The results are not in line with the usual twin hypotheses that high welfare costs and insufficient labour market flexibility are the main culprits in European underperformance.

Suggested Citation

  • Karl Aiginger, 2004. "The three tier strategy followed by successful European countries in the 1990s," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(4), pages 399-422.
  • Handle: RePEc:taf:irapec:v:18:y:2004:i:4:p:399-422
    DOI: 10.1080/0269217042000266418
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    References listed on IDEAS

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    1. Karl Aiginger & Michael Landesmann, 2002. "Competitive Economic Performance: The European View," WIFO Working Papers 179, WIFO.
    2. Stefano Scarpetta & Andrea Bassanini & Dirk Pilat & Paul Schreyer, 2000. "Economic Growth in the OECD Area: Recent Trends at the Aggregate and Sectoral Level," OECD Economics Department Working Papers 248, OECD Publishing.
    3. John P Martin, 1998. "What Works Among Active Labour Market Policies: Evidence from OECD Countries' Experiences," RBA Annual Conference Volume,in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia.
    4. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, productivity and growth: OECD evidence," Economic Policy, CEPR;CES;MSH, vol. 18(36), pages 9-72, April.
    5. Günther Chaloupek, 1997. "Beschäftigungs- und Budgetpolitik," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 66, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    6. Freeman, Richard B., 1998. "War of the models: Which labour market institutions for the 21st century?1," Labour Economics, Elsevier, vol. 5(1), pages 1-24, March.
    7. Robert J. Gordon, 2004. "Two Centuries of Economic Growth: Europe Chasing the American Frontier," NBER Working Papers 10662, National Bureau of Economic Research, Inc.
    8. Karl Aiginger, 2004. "The Economic Agenda: a View from Europe," Review of International Economics, Wiley Blackwell, vol. 12(2), pages 187-206, May.
    9. Andrea Bassanini & Stefano Scarpetta & Philip Hemmings, 2001. "Economic Growth: The Role of Policies and Institutions: Panel Data. Evidence from OECD Countries," OECD Economics Department Working Papers 283, OECD Publishing.
    10. Ali-Yrkkö, Jyrki & Hermans, Raine, 2002. "Nokia in the Finnish Innovation System," Discussion Papers 811, The Research Institute of the Finnish Economy.
    11. Pajarinen, Mika & Rouvinen, Petri & Ylä-Anttila, Pekka, . "Small Country Strategies in Global Competition. Benchmarking the Finnish Case," ETLA B, The Research Institute of the Finnish Economy, number 144.
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    Cited by:

    1. Karl Aiginger, 2007. "The Swedish Economic Model," WIFO Working Papers 302, WIFO.
    2. Aiginger, K, 2004. "The Bumpy Road of Convergence: the Catching Up Experience in Portugal, Spain and Greece," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 22, pages 1-22, Diciembre.
    3. Fritz Breuss, 2005. "Die Zukunft der Lissabon-Strategie," WIFO Working Papers 244, WIFO.
    4. Karl Aiginger, 2005. "Labour market reforms and economic growth – the European experience in the 1990s," Journal of Economic Studies, Emerald Group Publishing, vol. 32(6), pages 540-573, October.

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