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Why is Europe Falling Behind? Structural Transformation and Services' Productivity Differences between Europe and the U.S

Author

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  • Buiatti, C.
  • Duarte, J. B.
  • Saenz, L. F.

Abstract

We explain labor productivity differences of the service sector between Europe and the U.S. through the labor allocation taking place within the service sector. We measure labor productivity using a multisector structural transformation model that decomposes services into 11 sub-sectors comparable across Europe and the U.S. We identify wholesale and retail trade as well as business services to be the two sectors responsible for most of the lack of catch-up in labor productivity between Europe and the U.S. We also investigate which institutional characteristics are associated with the different performances of sectoral productivity across sectors. We empirically explore our country-sector panel measures of labor productivity levels, and our results suggest that differences in taxation, pro-business attitudes, ICT diffusion and rates of innovation are disproportionally correlated with the productivity of wholesale, retail and business services relative to the rest of the sectors in the economy.

Suggested Citation

  • Buiatti, C. & Duarte, J. B. & Saenz, L. F., 2017. "Why is Europe Falling Behind? Structural Transformation and Services' Productivity Differences between Europe and the U.S," Cambridge Working Papers in Economics 1708, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1708
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    References listed on IDEAS

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    Cited by:

    1. Peter Bauer & Igor Fedotenkov & Aurelien Genty & Issam Hallak & Peter Harasztosi & David Martinez Turegano & David Nguyen & Nadir Preziosi & Ana Rincon-Aznar & Miguel Sanchez Martinez, 2020. "Productivity in Europe: Trends and drivers in a service-based economy," JRC Working Papers JRC119785, Joint Research Centre (Seville site).
    2. Sen, Ali, 2020. "Structural change within the services sector, Baumol's cost disease, and cross-country productivity differences," MPRA Paper 99614, University Library of Munich, Germany.

    More about this item

    Keywords

    Structural Transformation; Service Sector; Nonho-mothetic CES preferences; Labor Productivity.;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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