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Two Centuries of Economic Growth: Europe Chasing the American Frontier

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  • Gordon, Robert J

Abstract

Starting from the same level of productivity and per capita income as the United States in the mid-nineteenth century, Europe fell behind steadily to a level of barely half in 1950, and then began a rapid catch-up. While Europe’s level of productivity has almost converged, its income per person has leveled off at about three-quarters of America’s. How could Europe be so productive yet so poor? The simple answer is that hours per person in Europe have fallen drastically in the past 40 years, reflecting long vacations, high unemployment, and low labour force participation, and only about one-third of the Europe-America difference reflects voluntarily chosen leisure. The Paper contains a welfare analysis of the difference and argues that conventional national income data overstate the advantage of America over Europe, and that Europe's ‘welfare’ is about 8% below the American level rather than the 25% implied by a comparison of measured income per capita. A historical analysis traces Europe’s falling behind after 1870 to American political unity, fostering large-scale material-intensive manufacturing and a set of marketing innovations, and to a set of additional advantages that would not have been possessed even if Europe had hypothetically created a United States of Europe in 1870. After 1913 the US surged further ahead, due to its early exploitation of the great inventions of electricity and the internal combustion engine, while Europe was distracted by wars and interwar economic chaos. After 1950 Europe’s catch-up was achieved both by exploiting the great inventions 40 years late, and also by the gradual erosion of early American advantages. But after 1995 the gap began to widen again, a development that brings to the forefront fundamental American advantages in fostering and exploiting innovation.

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  • Gordon, Robert J, 2004. "Two Centuries of Economic Growth: Europe Chasing the American Frontier," CEPR Discussion Papers 4415, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4415
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    References listed on IDEAS

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    1. Gordon, Robert J, 1995. "Is There a Trade-off between Unemployment and Productivity Growth?," CEPR Discussion Papers 1159, C.E.P.R. Discussion Papers.
    2. Paul A. David & Gavin Wright, 1999. "Early Twentieth Century Productivity Growth Dynamics: An Inquiry into the Economic History of "Our Ignorance"," Oxford University Economic and Social History Series _033, Economics Group, Nuffield College, University of Oxford.
    3. Devine, Warren D., 1983. "From Shafts to Wires: Historical Perspective on Electrification," The Journal of Economic History, Cambridge University Press, vol. 43(02), pages 347-372, June.
    4. Robert J. Gordon, 2000. "Does the "New Economy" Measure Up to the Great Inventions of the Past?," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 49-74, Fall.
    5. Goldin, Claudia, 1998. "America's Graduation from High School: The Evolution and Spread of Secondary Schooling in the Twentieth Century," The Journal of Economic History, Cambridge University Press, vol. 58(02), pages 345-374, June.
    6. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters,in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
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    Cited by:

    1. David de la Croix & Frédéric Docquier, 2007. "School Attendance and Skill Premiums in France and the US: A General Equilibrium Approach," Fiscal Studies, Institute for Fiscal Studies, vol. 28(4), pages 383-416, December.
    2. Pierre Fortin, 2003. "Differences in Annual Work Hours per Capita between the United States and Canada," International Productivity Monitor, Centre for the Study of Living Standards, vol. 6, pages 38-46, Spring.
    3. Fabio Canova & Luca Gambetti & Evi Pappa, 2007. "The Structural Dynamics of Output Growth and Inflation: Some International Evidence," Economic Journal, Royal Economic Society, vol. 117(519), pages 167-191, March.
    4. Cormac Ó Gráda, 2005. "You take the high road and I’ll take the low road : economic success and wellbeing in the longer run," Working Papers 200510, School of Economics, University College Dublin.
    5. Ça?lar Özden & Maurice Schiff, 2006. "International Migration, Remittances, and the Brain Drain," World Bank Publications, The World Bank, number 6929.
    6. Ark, Bart van, 2005. "Does the European Union need to revive productivity growth," GGDC Research Memorandum 200575, Groningen Growth and Development Centre, University of Groningen.
    7. 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.
    8. Bart van Ark, 2006. "Europe's Productivity Gap: Catching Up or Getting Stuck?," Economics Program Working Papers 06-02, The Conference Board, Economics Program.
    9. Maurice Obstfeld & Kenneth Rogoff, 2007. "The Unsustainable U.S. Current Account Position Revisited," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 339-376 National Bureau of Economic Research, Inc.
    10. repec:dgr:rugggd:gd-113 is not listed on IDEAS
    11. Michael Huberman & Chris Minns, 2005. "Hours of Work in Old and New Worlds: The Long View, 1870-2000," The Institute for International Integration Studies Discussion Paper Series iiisdp95, IIIS.
    12. Linehan, Suzanne & McQuinn, Kieran, 2008. "A Sectoral Analysis of the Average Work Week in Euro Area Countries," Quarterly Bulletin Articles, Central Bank of Ireland, pages 68-88, October.
    13. Eijffinger, S.C.W. & Rossi, A., 2006. "Structural Reforms and Growth : Product and Labor Market Deregulations," Discussion Paper 2006-112, Tilburg University, Center for Economic Research.
    14. McLean, Ian W., 2007. "Why was Australia so rich?," Explorations in Economic History, Elsevier, vol. 44(4), pages 635-656, October.
    15. Cowling, Keith & Poolsombat, Rattanasuda, 2007. "Advertising And Labour Supply : Why Do Americans Work Such Long Hours?," The Warwick Economics Research Paper Series (TWERPS) 789, University of Warwick, Department of Economics.
    16. Reto Foellmi und Josef Zweim�ller, "undated". "Inequality and Economic Growth - European Versus U.S. Experiences," IEW - Working Papers 158, Institute for Empirical Research in Economics - University of Zurich.
    17. Landon-Lane, John S. & Robertson, Peter E., 2009. "Long-run growth in the OECD: A test of the parallel growth paths hypothesis," Explorations in Economic History, Elsevier, vol. 46(3), pages 346-355, July.
    18. Olivier Blanchard, 2004. "The Economic Future of Europe," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 3-26, Fall.
    19. repec:dgr:rugggd:200575 is not listed on IDEAS
    20. Broadberry, Stephen N. & Irwin, Douglas A., 2006. "Labor productivity in the United States and the United Kingdom during the nineteenth century," Explorations in Economic History, Elsevier, vol. 43(2), pages 257-279, April.
    21. Lagerlöf, Nils-Petter & Basher, Syed A., 2005. "Geography, population density, and per-capita income gaps across US states and Canadian provinces," MPRA Paper 369, University Library of Munich, Germany, revised 28 Sep 2006.
    22. Woltjer, P. & Smits, Jan-Pieter & Frankema, Ewout, 2010. "Comparing Productivity in the Netherlands, France, UK and US, ca. 1910:A new PPP benchmark and its implications for changing economic leadership," GGDC Research Memorandum GD-113, Groningen Growth and Development Centre, University of Groningen.
    23. Karl Aiginger, 2003. "Insufficient investment into future growth: the forgotten cause of low growth in Germany," Economics working papers 2003-14, Department of Economics, Johannes Kepler University Linz, Austria.

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