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How to close the productivity gap between the US and Europe: A quantitative assessment using a semi-endogenous growth model

  • Werner Roeger
  • Janos Varga
  • Jan in 't Veld

This paper uses a semi-endogenous growth model to identify possible sources for three interrelated stylised differences between the EU and the US, namely a higher level of productivity and knowledge investment and larger skill premia in the US compared to the EU. The model allows us to explain these differences in terms of differences in subsidies to R and D, mark ups, administrative entry barriers and financial frictions.The paper provides a ranking about the relative importance of these factors. Goods market competition and both administrative and financial entry barriers are the most important explanatory factors for lower productivity in the EU, while entry barriers explain the bulk of the knowledge investment gap and high skilled wage premia.

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Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 399.

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Length: 45 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:euf:ecopap:0399
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  18. Acemoglu, D., 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," Working papers 97-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  19. Jacek Warda, 2006. "Tax Treatment of Business Investments in Intellectual Assets: An International Comparison," OECD Science, Technology and Industry Working Papers 2006/4, OECD Publishing.
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