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

Author Info

Listed author(s):
  • Werner Roeger
  • Janos Varga
  • Jan in 't Veld

Abstract

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 2008 - 2015 with number 399.

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Length: 45 pages
Date of creation: Jan 2010
Handle: RePEc:euf:ecopap:0399
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Keywords: productivity differences endogenous growth R and D market structure skill composition dynamic general equilibrium modelling Economic P how to close the productivity gap between the US a quantitative assessment using a semi-endogenou Varga Roeger in 't Veld European Economy. Economic Papers;

Find related papers by JEL classification:

  • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
  • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  1. Rebekka Christopoulou & Philip Vermeulen, 2012. "Markups in the Euro area and the US over the period 1981–2004: a comparison of 50 sectors," Empirical Economics, Springer, vol. 42(1), pages 53-77, February.
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  9. repec:hrv:faseco:30747190 is not listed on IDEAS
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  17. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1055-1089.
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  19. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
  20. Ratto, Marco & Roeger, Werner & Veld, Jan in 't, 2009. "QUEST III: An estimated open-economy DSGE model of the euro area with fiscal and monetary policy," Economic Modelling, Elsevier, vol. 26(1), pages 222-233, January.
  21. Marco Ratto & Werner Roeger & Jan in 't Veld, 2008. "QUEST III: an estimated DSGE model of the euro area with fiscal and monetary policy," European Economy - Economic Papers 2008 - 2015 335, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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Cited by:

  1. Alexandr Hobza & Gilles Mourre, 2010. "Quantifying the potential macroeconomic effects of the Europe 2020 strategy: stylised scenarios," European Economy - Economic Papers 2008 - 2015 424, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  2. Bartelsman, Eric & Dobbelaere, Sabien & Peters, Bettina, 2013. "Allocation of Human Capital and Innovation at the Frontier: Firm-Level Evidence on Germany and the Netherlands," IZA Discussion Papers 7540, Institute for the Study of Labor (IZA).
  3. Werner Roeger & Janos Varga & Jan in 't Veld, 2008. "Structural Reforms in the EU: A simulation-based analysis using the QUEST model with endogenous growth," European Economy - Economic Papers 2008 - 2015 351, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  4. Correa-López, Mónica & Mingorance-Arnáiz, Ana Cristina, 2012. "Demografía, mercado de trabajo y tecnología: El patrón de crecimiento de Cataluña, 1970-2020/Demography, Labour Market and Technical Progress: The Pattern of Growth in Cataluña, 1970-2020," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 30, pages 365(34)-365, Abril.
  5. Halmai, Péter, 2015. "Az európai növekedési potenciál eróziója és válsága
    [Erosion and crisis in European growth potential]    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 379-414.
  6. Francesca D'Auria & Andrea Pagano & Marco Ratto & Janos Varga, 2009. "A comparison of structural reform scenarios across the EU member states - Simulation-based analysis using the QUEST model with endogenous growth," European Economy - Economic Papers 2008 - 2015 392, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  7. Broszeit, Sandra & Fritsch, Ursula & Görg, Holger & Laible, Marie-Christine, 2016. "Management practices and productivity in Germany (Managementpraktiken und Produktivität in Deutschland)," IAB Discussion Paper 201632, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  8. Broszeit, Sandra & Fritsch, Ursula & Görg, Holger & Laible, Marie-Christine, 2016. "Management practices and productivity in Germany," Kiel Working Papers 2050, Kiel Institute for the World Economy (IfW).

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