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

Listed author(s):
  • 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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File URL: http://ec.europa.eu/economy_finance/publications/economic_paper/2010/pdf/ecp399_en.pdf
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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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  17. Coenen, Günter & McAdam, Peter & Straub, Roland, 2008. "Tax reform and labour-market performance in the euro area: A simulation-based analysis using the New Area-Wide Model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2543-2583, August.
  18. Daron Acemoglu, 2001. "Directed Technical Change," NBER Working Papers 8287, National Bureau of Economic Research, Inc.
  19. Argentino Pessoa, 2003. "Ideas driven growth: the OECD evidence," FEP Working Papers 136, Universidade do Porto, Faculdade de Economia do Porto.
  20. Hardouvelis, Gikas A & Malliaropoulos, Dimitrios & Priestley, Richard, 2004. "The Impact of Globalization on the Equity Cost of Capital," CEPR Discussion Papers 4346, C.E.P.R. Discussion Papers.
  21. 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.
  22. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
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