Productivity Growth and Convergence: Portugal in the EU 1986-2009

The Portuguese growth and convergence experience after EU membership can be divided into two periods: 1986-1998, a convergence period during which growth in the Portuguese economy accelerated and Portugal grew faster than the EU14 average; and a stagnation/divergence period from 1999 onwards when its growth rate slowed down to figures lower than the reference group average. Differences among developed countries in terms of output levels and growth are mainly explained by differences in productivity, with Portugal falling behind relative to the EU14 in recent years as far as the former are concerned. In order to better understand the causes for the changes in the growth and convergence rhythm of the Portuguese economy after EU accession this paper analyses productivity growth in a panel of 14 European Union countries over the period 1986-2009. We estimate an empirical model where innovation and imitation provide two potential sources of productivity growth for countries behind the technological frontier, as is the case of Portugal, and those activities are in turn influenced by absorptive capacity and structural and institutional characteristics as well as capital accumulation. The results from the estimation of TFP growth regressions with quantile regression techniques reveal that, for lower rates of productivity growth, an increase of the non-tradables sector share is especially harmful, while the positive influence from technological backwardness and innovation activities are felt less strongly, while the positive influence from capital accumulation is felt more strongly. These results raise strong concerns concerning Portugal’s future growth prospects given its current specialization pattern towards traditional personal services and the country’s still considerable distance from the technological frontier and relatively low innovative intensity.