Working Paper: CEPR ID: DP12843
Authors: Fabiano Schivardi; Tom Schmitz
Abstract: Since the middle of the 1990s, productivity growth in Southern Europe has been substantially lower than in other developed countries. In this paper, we argue that this divergence was partly caused by inefficient management practices, which limited Southern Europe's gains from the IT Revolution. To quantify this effect, we build a multi-country general equilibrium model with heterogeneous firms and workers. In our model, the IT Revolution generates divergence for three reasons. First, inefficient management limits Southern firms' productivity gains from IT adoption. Second, IT increases the aggregate importance of management, making its inefficiencies more salient. Third, IT-driven wage increases in other countries stimulate Southern high-skill emigration. We calibrate our model using firm-level evidence, and show that it can account for 28% of Italy's, 39% of Spain's and 67% of Portugal's productivity divergence with respect to Germany between 1995 to 2008.
Keywords: TFP; Southern Europe; Divergence; IT; Technology Adoption; Management
JEL Codes: L23; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inefficient management practices (D22) | Lower productivity gains from IT adoption (O49) |
| IT adoption increases (O39) | Aggregate importance of management becomes more significant (L25) |
| Aggregate importance of management becomes more significant (L25) | Amplifying productivity gap due to pre-existing management inefficiencies (D29) |
| Rising wages for high-skilled labor in northern countries (F66) | High-skilled emigration from southern Europe (J61) |
| High-skilled emigration from southern Europe (J61) | Contributing to productivity divergence (O49) |
| Inefficient management practices (D22) | Productivity divergence (O49) |
| IT-driven wage increases in other countries (F66) | High-skill emigration from southern Europe (J61) |