Working Paper: CEPR ID: DP15870
Authors: Andrés Rodríguez-Pose; Roberto Ganau
Abstract: Europe has witnessed a considerable labour productivity slowdown in recent decades. Many potential explanations have been proposed to address this productivity ‘puzzle’. However, how the quality of local institutions influences labour productivity has been overlooked by the literature. This paper addresses this gap by evaluating how institutional quality affects labour productivity growth and, particularly, its determinants at the regional level during the period 2003-2015. The results indicate that institutional quality influences regions’ labour productivity growth both directly —as improvements in institutional quality drive productivity growth— and indirectly —as the short- and long-run returns of human capital and innovation on labour productivity growth are affected by regional variations in institutional quality.
Keywords: Labour productivity; Institutional quality; Physical capital; Human capital; Innovation; Regions; Europe
JEL Codes: E24; J24; O47; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| institutional quality (L15) | labor productivity growth (O49) |
| institutional quality (L15) | human capital (J24) |
| human capital (J24) | labor productivity growth (O49) |
| innovation (O35) | labor productivity growth (O49) |
| institutional quality (L15) | (human capital, innovation) -> labor productivity growth (J24) |