The EU-US Total Factor Productivity Gap: An Industry Level Perspective

Working Paper: CEPR ID: DP7237

Authors: Kieran McMorrow; Werner Röger; Alessandro Antonio Turrini

Abstract: The EU-US total factor productivity (TFP) growth gap since the mid-1990's is concentrated in a handful of market service industries (most notably retail trade) and in ICT-producing manufacturing, whilst the EU exhibits a stronger performance in a number of the network utilities. This paper explores the industry-specific determinants of the EU-US TFP growth gap using the EU KLEMS database. As found in previous analyses (e.g., Nicoletti and Scarpetta (2003); Griffith, Redding, and Van Reenen (2004); Inklaar, Timmer and Van Ark (2008)), TFP growth appears to be driven by catching-up phenomena associated with the gradual adoption of new-vintage technologies. Compared with previous analyses, TFP growth is also significantly driven by developments taking place at the "technological frontier," increasingly so since the mid-1990's. Industries with higher R&D expenditures and higher adoption rates for ICT-intensive technologies appear to exhibit higher TFP growth rates, whilst human capital has mostly a significant effect across countries. Regarding industry specific determinants, ICT producing industries appear to benefit from R&D in terms of stronger spillovers from TFP gains at the frontier; network utilities are strongly affected by improvements associated with reduced product market regulations; whilst the retail trade industry is significantly influenced by consumption dynamics which permit a better exploitation of scale economies.

Keywords: European Union; Growth; Determinants; Total Factor Productivity

JEL Codes: D24; O47; O52

Causal Claims

Cause	Effect
R&D expenditures (O32)	TFP growth (O49)
Technology adoption (O33)	TFP growth (O49)
Human capital (J24)	TFP growth (O49)
Reduced product market regulations (L50)	Network utilities (L90)
Consumption dynamics (E21)	TFP growth (O49)