An analysis of EU and US productivity developments : (a total economy and industry level perspective)

The present study will contribute to the ongoing debate regarding the sources of growth in general, with specific attention being devoted to productivity determinants given their importance in shaping medium to long run changes in living standards. Any analysis of growth however must be seen as an ongoing process, with economies in a constant process of "creative destruction" and with the emerging structural patterns difficult to disentangle from cyclical influences and policy adjustment lags. Consequently, while the main sources of growth over long periods of time are easily established, less success is possible in explaining more recent breaks in trends and in assessing whether these breaks are durable or not. While the evidence of a break in the US is becoming more compelling, for the EU, short-run transitional factors severely complicates an assessment at this point in time. The 1990s have witnessed some important shifts in the underlying growth performances of the EU and US economies, with a significant gap opening up in terms of GDP, and more importantly, GDP per capita, growth rates. From a situation over the period 1980-1995 when EU and US living standards were growing at roughly an equivalent rate, the second half of the 1990s has seen the emergence of a significant growth gap in favour of the US. These EU-US differences are mirrored at the EU Member State level, with simple measures of dispersion indicating that individual country divergences relative to the average EU performance have grown by close to 50 per cent in the 1990s compared with the 1980s. These extra- and intra- EU divergences in economic fortunes have been the subject of intense research efforts in recent years, with policy makers keen to decipher the reasons for their own respective outturns and to further refine the "magic formula" for boosting their long run growth performances.