Reducing productivity and efficiency gaps: the role of knowledge assets, absorptive capacity and institutions.

Background study for European Competitiveness Report 2013, "Towards knowledge industrialisation". This study offers new insights into the US-EU productivity gap from an industry perspective, using newly available information from the EUKLEMS database. Prior to the financial crisis, Europe was experiencing robust productivity growth and was seemingly reaping the benefits of the ICT revolution. Since the start of the crisis labour productivity stalled in the EU, while in the US it continued to improve. We investigate further what are the factors that explain the long-run productivity differentials. On the one hand, the role played by knowledge base (intangible) assets. On the other hand, the influence of the regulatory environment, a factor of great policy interest.

The project consists of four main parts. In the first part we describe the main productivity and output trends of the EU during the period 1995-2012 in comparison to other major world economies, and provide an up-to-date account of sectoral developments. We use growth accounting techniques to decompose productivity growth into its main components.

The second part of the project reports econometric evidence on the factors affecting international diffusion of R&D. This part of the chapter has been undertaken by WIIW Vienna. The third part of the project is an econometric study of the determinants of efficiency, using Stochastic Frontier Techniques. The fourth part presents evidence on firm behaviour at the outset of the crisis, focusing on firms' strategic decisions regarding investment in tangible and knowledge assets.

Timescale and funder

This study was undertaken for the European Competitiveness Report 2013 (prepared by the DG Enterprise and Industry, European Commission). The project began in December 2012 and was completed by September 2013.

The European Competitiveness Report is published annually since 1997, and provides a quantitative assessment of competitive performance of EU industries. The report uses empirical research to understand the determinants of EU competitiveness, looking at the whole economy and at selected sectors.