2019/25 | LEM Working Paper Series | ||||||||||||||||
Determinants of Productivity Gap in the European Union: A Multilevel Perspective |
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Randolph Luca Bruno, Elodie Douarin, Julia Korosteleva and Slavo Radosevic |
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Keywords | |||||||||||||||||
productivity; technology gap; multilevel analysis; European Union.
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JEL Classifications | |||||||||||||||||
L60, O33, C55
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Abstract | |||||||||||||||||
The paper explores the determinants of productivity gap within the European Union in four industrial
manufacturing sectors (computers, chemicals, basic metals and food) of strong macroeconomic
significance and varied 'Research and Development' (R&D) intensity. Our analysis reveals that some
of the most important factors determining productivity gap across the EU are related to technology
gap variables - R&D intensity and R&D embedded in purchased equipment and machinery - and how
they interact. While the signs for both R&D and embedded R&D are as expected and our results
emphasise the relevance of technology for closing the productivity gap, this is not the case with the
interaction between these two variables. The estimates for the interaction terms are indeed very
significant and consistently negative in three out of four sectors. This negative relationship suggests
that there is no complementarity between these two modes of technology acquisition - R&D and
embedded R&D investments - which are however each separately crucial for catching up. In policy
terms, this situation suggests that there is a lack of coordination between R&D policy and technology
transfer (FDI, trade and industrial policy). Given that, our results also show a widening productivity
gap between the countries of the EU periphery (South and East) and the rest of the sample.
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