This CEPS paper poses the question of whether IT
– as often alleged – is really the only cause for the
EU’s productivity slowdown and it argues that the
slowdown comes from a reduction of non-IT capital
Magazines and newspapers often refer to or
even take for granted the economic decline of
the EU, particularly when contrasting the EU
data with US data.
The first part of this paper poses the
question of whether IT – as often alleged
– is really the only cause for the
EU’s productivity slowdown. The conclusion
is that it is not. The non-IT part of the
economy has not only contributed to the
slowdown but appears to have crucially
contributed to the EU-US growth gap as well.
There is thus little reason for the EU to
target IT-diffusion as an intermediate goal, as
implied by the Lisbon strategy.
The second part of the paper, after showing
that the growth slowdown comes from the
reduction of non-IT capital deepening and the
lack of acceleration in total factor
productivity growth, argues that the slowdown
of capital deepening will continue.
The scarce resources available for enhancing
growth should concentrate on providing
incentives to R&D and innovation at large,
rather than financing traditional
infrastructures. This is at odds with the goals
pursued by the EU within the framework of the
European Growth Initiative.
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