Research Discussion Papers, Bank of Finland
No 31/1998:
What Do We Know about Productivity Gaps and Convergence in EMU Economies?
Timo Tyrväinen
Abstract: This paper examines labour productivity levels and growth
rates in 10 EMU economies: Germany, France, Belgium, Netherlands, Italy,
Spain, Austria, Finland, Ireland and Portugal. In general, European
economies still lag behind the United States in terms of productivity
level. Available estimates indicate that in the tradables sector (mainly
manufacturing) Belgium, France, the Netherlands and (perhaps more recently)
Finland are the top performers among the European countries. There seems to
be more room for catch-up growth in Portugal and Spain. For Ireland,
relevant sectoral data were not available. As for the nontradables sector
(mainly services), one can only draw tentative conclusions. European
economies seem to have improved their performance relative to the US, but
there is considerable heterogeneity across the different industrial sectors
within each country. Hence there is probably room for sectoral catch-up
growth in each of these economies, especially so in Portugal and Ireland,
with the least room in Belgium, France and the Netherlands. A "stylized
fact" indicates that labour productivity tends to grow faster in the
tradables sector. On the other hand, the well-established Balassa-Samuelson
hypothesis states that higher sectoral differences in productivity growth
tend to generate higher sectoral inflation differentials and these, in
turn, induce higher aggregate inflation. Against this backround, it is
interesting to note that differentials in sectoral productivity growth
rates seem to have been surprisingly similar among the countries studied:
they have varied between 2 and 3 percentage points on average during the
period studied. The overall view of the paper is that, due to the
structural heterogeneity of countries concerned and measurement problems,
caution should be exercised in classifying the EMU-countries into high- and
low-productivity economies. A fairly certain conclusion of this study is
that relative to the US there is still room for catch-up growth in
productivity in all the countries, perhaps more so in Ireland, Portugal and
Spain.
Keywords: EMU; convergence; productivity; Balassa-Samuelson hypothesis; (follow links to similar papers)
38 pages, December 18, 1998
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