Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Bank of Finland Research Discussion Papers, Bank of Finland

No 3/2007:
Why is Europe lagging behind?

Ilmo Pyyhtiä ()

Abstract: This paper builds on the literature on growth in searching for explanations for the divergent growth performance between the EU countries and the United States. We emphasise the role of R&D investment and perhaps different degrees of elasticity of substitution between capital and labour. We estimate two different production functions, namely Cobb-Douglas and CES specifications, with physical capital, a measure of labour, and residual ‘technical trend’ as inputs.

Our first finding is that in many ICT-producing and using countries such as Denmark, Finland, Ireland, Sweden and the United States technical progress has been accelerating during the past decade. Secondly, this speeding up of technical progress has been associated with R&D investment and perhaps with increasing elasticity of substitution between capital and labour. Hence, our results suggest that there is no growth paradox in Europe: the R&D factor and the elasticity of substitution between capital and labour which have been known to be important factors of economies’ growth potential, actually explain a significant part of the divergent growth performance of the European economies as well.

Keywords: endogenous growth; panel data estimation; production function; R&D; technical progress; elasticity of substitution; (follow links to similar papers)

JEL-Codes: E22; E23; O51; O52; (follow links to similar papers)

45 pages, February 28, 2007

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

0703netti.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Minna Nyman ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:bofrdp:2007_003 This page was generated on 2014-12-14 19:21:33