31. Volkswirtschaftliche Tagung

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Summary 

This paper considers trends in European productivity performance in comparison with that of the United States with a particular emphasis on catch-up growth and the role of ICT in the recent divergence of outcomes. 

A key feature of recent developments is that whereas for the whole postwar period up to 1995 west European exceeded American labour productivity growth since then the opposite has been true. Examination of American productivity trends clearly indicates a much larger role for ICT than in Europe. Partly this is due to differences in the share of GDP devoted to ICT production but more worryingly a significant part of the gap is due a smaller growth contribution from ICT-capital-deepening. The paper reports comparative estimates which establish this point. 

Against the background of earlier European catch-up, the paper reviews several hypotheses for the lag in ICT capital-deepening in Europe. A crude claim of general European sclerosis arising from higher taxation and stifling increase in regulation after the Golden Age is shown to be implausible not least because catch-up of the USA continued till 1995. Moreover, many European countries have relatively abundant human capital which can compensate for regulatory inhibition of ICT diffusion. 

On the other hand, it is likely that employment protection legislation and a high cost of ICT capital in the past have delayed the build up of the organizational capital and have made less attractive the reorganization necessary to realize the productivity payoff of ICT capital. Since the evidence is that the productivity gains from ICT typically come through with a long lag, the relatively slow start that Europe made for these reasons in the 1980s had an adverse impact on productivity performance in the 1990s. 

In addition, there are some reasons to think that the short term implications of an acceleration in ICT investment such as occurred in Europe in the late 1990s has an adverse effect on TFP growth in the short term. Putting all these arguments together suggests that may well be an ICT-driven improvement in European productivity growth in the next few years.