Growth, knowledge transfer and European integration

Abstract

It has been suggested that members in the EC or the EFTA experienced significantly higher growth rates compared to nonmember countries. This suggests that the European integration either captures omitted variables or that it gives rise to increased growth rates through enhanced investment and/or increased knowledge transfer. The present study attempts to resolve this issue. The analysis identifies a two-link chain between European integration (EI) and growth through investment. In addition, on examining whether there are any knowledge spillovers resulting from integration it is found that integrated countries do in fact experience more knowledge spillovers compared to nonintegrated countries. Employing both the neoclassical and endogenous growth approaches, it is found that trade variables are especially important for growth in Total Factor Productivity (TFP). The study is undertaken for a panel sample consisting of 20 OECD countries and covering three time periods between 1976 and 1990. Special emphasis is placed on specification and sensitivity analysis.