The impact of the Great Recession on TFP convergence among EU countries

ABSTRACT

This article provides evidence on the effect of the Great Recession on productivity convergence among European Union (EU) economies. We use firm data, aggregated at the country-year level, to analyse the evolution of beta-convergence on total factor productivity (TFP) for 2003–2014. We obtain a positive impact of the recession on TFP (unconditional and conditional) beta-convergence across EU economies. These results support the existence of a catching-up process within the EU during the recent financial crisis. Other macroeconomic and institutional characteristics are important in fostering TFP growth, namely R&D intensity and quality of governance.

KEYWORDS:

• Convergence
• TFP
• Great Recession
• European Union countries

JEL CLASSIFICATION:

• F43
• O47
• O52

Acknowledgements

Authors acknowledge funding support by the European Commission under Framework contract ENTR/300/PP/2013/FC-WIFO. The content of this article does not reflect the official opinion of the European Commission.

We also thank the Spanish Ministerio de Economía y Competitividad under Grant ECO2014-55745-R and the Generalitat Valenciana under Grant PROMETEOII/2014/054 for funding support.

Responsibility for the information and views expressed in this article lies entirely with the authors.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ For 1960–1989, Miller and Upadhyay (2002) find evidence of both unconditional and conditional beta-convergence in TFP for a sample of developed and developing countries.

² Data are drawn from the EU Report ‘TFP growth: Drivers, Components, and Frontier Firms’, prepared for the European Commission, DG GROW, under Specific Contract Number SI2-725490.

³ Our sample is coherent with that in Gal (2013) for the overlapping countries.

Additional information

Funding

This work was supported by the European Commission under Framework contract ENTR/300/PP/2013/FC-WIFO.