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Why is TFP growth sectorally concentrated?

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  • Alexander Schiersch
  • Heike Belitz
  • Martin Gornig

Abstract

Research shows that total factor productivity (TFP) growth is weak in European countries. This is inter alia attributed to the fact that substantial TFP growth is limited to a few industries. Because TFP growth is typically understood as technological progress, it is concluded that technology diffusion between sectors in Europe is hampered. We use EU KLEMS data sets to decompose sectoral TFP for nine European countries by means of a Malmquist approach in order to identify potential sources besides technical progress. Applying Harberger diagrams, we describe the sectoral distribution of TFP growth, efficiency gains and losses, economies of scale and technological progress. The analysis reveals that technological progress is quite evenly distributed across sectors in most European countries. The wide scattering of TFP growth is explained by deviating efficiency developments and the unused economies of scale. We conclude that the technology transfer between sectors in most European countries seems to work. Therefore, Europe in general does not need a new technology policy, but a further integration of the markets and a reduction of national market entry barriers. This requires further unification of pan-European standards in fields like trade and crafts codes or consumer protection policies.

Suggested Citation

  • Alexander Schiersch & Heike Belitz & Martin Gornig, 2015. "Why is TFP growth sectorally concentrated?," Applied Economics, Taylor & Francis Journals, vol. 47(55), pages 5933-5944, November.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:55:p:5933-5944
    DOI: 10.1080/00036846.2015.1061642
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    1. Gilbert Cette & Michael Fouquin & Hans-Werner Sinn (ed.), 2007. "Divergences in Productivity Between Europe and the United States," Books, Edward Elgar Publishing, number 12971.
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    Cited by:

    1. Franz Haider & Robert Kunst & Franz Wirl, 2021. "Total factor productivity, its components and drivers," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(2), pages 283-327, May.
    2. Xinyue Lin & Lingli Qi & Haoran Pan & Basil Sharp, 2022. "COVID-19 Pandemic, Technological Progress and Food Security Based on a Dynamic CGE Model," Sustainability, MDPI, vol. 14(3), pages 1-18, February.

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