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Productivity Gap between the “New” and “Old” Europe and Role of Institutions

Author

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  • Zoran Borovic

    (Department for Economic Theory, Analysis and Policy, Faculty of Economics, University of Banja Luka, 78000 Banja Luka, Bosnia and Herzegovina)

  • Dragana Radicic

    (Lincoln International Business School, College of Arts, Social Sciences and Humanities, University of Lincoln, Lincoln LN6 7TS, UK)

Abstract

The present study examines how policy makers should consider the quality of institutional framework to reduce the productivity gap and increase a country’s ability to absorb superior technologies developed elsewhere. This paper analyzes the impact of components of economic freedom, such as the size of government, regulation, and freedom to trade internationally, and world government indicators, such as political stability and absence of violence/terrorism, regulatory quality, and control of corruption on the productivity gap between the “Old” and “New” Europe countries. This is among the first studies to investigate, in a sample of former socialistic countries, the impact of institutions on a country’s ability to adopt superior technology developed elsewhere. A static panel analysis was applied on cross-sectional data from the eleven EU countries. The results strongly support the productivity convergence between the “Old” and “New” Europe countries, with a positive impact of the institutions on the productivity growth. However, the impact of the institutions fades the further the country is from the frontier.

Suggested Citation

  • Zoran Borovic & Dragana Radicic, 2023. "Productivity Gap between the “New” and “Old” Europe and Role of Institutions," Economies, MDPI, vol. 11(10), pages 1-19, October.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:10:p:254-:d:1258034
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    References listed on IDEAS

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