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Why isn't Europe Growing?

Author

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  • Viren, Matti

    (Department of Economics at University of Turku, Finland)

Abstract

This paper deals with the slowdown of economic growth in Europe. For that purpose, we focus on factors that affect the long-run growth path of different economies. Special emphasis is paid to institutional and structural factors that are often assumed to affect aggregate growth: functioning of labor markets, availability of labor and capital, and the size of government. For more explicit measures, we use the data on profit rates, average working hours, various dependency ratio indexes, tax rates, other measures of the size of government, and measures of price competitiveness. Empirical analysis makes use of cross-country panel data from EU15 countries for 1971-2014. Estimation results suggest that profitability and competitiveness do indeed constitute the main determinants of growth. However, also other variables like average working hours and the size of government appear to affect growth in an important manner. All in all, slowdown of growth in Europe does not appear to be beyond reasonable explanations. Thus, more ambitious growth rates may be achieved with well-designed policies. Perchè l’Europa non cresce? Questo lavoro tratta la questione del rallentamento della crescita economica in Europa. A questo fine ci focalizziamo sui fattori che influenzano la crescita nel lungo periodo in differenti sistemi economici. Viene data particolare enfasi ai fattori strutturali e istituzionali che spesso si ritiene influenzino la crescita aggregata: funzionamento del mercato del lavoro, disponibilità di capitale e lavoro, dimensione del settore pubblico. A questo fine, utilizziamo i dati sui tassi di profitto, le media delle ore lavorate, i vari rapporti di dipendenza, la pressione fiscale ed altri indicatori della dimensione del settore pubblico e sulla competitività di prezzo. L’analisi empirica fa uso di dati panel cross-country di 15 paesi dell’Unione Europea nel periodo 1974-2014. I risultati delle stime suggeriscono che gli indici di profitto e competitività rappresentano le determinanti maggiori della crescita economica. Comunque, anche altre variabili, come la media di ore lavorate e la dimensione del settore pubblico sembrano influenzare la crescita in maniera importante. In generale la diminuzione della crescita in Europa sembra potersi spiegare in modo ragionevole. Ciò a nostro avviso implica che attraverso politiche ben strutturate si potrebbero ottenere tassi di crescita più ambiziosi.

Suggested Citation

  • Viren, Matti, 2016. "Why isn't Europe Growing?," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(4), pages 317-340.
    • Handle: RePEc:ris:ecoint:0783
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    References listed on IDEAS

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    1. Juha Kilponen & Matti Viren, 2010. "Why do growth rates differ? Evidence from cross-country data on private sector production," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(3), pages 311-328, July.
    2. Francesco Caselli & James Feyrer, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 535-568.
    3. Olivier de La Grandville & Rainer Klump, 2000. "Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions," American Economic Review, American Economic Association, vol. 90(1), pages 282-291, March.
    4. Matti Virén & Erkki Koskela, 2000. "Is there a Laffer curve between aggregate output and public sector employment?," Empirical Economics, Springer, vol. 25(4), pages 605-621.
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    More about this item

    Keywords

    Growth; Working Hours; Taxes; Competitiveness;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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