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The three tier strategy followed by successful European countries in the 1990s

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  • Karl Aiginger

Abstract

In general, the economic performance of European countries was disappointing in the 1990s. However, country differences increased, and in some European countries economic growth matched US rates. This paper uses a set of performance indicators to carve out a group of successful European countries and to compare their economic strategies to those of the more poorly performing, big continental economies. The analysis shows that the successful countries implemented a policy mixture of cost cutting, improving institutions, and investing in future growth. We consider the first two strategy elements to be preconditions, while investment in growth drivers such as research, education and technology diffusion is the sufficient condition for long-run growth. The difference between top and low performers is larger with respect to the dynamics of future investment than in cost cutting. In research expenditures, the top countries surpassed the big continental European countries in 1987, and have been increasing their lead steadily since that time. They are welfare states with a comprehensive social net, which they have maintained in principle, while improving institutions and incentive structures. The results are not in line with the usual twin hypotheses that high welfare costs and insufficient labour market flexibility are the main culprits in European underperformance.

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  • Karl Aiginger, 2004. "The three tier strategy followed by successful European countries in the 1990s," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(4), pages 399-422.
    • Handle: RePEc:taf:irapec:v:18:y:2004:i:4:p:399-422
    DOI: 10.1080/0269217042000266418
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    References listed on IDEAS

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    Cited by:

    1. Karl Aiginger, 2007. "The Swedish Economic Model," WIFO Working Papers 302, WIFO.
    2. Karl Aiginger, 2016. "New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition – Part I: Synthesis. WWWforEurope Deliverable No. 11," WIFO Studies, WIFO, number 58791.
    3. Aiginger, K, 2004. "The Bumpy Road of Convergence: the Catching Up Experience in Portugal, Spain and Greece," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 22, pages 1-22, Diciembre.
    4. Werner Hölzl, 2006. "Cohesion and Excellence. Two ways to a better Europe?," WIFO Studies, WIFO, number 28810.
    5. Karl Aiginger, 2008. "The Impact of Competition on Macroeconomic Performance," Chapters, in: Klaus Gugler & B. Burcin Yurtoglu (ed.), The Economics of Corporate Governance and Mergers, chapter 14, Edward Elgar Publishing.
    6. Fritz Breuss, 2005. "Die Zukunft der Lissabon-Strategie," WIFO Working Papers 244, WIFO.
    7. Karl Aiginger, 2005. "Labour market reforms and economic growth – the European experience in the 1990s," Journal of Economic Studies, Emerald Group Publishing, vol. 32(6), pages 540-573, October.

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