The Productivity Gap Among Major European Countries, USA and Japan
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The Productivity Gap Among Major European Countries, USA and Japan Giorgio Calcagnini1
· Germana Giombini1,2
· Giuseppe Travaglini1
Received: 14 January 2020 / Accepted: 18 September 2020 © The Author(s) 2020
Abstract This paper analyzes Total Factor Productivity (TFP) in five European countries (France, Germany, Italy, Spain, and UK), the USA and Japan between 1954 and 2017. It uses the common trend– common cycle (CTCC) approach to decompose series in trends and cycles. We find that the seven economies are structurally different and differently affected by similar shocks. We show that trend and cycle innovations are, in most of the cases, negatively correlated as predicted by the ‘opportunity cost’ approach to productivity growth, and that trend innovations are larger than cycle innovations. We provide an interpretation for countries’ differences in TFP performance in recent years that is related to the so-called ‘deep’ determinants in growth literature, such as the presence of efficient markets and institutions. Finally, we present a comparison with the traditional Hodrick and Prescott deterministic filter to highlight the advantages of CTCC methodology that does not require a priori on the nature of the time series. Keywords Total factor productivity · Cointegration analysis · Market imperfections JEL Classification D24 · D43 · E02 · E23
1 Introduction Productivity (as measured by output per unit of single input or total inputs), and its growth, is well recognized by essentially all economists as the key variable to long-run improvement in income and (un)employment. Most of the same economists would also agree that productivity depends upon a combination of investment in physical and human capital, knowledge and technical progress. However, the link between
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Germana Giombini [email protected]
1
Department of Economics, Society and Politics, Università di Urbino Carlo Bo, Urbino, Italy
2
DESP, Via Saffi 42, 61029 Urbino, Italy
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G. Calcagnini et al.
this combination and productivity may be considerably weakened by factors as the quality of institutional and market efficiency, the degree of openness and flexibility of the economy (Saltari and Travaglini 2010; Calcagnini et al. 2015, 2018; Fuentes et al. 2014). Moreover, the dynamics of innovation and economic performance may be shaped by interconnections and complex relationships between the ability of industries to turn out R&D efforts into successful innovations, which in turn lead to high entrepreneurial profits, and the commitment of industries to invest profits in further technological efforts (Bogliacino and Pianta 2013). Therefore, understanding the factors behind productivity is a complex process because more than a single determinant can be significant at the same time (World Economic Forum 2014, p. 4). This paper aims at analyzing Total Factor Productivity (TFP) in five major European countries (France, Germany, Italy, Spain and UK), USA, and Japan between 1954 and 2017. We employ annual data and focus on countries that have si
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