Productivity in the euro area: any evidence of convergence?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractSizable prevailing real economic disparities among countries in a currency union potentially involve costs for those countries for which the aggregate policy stance is not appropriate. This paper contributes to the literature by testing for productivity convergence among euro area countries. While no convergence can be found on the aggregate level, selected service sectors and manufacturing sub-industries indicate evidence of convergence. In a search for factors influencing productivity, investments in research and development as well as a high skill level of employees are shown to be beneficial whereas regulations constitute a burden. Consequently, euro area countries should engage in structural reforms where necessary to provide a more competitive environment, eventually facilitating economic convergence. Non-Technical SummaryAlthough similar levels of output are not imperative for a currency union to function, the costs for the individual member states tend to rise when economic disparities are firmly entrenched.This follows from a common policy stance, which will be too loose for some countries and too tight for others (Hallett and Weymark 2002). In order to shed light on convergence in real economic activity in the euro area, productivity developments among member states are analysed.From a theoretical standpoint we are agnostic about whether or not convergence should be expected. While the neoclassical growth models postulate convergence between higher and lower income countries, the endogenous growth theory allows for scenarios of persistent divergence among countries. Given the European economic and monetary integration since the 1950s, however, capital, labour and knowledge barriers have abated, which might have facilitated convergence. In adition, deregulation of some service sectors and advances in ICT technology could have been supportive.The convergence hypothesis is transformed into an empirically testable form by making use of recent advances in panel unit root tests. The paper contributes to the literature in that it provides empirical evidence on whether productivity convergence among euro area countries has taken place. Besides the look at the total economy, nine main euro area sectors (and eleven manufacturing sub-sectors) are put to test. In addition to the broad dataset used, this study captures the changes in labour market patterns by drawing on hours worked as input measure in contrast to total p...

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