The causal impact of material productivity on macroeconomic competitiveness in the European Union

Abstract

Interdisciplinary scholars and policy makers have claimed that increasing material productivity not only reduces environmental pressures but also improves the competitiveness of economies. This is particularly relevant in the context of the European Union (EU) since it motivates its resource efficiency and circular economy agenda by referring to this assertion. However, two limitations in the literature cast doubt on the validity of the claim. First, the literature fails to clarify the concept and measurement of macroeconomic competitiveness. Second, it lacks to take the endogeneity of material productivity into account. Addressing both shortcomings, this paper reviews the concept of macroeconomic competitiveness and identifies six conventional macroeconomic indicators to approximate it. Moreover, using panel data of the 28 member states of the EU between 2000 and 2014, the causal impact of material productivity on the six indicators is estimated, instrumenting material productivity with the number of deaths from natural hazards. The results provide evidence for a positive and causal impact of the material productivity rate on the wage rate and, with lower confidence, on the current account rate, while the remaining macroeconomic indicators are not significantly affected. Overall, these results suggest to be cautious with the claim that increasing material productivity improves macroeconomic competitiveness in the EU. Particularly the positive effect on the wage rate calls for considering possibilities to channel gains from increasing material productivity into eco-innovations to reduce the magnitude of potential rebound effects and thus environmental pressures.

Material productivity, socioeconomic drivers and economic structures: A panel study for European regions

“…We conducted a number of checks to scrutinize whether our results are robust to potential endogeneity issues. Some authors caution that current MP levels might be affected by past levels of MP (Flachenecker, 2018;Robaina et al, 2020). The hypothesis that past values of technological levels influence present technological performance is plausible, as the technological trajectory of a given territory is the result of a long Note: values in brackets refers to heteroskedasticity and serial (cross-sectional) robust standard errors (Arellano).…”

“…Understanding the influential socioeconomic factors driving resource productivity represents the first step in establishing and improving resource management policies (Domenech and Bahn-Walkowiak, 2019;Flachenecker, 2018;West and Schandl, 2018). Since the 1970s, when the study of socioeconomic metabolism of countries emerged as a new research field, there has been a bourgeoning literature analysing material consumption patterns and MP (Fischer-Kowalski and Haberl, 1998;Fischer-Kowalski and Hüttler, 1998).…”

Circular Economy and Economic Development in the European Union: A Review and Bibliometric Analysis

“…One of the main challenges will be to provide societies with adjusted and sufficient resources [15]. The efficiency, productivity, and circular economy are, in general, viewed as interesting contributions for sustainable development; however, there are some specificities, namely macroeconomic, that should be considered more carefully [16]. In any case, more efficient resource utilization may bring about relevant outcomes for sustainability [17].…”

Features of the assessment of factors influencing productivity

“…It means, that investment to the application of new technologies and upgrading of people's skills pay off when the forms of employment become more flexible, wage rise and productivity increase. Growing productivity improves competitiveness and key macroeconomic indicators (Flachenecker, 2018). However, if "productivity increase, labour costs are reduced and it promotes the export and the creation of value added" (Ottaviano, Peri, & Wright, 2018) and there is a need for an analysis of the link between productivity and its factors.…”