Date Added: Dec 2010
This paper investigates the relative contribution of capital deepening and Total Factor Productivity (TFP) as drivers of labour productivity growth and catch up in Europe. Proxies for technological capabilities (technology gap) are introduced which allow to explain differences in TFP. Using a conditional Malmquist nonparametric approach, the authors find that capital deepening and TFP respectively account for around 53% and 47% of labour productivity growth respectively. Further, change in technological capabilities explains 71% of change in TFP, making a substantial contribution to catch up. Different patterns arise between industrialized and catching-up countries. The results support the scope for innovation policy, technology diffusion and education policy to explain growth and convergence in labour productivity across Europe.