European Productivity Gaps: Is R&d the Solution?

This paper investigates the potential impact of increased business R&D efforts in Europe on the total factor productivity gap between European and U.S. industry. The paper addresses Europe’s ambition, expressed at the 2000 Lisbon Summit to become “the most competitive and dynamic knowledge-based economy in the world”, and the 3% R&D intensity target for Europe formulated at the 2001 Barcelona Summit. Based on existing empirical models from the literature on productivity and R&D expenditures, we provide projections on the expected productivity impacts of increased R&D in manufacturing industries. The results suggest that raising European R&D is not a complete solution to the European productivity backlog relative to the U.S. We also find that the most dramatic impacts may be expected from raising R&D in so-called low-tech sectors. [email protected] [email protected] We thank Colin Webb, Agnès Cimper (OECD, Directorate for Science, Technology and Industry, Economic Analysis and Statistics Division) and Marcel Timmer (GGDC) for provision of and advice on the data, Eddy Szirmai for advise on data issues, and Alessandro Nuvolari and participants at the workshop on “The Many Guises of Innovation: What we have learnt and where we are heading” at Statistics Canada, October 23-24, 2003, and partcipants at the workshop on “Current Issues in Economic Growth”, Oesterreichische Nationalbank Central Bank of Austria, 5 March 2004 for comments and suggestions.