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The structural nature of the EU’s productivity downturn is confirmed by the analysis in this paper, with the bulk of the deterioration emanating from an outdated and inflexible industrial structure which has been slow to adapt to the intensifying pressures of globalisation and rapid technological change. The EU’s productivity problems are driven by the combined effect of an excessive focus on low and medium-technology industries (with declining productivity growth rates and a globalisation-induced contraction in investment levels); an inability to seriously challenge the US’s dominance in large areas of the ICT industry, as reflected in the relatively small size of its ICT production sector; and finally, its apparent slowness in reaping the productivity enhancing benefits of ICT in a range of ICT-using industries, although measurement issues severely complicate an assessment of the gains from ICT production and diffusion.
The post-1995 differences in EU-US productivity patterns are fundamentally driven by the US’s superiority in terms of its capacity to produce and absorb new technologies, most notably in the case of ICT. Healthy knowledge production and absorption processes are mutually supportive elements of any successful long run productivity strategy. Evidence is presented which suggests that the US’s overall innovation system is superior to that of the EU’s, both in terms of the quality and funding of its knowledge sector and the more favourable framework conditions prevailing. The repeated ability of the US system to direct resources towards the newer, high technology (and often high productivity growth), industries is a reflection of the quality of the interrelationships between the different actors in its innovation system and of an economic and regulatory framework which has the capacity to transform excellence in knowledge creation into a globally competitive industrial structure.

Additional information

Authors: DENIS C, European Commission, DG for Economic and Financial Affairs, Brussels (BE);MC MORROW K, European Commission, DG for Economic and Financial Affairs, Brussels (BE);RÖGER W, European Commission, DG for Economic and Financial Affairs, Brussels (BE);VEUGELERS R, European Commission, DG for Economic and Financial Affairs, Brussels (BE)
Bibliographic Reference: Luxembourg, Office for Official Publications of the European Communities, 2005. 95 pp, free of charge
Availability: (Catalogue Number: KC-AI-05-221-EN-C)
ISBN: ISBN 92-894-8140-4
Record Number: 200618414 / Last updated on: 2005-12-19
Original language: en
Available languages: en