Is the Convergence Party Over? Labour Productivity and the Technology Gap in Europe

The endogenous approach to regional development policy has become central over the last decade. By employing the conditional frontier approach, this paper investigates the relative contribution to labour productivity growth of: (1) capital accumulation, (2) exogenous technical change and efficiency, and (3) endogenous technological capabilities - i.e. innovation capability and human capital. We find overall convergence in labour productivity growth driven by capital accumulation and exogenous technical change, in 211 European regions in 18 countries over the period 1995-2007. Differences in terms of relative contribution arise concerning advanced regions vis-à-vis backward regions. As for the latter, productivity growth is mainly driven by capital accumulation, while the lack of convergence in terms of endogenous technological capabilities casts some doubts on the sustainability of the convergence process and suggests some implications for the European Cohesion policy.

Closing the technology gap to reduce labour productivity disparities across Europe is crucial for the European cohesion policy. This article explores the sources of labour productivity growth in Europe over the period 1993-2007 in light of the enlargement process. Labour productivity growth has been mostly driven by capital accumulation. New Member States have significantly reduced their inefficiency and their technology gap. Disparities in the levels of labour productivity are still substantial and, to a considerable extent, they can be attributed to technology gap differences. This raises concerns about the process of convergence in labour productivity in Europe and suggests further policies aimed at reducing the technology gap.