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Fifty Years Of Economic Growth In Western Europe: No Longer Catching Up But Falling Behind?

Nov 2003
Working Paper
03-021
By  Nicholas Crafts
Throughout the years from the early 1950s to the mid-1990s labour productivity grew more rapidly in western Europe than in the United States. In the early postwar period, the United States had a large productivity lead but this was quickly reduced by rapid European catch-up growth during the Golden Age which ended in the early 1970s. In the next 20 years, both the United States and western Europe experienced a productivity growth slowdown but here too Europe had the faster growth and by the mid-1990s the leading European countries had overtaken the United States in terms of (purchasing power parity adjusted) real GDP per hour worked.

Since 1995, however, the United States has experienced a productivity growth revival whilst in western Europe productivity growth has weakened markedly such that in recent years the United States has outperformed. This reversal of relative growth outcomes has coincided with the disappearance of the Solow Productivity Paradox in the United States and is clearly related to greater American success in exploiting the productivity potential of information and communications technologies (ICT). This raises the question whether the old pattern of faster productivity growth in Europe will reassert itself or whether we have entered a new era where American productivity growth will permanently be the faster of the two. Several explanations for this turnaround in relative growth performance can be suggested:

• a European productivity surge is just around the corner following an ICT diffusion lag
• a sclerotic Europe is now less amenable to catch-up growth
• ICT fits less well than earlier technologies with European 'social capability'

This article will seek to evaluate these hypotheses from the standpoint of Moses Abramovitz's insightful approach to understanding postwar European economic growth.