R&D capital and economic growth: The empirical evidence

This paper reviews the empirical literature on rates of return on R&D and interprets the economic significance of these estimates using a semi-endogenous growth model with a calibrated knowledge production sector. We analyse how R&D subsidies, a reduction of entry barriers for start-ups and increasing high-skilled labour would contribute towards raising productivity and knowledge investment in the EU. The simulation results show that substantial efforts will have to be made if Europe wants to come close to achieving the Lisbon productivity and knowledge-investment targets. Achieving US standards in all three areas would reduce the productivity gap by about 50 percent. Improving the quality of tertiary education and increasing competition in non-manufacturing sectors would also help the EU to get to the productivity frontier.Productivity differences; endogenous growth; R&D; DSGE models

Potential Output: Measurement Methods, "New" Economy Influences and Scenarios for 2001-2010 - A comparison of the EU-15 and the US.

This paper presents an overview of the various methodologies for estimating potential output at the macroeconomic level. Emphasis was laid on the production function approach which is used together with the univariate statistical HP filter method to produce potential output estimates for the US and the EU15 economies (as well as the individual EU Member States) from 1966-2002. The paper also assesses the role of "new" economy influences on potential growth and provides estimates of the likely contribution to past and future output capacity from this source. Finally, potential growth scenarios are given for the EU15 as a whole and the US for the period 2001-2010, with the central scenario pointing to annual average growth rates of 2 ¾% for the EU15 and 3% for the US over the next ten years.macroeconomic analysis, potential growth, potential output

Economic and financial market consequences of ageing populations

The implications of ageing populations over the coming decades at the global level will be significant in terms of not only a slowdown in the growth rate of output and living standards but also with regard to fiscal and financial market trends. Given the backdrop of the downward trend in world-wide potential growth rates over the past number of decades, driven by falling rates of capital accumulation and a slowdown in productivity growth, the additional negative impact of relative declines in the growth rate of working age populations over the coming decades bodes ominously for future world-wide economic developments. The focus of the present paper is to quantify and analyse the nature, extent and geographical reach of the "real" economy and budgetary aspects of ageing populations as well as providing an initial assessment of the financial market implications of this phenomenon.population ageing, growth rate, productivity growth, working age population, Mc Morrow, R�ger

Production function approach to calculating potential growth and output gaps - estimates for the EU Member States and the US

This paper describes the methodology for calculating potential growth and output gaps using a production function approach. On the basis of the Commission services Spring 2002 economic forecasts, the approach is illustrated by providing estimates for the EU's Member States, the Euro Zone and EU15 aggregates as well as for the United States.production function, growth and output, economic forecasts, Denis, Mc Morrow, R�ger

Globalisation : trends, issues and macro implications for the EU

Globalisation, defined as an increasingly integrated world economy, has the potential to generate the largest structural upheaval in economies since the industrial revolution. As in the past, this process is being underpinned by both technological change and by a shift in policies in many countries towards a more open, market based, system of economic governance. These policies reflect the realities of a new world order where knowledge creation and absorption and the flexibility of the regulatory and institutional frameworks will be the key determinants of the economic fortunes of economies. This paper examines the historical empirical evidence regarding globalisation and quantifies the macro benefits and costs for the EU over the coming decades.globalisation, trade integration, global productivity, terms of trade, Denis , Mc Morrow, R�ger

The EU-US total factor productivity gap : An industry perspective

This paper uses the EU KLEMS industry growth accounting database to explore the determinants of the EU-US total factor productivity (TFP) growth gap which started to emerge in the mid-1990's.Growth determinants, Total Factor Productivity, European Union, Havik, Mc Morrow, R�ger, Roeger, Turrini, klems, eu klems

Long-term labour productivity and GDP projections for the EU25 Member States : a production function framework

This paper presents the results of long run labour productivity and GDP growth rate projections (until 2050) for each of the 25 EU Member States and provides a detailed overview of the forecast methodology used. These projections were undertaken in order to provide an internationally comparable macroeconomic framework against which to assess the potential economic and fiscal effects of ageing populations. The projections presented in this paper, using a common production function methodology for all 25 countries, show the GDP growth rate effects of an assumptions-driven extrapolation of recent trends in employment and labour productivity. These base case projections reflect the working assumption of “no policy change”.Various sensitivity tests are carried out to check the GDP per capita impact of some factors which have been excluded from the baseline scenario for reasons of simplicity or because of a lack of consensus in the academic literature. Some of the interesting conclusions that emerge from these sensitivity tests include : • Firstly, the GDP per capita impact of changes in the participation rate assumption used in the projections is much greater than for assumed changes in the share of part-time employment (i.e. in average hours worked per worker). • Secondly, the negative effect of a change in the age-structure of the population is fairly limited, although it is accepted that the labour productivity of an individual is likely to decline after the age of 55. A very strong fall in the productivity of older workers compared with that of prime-age workers would be required to significantly depress total labour productivity. Such an outcome, on the basis of current evidence, appears rather unlikely. • Thirdly, changing the TFP growth rate targets (e.g. use of the 1990’s average instead of the long-term 1970-2004 average) could strongly affect the projections. • Finally, an assumption of productivity convergence in levels substantially alters the projections for most EU10 countries but leaves the EU15 almost unchanged. JEL classificProductivity; ageing; long-term projections; production function; labour productivity; older workers

Calculating potential growth rates and output gaps - A revised production function approach

Any meaningful analysis of cyclical developments, of medium term growth prospects or of the stance of fiscal and monetary policies are all predicated on either an implicit or explicit assumption concerning the rate of potential output growth. Given the importance of the concept, the measurement of potential output is the subject of contentious and sustained research interest. All the available methods have "pros" and "cons" and none can unequivocally be declared better than the alternatives in all cases. Thus, what matters is to have a method adapted to the problem under analysis, with well defined limits and, in international comparisons, one that deals identically with all countries. This is the approach adopted in the present paper where it is stated clearly that the objective is to produce an economics based, production function, method which can be used for operational EU policy surveillance purposes.growth rates, cyclical developments, production function, potential output, Denis, Grenouilleau, Mc Morrow, R�ger

Long-term labour productivity and GDP projections for the EU25 Member States : a production function framework

This paper presents the results of long run labour productivity and GDP growth rate projections (until 2050) for each of the 25 EU Member States and provides a detailed overview of the forecast methodology used. These projections were undertaken in order to provide an internationally comparable macroeconomic framework against which to assess the potential economic and fiscal effects of ageing populations. This assessment was carried out as part of the work undertaken by the EU's Economic Policy Committee, in its Ageing Working Group, to project the public expenditure implications of ageing on pensions, health care, long-term care, unemployment insurance and education.labour productivity, GDP projections, ageing populations, public expenditure, pensions, health care, long-term care, unemployment, education, Carone, Denis, Mc Morrow, Mourre, R�ger

Regional prioritisation of flood risk in mountainous areas

In this paper a method is proposed to identify mountainous watersheds with the highest flood risk at the regional level. Through this, the watersheds to be subjected to more detailed risk studies can be prioritised in order to establish appropriate flood risk management strategies. The prioritisation is carried out through an index composed of a qualitative indicator of vulnerability and a qualitative flash flood/debris flow susceptibility indicator. At the regional level, vulnerability was assessed on the basis of a principal component analysis carried out with variables recognised in literature to contribute to vulnerability, using watersheds as the unit of analysis. The area exposed was obtained from a simplified flood extent analysis at the regional level, which provided a mask where vulnerability variables were extracted. The vulnerability indicator obtained from the principal component analysis was combined with an existing susceptibility indicator, thus providing an index that allows the watersheds to be prioritised in support of flood risk management at regional level. Results show that the components of vulnerability can be expressed in terms of three constituent indicators: (i) socio-economic fragility, which is composed of demography and lack of well-being; (ii) lack of resilience and coping capacity, which is composed of lack of education, lack of preparedness and response capacity, lack of rescue capacity, cohesiveness of the community; and (iii) physical exposure, which is composed of exposed infrastructure and exposed population. A sensitivity analysis shows that the classification of vulnerability is robust for watersheds with low and high values of the vulnerability indicator, while some watersheds with intermediate values of the indicator are sensitive to shifting between medium and high vulnerability