The United States as a growth leader for the Euro Area - A multi-sectoral approach

Abstract

In this paper we examine the role played by technology spillovers between the United States and the Euro area. We explicitly assume that the United States acts as a growth leader for Europe and that the Euro area is constantly converging to US total factor productivity (TFP) levels. As a result, a growing divergence in the level of US TFP vis-`a-vis that of Europe results in an increase in the growth rate of Euro area TFP. The model is applied to TFP data from 26 subsectors of both economies. The role of greater ICT adoption in increasing Euro area TFP is also explored.