By Luis de Guindos
On 28 and 29 November, the European Investment Bank and the European Central Bank, in cooperation with the Massachusetts Institute of Technology, Columbia University and SUERF (the European Monetary and Finance Forum) will co-organise a high-level conference on ‘Investment, Technological Transformation and Skills’.
Strong economic growth underpins greater prosperity over the long run. Yet trend growth in the euro area is low, compared with other advanced economies, reflecting an ageing population and recent poor productivity performance. Europe needs to reinvigorate productivity growth to sustain improvements in living standards.
Harnessing the benefits offered by technological advances like digitalisation, robotisation and artificial intelligence is crucial. But firm-level evidence from the Competitiveness Research Network (CompNet) shows that productivity gains remain patchy across all sectors. We need to give firms the right incentives to invest in technology, thereby ensuring that capital and workers migrate from low to high productivity businesses.
We can illustrate this point by using CompNet data to classify sectors into fast, medium and slow-growing groups based on their total factor productivity growth. We can then explore the dynamics of top-performing firms (90th percentile in terms of productivity) and laggard firms (10th percentile) in each of these three groups over time.
The productivity levels of the top-performing firms in the fastest-growing group are now three times the 1999 sector average (Chart 1). Meanwhile, the productivity of the top firms in the medium group has barely nudged up, while it has actually fallen in the slow-growing group. And the productivity of laggard firms in all three groups has barely changed at all. So the dynamics of firms at the top of the distribution drive the differences between sectors.