Missing Convergence in Innovation Capacity in the EU: Facts and Policy Implications

Summary:

Over the medium- to longer term, trends in total factor productivity growth and innovation will determine the growth and convergence trajectories of the EU economies. However, already before the crisis, Europe has suffered from disappointing innovation performance and productivity growth, and developments since then have only reinforced this trend. Persistent innovation and productivity growth divergences among EU countries, and in particular euro area countries, raise concerns of rising income differentials and long-term cohesion across countries. In this contribution we will start with describing the major trends of total factor productivity growth in the EU and EURO member countries and compared to its major global competitors. As the creation and adoption of innovations is seen as a major driver of TFP, we will describe the major trends and convergence/divergence in innovation capacity and its components directly. How big are the differences and they diminishing over time, establishing convergence? Are the laggards catching up? Or the leaders forging ahead? The analysis finds that there is substantial heterogeneity in innovation capacity among EU Member States. This heterogeneity is very stable, avoiding strong divergence, but also no consistent convergence signs. The divide between the Innovation Leaders in the North and the Innovation Laggards from the South and the East proves to be difficult to address.

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