Assessing Italy's Reform Challenges: What Do Growth Accounting and Structural Indicators Say? (original) (raw)

The productivity slowdown puzzle of European countries: a focus on Italy

With the end of the twentieth century and the beginning of the new millennium in many European countries, and especially those of the Southern Europe, a structural change in the way the economy grows took place. In this essay we use the growth accounting methodology to measure the contribution of different factors to economic growth in some European countries and in the U.S. and to isolate the determinants of the European slowdown during the Great Recession. The focus on Italy suggests that the slowdown of the Italian economy is structural and affects both the non-ICT and ICT sectors.

Exploring Italy's Growth Challenge: A Model-Based Exercise

SSRN Electronic Journal

Since the mid-1990s, Italy's economic growth faltered, primarily due to sluggish productivity growth. This article investigates the root causes of the slow growth. Firstly, it benchmarks Italy over time visà-vis euro area and OECD countries in the area of human capital, product market regulation, taxation structure and innovation. The analysis shows that Italy's gaps in these areas have grown over the last 15 years and are particularly large for human capital. Secondly, it uses a set of stylized simulations in QUEST R&D model of the European Commission to assess the potential impact of a package of growth-enhancing reforms in these areas. The simulations show that structural reforms could boost productivity and GDP growth significantly. Important reforms are ongoing. Given the very nature and the size of the gaps, it is important that the reform momentum is maintained.

Economic Growth in the OECD Area

OECD Economics Department Working Papers, 2000

This paper discusses growth performance in the OECD countries over the past two decades. Special attention is given to developments in labour productivity, allowing for human capital accumulation, and multifactor productivity (MFP), allowing for changes in the composition and quality of physical capital. The paper suggests wide (and growing) disparities in GDP per capita growth, while differences in labour productivity have remained broadly stable. These patterns are explained by different employment growth rates across countries. In the most recent years, a rise in MFP growth in ICT-related industries has boosted aggregate growth in some countries (e.g. the United States).

Whither Recovery - Economic Growth and Structural Change after Five Years of Recession

2014

Five years into the euro-area crisis, some signs of a recovery are starting to appear. Exports are picking up in the core industrial economies. At the same time, the underlying structural problemsnotably the ageing of the population with its implications on public spending as well as on labour markets remain. The question in many countries is whether the pre-crisis growth rates are still attainable. Finland weathered the first years of the crisis remarkably well compared to most EU-countries but she has also experienced a deep structural change in her economy. Many of the key exporting industries are surfacing from the recession significantly leaner than before. This development climaxed in the fall of 2013 with the announcement of the sale of Nokia's-the telecommunications giant-mobile phone branch, which was preceded by the closure of the firm's last mobile phone plant in Finland only a few months earlier. At the same time, the problems and fiscal pressures brought about by a rapidly declining working-age population and the growing costs of an ageing population became more and more apparent. To the mounting distress over the extent of a sustainability gap was thereby added a nagging concern over the growth potential of the economy. The aims of the present study are to grasp the effects of the structural change on the growth potential of the economy, and to analyse the connection between output growth and the sustainability gap. We do this by studying the contribution of the different sectors of the economy to economic growth in the recent past, taking into account the often dramatic cuts in capacity in many of the key exporting industries. Our analysis corroborates the findings of recent econometric studies that the loss of the ICT sector's boost to productivity growth may well jeopardize future growth. We also turn the findings at the structural level into economy-wide measures of potential GDP growth, using methodology similar to the European Union's in measuring the GDP gap. Our findings point out that bridging the gap is not enough to solve the sustainability problem, as potential GDP has fallen because of the structural changes of past years. Finally, we show that the fall in potential GDP does indeed make fiscal sustainability more urgent. We are using VATTAGE, a MONASH-style AGE model of the Finnish economy, to assess the effects of the most recent structural policy proposals. Unlike most AGE models that treat the public sector essentially as a burden to the economy, we have modified the model to account for the direct utility effects from free public provision of educational, health care and social services, a characteristic of most Nordic "welfare states". Under this setup , cuts in these services will have a twofold effect: they will reduce the welfare costs of financing public services, but they will also have a negative, direct impact on consumers' utility. A third effect is to encourage demand for privately provided services.

Productivity Growth in Italy: A Tale of a Slow-Motion Change

SSRN Electronic Journal, 2018

Productivity is the main factor holding back long-term economic growth in Italy. Since the second half of the 1990s, productivity growth has been feeble both by historical standards and compared with the other main euro area countries. Understanding the reasons for such a performance and finding the most effective policy levers is crucial to increase Italy's potential growth rate. Against this background, we provide a detailed analysis of the data and a critical review of the available empirical evidence to identify both the structural weaknesses limiting productivity growth and the strengths of the Italian productive system that may support it looking forward. Since the end of the 1990s and more intensively since the second half of 2011, the reform effort has been particularly effective in the regulation of product and labor markets and industrial policy. On other factors which are very relevant for productivity dynamics, the reform action has been less effective so far.

Growth Accounting: A European Comparison

2012

Our method decomposes output growth to its components for Cyprus, Greece and the Euro area. The period covered is 1996 to 2011. Our results, especially after 2008 suggest that Greece has a negative TFP growth rate, while Cyprus and the Euro area averages appear to be close to zero. With respect to output decomposition, we observe that in the period 2008-2011, there is a dramatic decline in the contribution of TFP and labor growth in both the Euro area and Greece. Both contributed negatively in output growth and this is the reason for the reduction of output growth. In Cyprus a decline in the labor and TFP contribution is also observed. But only labor growth has a negative contribution. TFP growth still has a positive contribution (close to 7%) but it decelerates. The contribution of capital growth is positive and capital appears to have a small acceleration. Output growth would have been worse if capital didn"t accelerate.

Determinants of growth in OECD countries revisited

2012

Drawing on recent developments in the determinants of growth literature and using the latest datasets and modern techniques, this paper aims at assessing the relative importance of various factors for the growth of OECD countries. Special emphasis is placed on factors affecting total factor productivity in a globalized environment, while the specific econometric techniques allow us to account for institutional and other differences between countries. The main conclusion is that human capital and innovation are key drivers of growth for the specific group of countries, with the outward orientation, competitiveness and institutional variables also contributing positively while the opposite holds for the size of the public sector. These results are robust to the choice of estimation methods, while the statistical properties of variables are properly taken into account. Using these results, the current economic policy mix in Greece is evaluated from a growth perspective.

How Structural Change Differs, and Why It Matters (for Economic Growth)

DRUID Working Papers, 1998

Several types of theoretical literature on the topic of trade, growth and specialisation, including neoclassical approaches, post-Keynesian literature and some models in evolutionary economics, have shown that it is possible enjoy higher rates of economic growth, given the presence of certain sectors in the economy, being it high-tech or fast-growing sectors.