Neoclassical versus Kaldorian Explanations of Southern Europe’s Productivity Slowdown

Alberto Bagnai ( ) and Christian Alexander Mongeau Ospina

Acta Oeconomica, 2017, vol. 67, issue supplement1, 113-135

Abstract: The productivity slowdown in European countries is among the major stylised facts of the last two decades. Several explanations have been proposed: some focus on demand-side effects, working through Kaldor’s second law of economic growth (also known as Verdoorn’s law), others on supply- side effects determined by a misallocation of the factors of production, caused either by labour market reforms or by perverse effects of financial integration (in Europe, related to the adoption of the euro). The latter explanation is put forward by some recent studies that stress how low interest rates brought about by the monetary union may have lowered productivity by inducing capital misallocation. The aim of this paper is to investigate the robustness of the latter empirical findings and to compare them with the alternative explanation offered by the post-Keynesian growth model, which instead emphasises the relation between foreign trade and productivity, along lines that go back to Adam Smith. To do so, we use a panel of industry-level data extracted from the EU KLEMS database, comparing these alternative explanations by panel cointegration techniques. The results shed some light on the role played by the single currency in the structural divergences among euro area member countries.

Keywords: firm behaviour; productivity; post-Keynesian model; economic integration; foreign exchange (search for similar items in EconPapers)

JEL-codes: D22 D24 E12 F15 F31 (search for similar items in EconPapers)

Date: 2017

Note: We thank the participants of the conference for their comments and Pasquale Tridico for his useful suggestions.

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