Productivity Convergence in Manufacturing in the European Union: The Role of Economic Structure

Abstract

The article aims to empirically validate three questions. Have productivity differences in European manufacturing been increasing or diminishing and what has been the situation in Central and Eastern Europe countries? Are productivity differences homogenous over time and across manufacturing industries? What is the role of the internal structure of manufacturing for convergence? For this purpose, an analysis of σ- and β-convergence in 11 manufacturing industries has been conducted, making use of shift-share decomposition techniques. A complex view of catching-up is demonstrated with heterogeneity over time and across industries. Convergence occurred in Western Europe until approximately 1990, but since then disparities have been increasing and CEE countries were the only ones catching up. Convergence took place predominantly in medium-tech industries, while both low-tech and high-tech industries experienced divergence. Structural differences account for a minor share of the productivity disparities; however, changes in employment structures and productivity together led to the formation of two clubs of countries: low-tech, low productivity and high-tech, high productivity countries.