WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

This paper analyses some of the factors behind the diverging productivity performances of the US and the EU over the 1990s and develops some conjectures regarding the likely developments for the current decade. The 1990s were characterized by two features: the disappearance of the process of productivity catching-up of Europe vis-à-vis the US which had lasted for most of the post-war period and the reversal from productivity slowdown to productivity acceleration in the US in the second half of the 1990s without the same occurring in Europe. A multitude of factors are analysed in this paper which could lie behind these developments, both at the macroeconomic and structural levels. Particular emphasis is put on differences in 'growth drivers' which can account for differences in supply-side performance, especially in periods in which major processes of innovation and diffusion of a general purpose technology (GPT) take place. There is also an analysis of the diversity of intra-European experience with some small European countries (Finland, Sweden, Denmark, Netherlands) achieving very good results in technology policy combined with policies which aim towards social inclusiveness.