World Economy – European Economic Growth Since 1945
INTRODUCTION
*Crafts & Toniolo (2010)
• Unprecedented growth in Europe but weaker than USA or some Asian countries. Lag in
Eastern Europe.
• UK grew faster than it even did but still lagged behind.
Two conceptual approaches:
• Endogenous growth theory – innovation changes in growth in response to expected
profitability e.g. due to tech opportunities, R&D costs, competition etc.
• Economics of catch up growth – requirement of social capability and tech congruence.
Key facts:
• Strong growth: 2005 GDP per capita in Europe 10 times higher than its 1870 level.
• Convergence: Western Europe rises from 48% to 68% of US GDP per capita 1950-1973 but
little convergence since.
• Countries with low initial growth have grown faster though southern Europe still poorer.
• Eastern Europe also grew up quickly up to 1973 but fell behind with collapse in output at the
end of the communist period.
Countries initially the richest grew the slowest and vice versa.
GROWTH ACCOUNTING ESTIMATES
• Golden age largely driven by capital deepening and TFP growth; in most Western European
countries TFP growth was more important. Sources included tech transfer, structural
change, scale economies etc
• Both capital deepening and TFP growth slow during decline
• 1990-2003 more diverse performance, e.g. rapid TFP growth in Ireland, negative TFP growth
in Spain.
GOLDEN AGE
What explains the golden age?
• Trend recovery and reverse of policy errors e.g. protectionism
• Greater sectoral shift – in the 1960’s countries that could transition out of agriculture grew
quickly.
• Marshall Plan was TOO SMALL but did bring indirect effects e.g. market economy, trade
liberalisation, social contracts etc
• Greater integration – tech transfer, competition, economies of scale (by exporting to other
countries)
• Social capability and corporatist industrial relations
What accounts for different countries’ relative success and failure during the golden age?
• Convergence – opportunities for improvement
• Ireland: liberalisation, low corporate taxes, upgrading of educational standards
• UK-West Germany – Germany better at physical and human capital accumulation (more
skills through apprenticeships, vocational training etc). Multiple unionism in UK and hold-up
problem, weak competition in the UK
INTRODUCTION
*Crafts & Toniolo (2010)
• Unprecedented growth in Europe but weaker than USA or some Asian countries. Lag in
Eastern Europe.
• UK grew faster than it even did but still lagged behind.
Two conceptual approaches:
• Endogenous growth theory – innovation changes in growth in response to expected
profitability e.g. due to tech opportunities, R&D costs, competition etc.
• Economics of catch up growth – requirement of social capability and tech congruence.
Key facts:
• Strong growth: 2005 GDP per capita in Europe 10 times higher than its 1870 level.
• Convergence: Western Europe rises from 48% to 68% of US GDP per capita 1950-1973 but
little convergence since.
• Countries with low initial growth have grown faster though southern Europe still poorer.
• Eastern Europe also grew up quickly up to 1973 but fell behind with collapse in output at the
end of the communist period.
Countries initially the richest grew the slowest and vice versa.
GROWTH ACCOUNTING ESTIMATES
• Golden age largely driven by capital deepening and TFP growth; in most Western European
countries TFP growth was more important. Sources included tech transfer, structural
change, scale economies etc
• Both capital deepening and TFP growth slow during decline
• 1990-2003 more diverse performance, e.g. rapid TFP growth in Ireland, negative TFP growth
in Spain.
GOLDEN AGE
What explains the golden age?
• Trend recovery and reverse of policy errors e.g. protectionism
• Greater sectoral shift – in the 1960’s countries that could transition out of agriculture grew
quickly.
• Marshall Plan was TOO SMALL but did bring indirect effects e.g. market economy, trade
liberalisation, social contracts etc
• Greater integration – tech transfer, competition, economies of scale (by exporting to other
countries)
• Social capability and corporatist industrial relations
What accounts for different countries’ relative success and failure during the golden age?
• Convergence – opportunities for improvement
• Ireland: liberalisation, low corporate taxes, upgrading of educational standards
• UK-West Germany – Germany better at physical and human capital accumulation (more
skills through apprenticeships, vocational training etc). Multiple unionism in UK and hold-up
problem, weak competition in the UK
