Unraveling the Origins of EU Countries Productivity Growth - Evidence on R&D and Competition from Cross-Country Industry Analysis

Over the last two decades EU countries experienced diverging productivity growth developments. By examining the sources of EU countries growth drivers on the sectoral level, the paper takes a new look on the influence of innovations. While standard neoclassical Non-ICT capital deepening turns out the major contributor to EU productivity growth, detail industry analysis reveals that growth in innovation stocks via increased R&D in specialized and science-based industries spurred productivity growth as well. But those effects are only found for Nordic and Western Continental EU countries, while others are lacking such effects. Moreover, these specialized and science-based industries experienced strong innovation and productivity growth by decreases in competition, thereby favoring Schumpeterian growth arguments for highly dynamic sectors.