CHAPTER 4
Figure 4.8: In the EU12, manufacturing and services are more productive, construction less (productivity growth, by size of firms and sector, 2002–07)
Note: Data for 2008 are not included as sector classification changed from 2007 to 2008. For Estonia and Lithuania, the period considered is 2004–07; for Poland and Latvia, 2003–07. Source: World Bank staff calculations, based on Eurostat.
processes, and learn from the more productive ones through the flow of knowledge, capital, labor, and goods, moving toward the efficiency frontier (Acemoglu, Zilibotti, and Aghion 2006). Productivity growth should be inversely correlated with initial productivity levels. The data for Europe show a different story.18 As expected given the low initial level, from 2002 to 2008 EU12 productivity growth was strong, three to four times as high as in the average EU15 country. However, while the productivity divide between advanced and emerging Europe was closing, another gap was growing—that between the EU15 South and the rest of Western Europe (figure 4.7). North and Continental Europe improved productivity, while the EU15 South showed a decline. A breakdown of the productivity contribution from 2002 to 2007 according to the different mix of sectors and size of enterprises helps explain in particular why Southern Europe was lagging. The catch-up of productivity in emerging Europe was vigorous, with annualized growth rates above 6 percent for almost all countries, from all types of firms (figure 4.8). The sectors more exposed to foreign trade (manufacturing and other services) accounted for a similar productivity gain across countries, while differential productivity growth in the remaining sectors (construction, wholesale and retail trade, hotel and restaurants, and transport and telecommunications) accounted for most of the difference, particularly the higher growth in the Baltic economies and the EU12 South (Bulgaria and Romania). In Central Europe, where larger enterprises shed excess labor, and drove productivity levels close to Portugal’s, smaller enterprises have increased productivity. In Romania and Bulgaria, firms of different sizes show similar growth patterns, although in Bulgaria—where the average firm size is larger— the productivity gains by large enterprises account for half of overall growth.
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