Knowledge-intensive Specialisation and Total Factor Productivity (TFP) in the EU Regional Scope

Abstract

The aim of the paper is to assess the impact of knowledge-intensive specialisation on Total Factor Productivity (TFP) in the EU regional scope. To calculate TFP defined as the aggregated output-input ratio, we employ the multiplicatively-complete Färe-Primont index as it satisfies all economically-relevant axioms and tests from the index number theory. The knowledge intensive specialisation of EU regions is captured by the statistics on high-tech industry and knowledge-intensive services, i.e. the employment in high-tech sectors as a percentage of total employment (HTS). The research sample consists of 248 EU regions at NUTS 2 level. The key findings of the study indicate that the employment in high-tech manufacturing and knowledge-intensive services is not distributed uniformly in the EU regional space. Similarly, TFP also varies substantially across the EU regions. Moreover, the results of the research model estimation show that specialisation in high-tech manufacturing and knowledge-intensive services directly affects regional TFP. The main implication of our analysis for the policymakers is to explore and support knowledge-intensive specialisation patterns, that should be built upon existing regional technological competencies and human capital endowment according to the smart specialisation strategies approach.