Productive Specialisation and Growth in the EU15

Abstract

This paper analyses the relationship between productive specialisation and economic growth in the 15 older European Union member states between 1970 and 2005. The sectoral taxonomy proposed by (Peneder, 2007) is used to classify the different sectors of activity according to the educational levels of the respective workforce and establish a comparison between the manufacturing and the services sector, based on their potential contribution to productivity improvements. The empirical model corresponds to a growth regression where the employment share of the different sectors is the main explanatory variable taken alongside other control variables identified in the empirical growth literature as robust growth determinants and is estimated with the fixed effects method. The results indicate that a higher weight of manufacturing activities that use mostly very low and low educated workers presents a negative association with growth. Services activities that require low educated workers make a negative growth contribution. Manufacturing activities with high and medium-high educational requirements have a positive growth influence, while in the case of services only activities that require highly-educated workers show a positive correlation with growth. The policy advice that can be extrapolated from this study contemplates the design of industrial policies that promote manufacturing activities such as chemicals, telecommunications and transports equipment, and services such as financial intermediation, audit, tax consulting, engineering and legal activities, to promote growth.