Total Factor Productivity Growth, Structural Change and Convergence in the New Members of the European Union

Abstract

We estimate total factor productivity (TFP) growth in agriculture, industry and services in new European Union member countries and show how structural change contributes to growth. Because of the difficulties in measuring the capital stock of transition economies, we develop a model that estimates sectoral TFPs from data on sectoral employment and GDP per capita. Compared to Austria, new EU members have lower TFP levels, but their TFP growth is largely higher. Inter-sectoral movements of labour do not play a large role in aggregate TFP growth, and capital accumulation is an important component of convergence to EU levels of per capita GDP.