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ICT, Reallocation and Productivity

Eric J. Bartelsman

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This paper starts by reviewing medium- to long-term growth prospects provided in recent academic and policy research. The paper argues that, owing to the on-going advances in ICT, much higher growth is technologically feasible, but that a considerable amount of churn and reallocation across firms in the market sector. Next, the paper presents evidence on recent patterns of reallocation in EU countries. Based on theoretical findings from heterogeneous firm dynamics models, the paper will describe how various types of policy could affect the processes of allocation and selection and thereby growth prospects. Finally, the paper will combine empirical and theoretical insights to point towards promising policy directions. Conditional on the policy environment, labor productivity growth in the EU of 2.5 percent per year for the next 20-30 years appears attainable.

(European Economy. Economic Papers. 486. April 2013. Brussels. PDF. 44pp. Tab. Bibliogr. Free.)

KC-AI-13-486-EN-N (online)
ISBN 978-92-79-28568-4 (online)
doi:10.2765/42751 (online)

JEL classification: E23, J63, L16, O40

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

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