Total Factor Productivity, Intangible Assets and Spatial Dependence in the European Regions

Abstract

In the last decade there has been an upsurge of studies on international comparisons of Total Factor Productivity (TFP). The empirical evidence suggests that countries and regions differ not only in traditional factor endowments (labour and physical capital) but mainly in productivity and technology. Therefore, a crucial issue is the analysis of the determinants of such differences in the efficiency levels across economies.

In this paper we try to assess these issues by pursuing a twofold aim. First, we derive a regression based measure of regional TFP, which has the nice advantage of not imposing a priori restrictions on the inputs elasticities; this is done by estimating a spatial Cobb-Douglas production function relationship for 199 European regions over the period 1985-2006. Secondly, we investigate the determinants of the TFP levels by analyzing the role played by intangible factors: human capital, social capital and technological capital. The estimations are carried out by applying the spatial 2SLS method and the SHAC estimator to account for both heteroskedasticity and spatial autocorrelation. It turns out that a large part of TFP differences across the European regions are explained by the disparities in the endowments of these intangible assets. This outcome indicates the importance of policy strategies which aim at increasing the level of knowledge and social capital as stressed by the Lisbon agenda.

Keywords: Total factor productivity, human capital, social capital, technology, Europe

JEL Classification: C31, C33, O47, O52, R11