An innovation deficit behind Europe’s overall productivity slowdown?

Europe maintains lofty ambitions for building its future prosperity and safeguarding its social model through innovation. An ambitious target of devoting 3% of GDP to R&D was already set in 2002. The same 3% was again targeted in the EU2020 strategy. Despite attention to innovation as a driver of growth and despite R&D targeting, Europe’s performance on innovation remains weak to date.

At the same time, Europe’s TFP growth continues to display a lacklustre performance. Rather than looking at productivity growth through the residual TFP construction, this contribution looks directly into the evidence on innovation as a potential source of productivity growth. We look at the evidence on an innovation deficit behind Europe’s overall productivity slowdown in Sections 1 and 2. Sections 3 and 4 try to get at why it is so hard to improve Europe’s innovative performance and identify some policy implications.