This paper was published as a chapter of Investment and Growth in Advanced Economies, conference volume of the European Central Bank’s Forum
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.