Quality of Institutions and Total Factor Productivity in the European Union

Abstract

The key challenge for mid-and long-term policy in the European Union countries is to use the potentials of knowledge-based economy (KBE), which is a condition for maintaining high total factor productivity in Europe. For this reason, the relationship between the quality of an institutional system and total factor productivity in the EU countries has been examined. The quality of the institutional system is defined here from the perspective of incentives that influence the use of the potential of KBE. In order to determine the level of effectiveness of the institutional system in the analysed countries the method for linear ordering of objects was applied based on data from Fraser Institute. The main hypothesis of the article states that the quality of the institutional system in the context of KBE has a significant influence on the level of total factor productivity in the EU. In order to verify this hypothesis, the parameters of the Cobb-Douglas production function were estimated, which allowed the evaluation of TFP for the EU countries. The calculation made in the article based on Eurostat data. In order to identifying the relationship between the quality of the institutional system and the level of TFP a panel model was applied using data from a conducted for years 2000-2010.

Import and FDI as channels of international TFP spillovers

“…In this article, the macro approach will be applied. Based on theoretical and empirical studies, the following sources of TFP change could be mentioned: − gross fixed capital stock formation and learning by doing among the investors (Kaldor, 1957;Arrow, 1962;Danquah et al, 2014); − human capital stock formation (Schultz, 1961;Uzawa, 1965;Lucas, 1988;Mankiw et al, 1992;Vandenbussche et al, 2006); − the accumulation of science and technology expertise, R&D expenditures and patents (Shell, 1966;Schmookler, 1966;Romer, 1990;Aghion & Howitt, 1992Jones, 1995;Guellec and van Pottelsberghe de la Potterie, 2001;Griffith et al, 2004;Abdih & Joutz, 2005); − the rate of innovation and the distance from the technology frontier (Aghion & Howitt, 2006); − trade openness (Grossman & Helpman, 1991;Islam, 2008;Danquah et al, 2014), − FDI (Isaksson, 2007); − the institutional environment (King & Rebelo, 1990;Rebelo, 1991;Acemoglu et al, 2001;Freire-Seren, 2001;Nicoletti & Scarpetta, 2003;Rodrick et al, 2004;Ulubasoglu & Doucouliagos, 2004;Acemoglu, 2013;Balcerzak & Pietrzak, 2016); − geography (Rodrick et al, 2004;Isaksson, 2007;Islam, 2008;Danquah et al, 2014); − spillover effects (Becker et al, 1990;Romer, 1986;…”

TFP spillover effects via trade and FDI channels

“…Distances from technological frontier (Colino, Benito-Osorio, & Rueda-Armengot, 2014;)our proxy is the TFP level at current PPPs (USA ¼ 1); Human capital (Tientao, Legros, & Pichery, 2016;Tvaronavi cien_ e, Tarkhanova, & Durglishvili, 2018;Vandenbussche, Aghion, & Meghir, 2006)in our research expressed as mean years of schooling; Institutions (Balcerzak & Pietrzak, 2016;Coe et al, 2009; Janto n-Drozdowska & Majewska, 2015)in our study, the institutional environment is measured by selected governance indices of the World Bank: government effectiveness and political stability; Trade openness (Danquah et al, 2014;Filippetti et al, 2017;Fracasso et al, 2015) measured with the use of export of goods and services as percentage of GDP, import of goods and services as percentage of GDP; Knowledge stock (Coe & Helpman, 1995;Fracasso & Vittucci Marzetti, 2015;Madsen, 2008;Tientao et al, 2016) measured with the use of patent applications; Knowledge investmentsmeasured with the research and development expenditures as percentage of GDP; Capital stockquantified directly as a capital stock at current PPPs.…”

Analyzing the Determinants of the European Union’s Regional Economic Development

“…Accordingly, productivity is an indicator of overall economic development being a key component of state's competitiveness. Furthermore, Balcerzak and Pietrzak (2016) pointed that the European Union is tending to develop and implement knowledgebased economy (KBE) in all member-states to foster community's economic competitiveness. Nevertheless, this system requires strong institutions capable of efficiently coordinating all market processes, as well as high level of economic productivity which can support these institutions.…”