Is Poland the Next Spain?

Francesco Caselli () and Silvana Tenreyro

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We revisit Western Europe's record with labor-productivity convergence, and tentatively extrapolateits implications for the future path of Eastern Europe. The poorer Western European countries caughtup with the richer ones through both higher rates of physical capital accumulation and greater totalfactor productivity gains. These (relatively) high rates of capital accumulation and TFP growth reflectconvergence along two margins. One margin (between industry) is a massive reallocation of laborfrom agriculture to manufacturing and services, which have higher capital intensity and use resourcesmore efficiently. The other margin (within industry) reflects capital deepening and technology catchupat the industry level. In Eastern Europe the employment share of agriculture is typically quitelarge, and agriculture is particularly unproductive. Hence, there are potential gains from sectoralreallocation. However, quantitatively the between-industry component of the East's income gap isquite small. Hence, the East seems to have only one real margin to exploit: the within industry one.Coupled with the fact that within-industry productivity gaps are enormous, this suggests thatconvergence will take a long time. On the positive side, however, Eastern Europe already has levels ofhuman capital similar to those of Western Europe. This is good news because human capital gapshave proved very persistent in Western Europe's experience. Hence, Eastern Europe does start outwithout the handicap that is harder to overcome.

Keywords: Economic integration; economic growth; labor; technology; productivity gaps; Europe (search for similar items in EconPapers)
JEL-codes: F15 F43 N10 O11 O14 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-tra
Date: 2005-01
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Related works:
Chapter: Is Poland the Next Spain? (2006)
Working Paper: Is Poland the Next Spain? (2005)
Working Paper: Is Poland the Next Spain? (2005)
Journal Article: Is Poland the next Spain? (2004)
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