Structural Changes and Growth in Europe: Are Knowledge-intensive Services Changing Paradigm of Expansion of Services as a Long-term Growth-diminishing Factor?

Maja Bacovic, Zivko Andrijasevic and Julija Cerovic Smolovic
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Zivko Andrijasevic: University of Montenegro, Faculty of Philosophy, Department for History
Julija Cerovic Smolovic: Faculty of Economics, Department for Economic Analysis and Quantitative Economics

Journal of Economics / Ekonomicky casopis, 2022, vol. 70, issue 2, 124-143

Abstract: Structural Changes and Growth in Europe: Are Knowledge-intensive Services Changing Paradigm of Expansion of Services as a Long-term Growth-diminishing Factor? We explored the patterns of structural changes in Europe and found growing relevance of the service sector, particularly knowledge-intensive services. The study shows that labour productivity and TFP growth were lower in the service sector than in the goods sector but were higher in knowledge-intensive services than in other services. GDP per capita growth is positively related to the output’s share of knowledge-intensive services as well as GDP growth and TFP growth in high-income countries, but not in medium-income economies. This might be explained by the rapid growth in the earlier stages of development in less-deve¬loped countries and its subsequent slowdown. Although knowledge-intensive services are the fastest growing sector in all countries, industry is still the most relevant sector for long-term growth, with the highest TFP and labour productivity growth. The growing knowledge-intensive services sector, with its higher TFP growth than other services, partially overcomes the negative effects of expansion of the service sector on long-term output growth. This study shows that R&D investment growth leads to significantly higher output growth in knowledge-intensive services than in other sectors, which may be used as a relevant policy tool.

Keywords: structural changes; output growth; labour productivity; TFP; knowledge-intensive services (search for similar items in EconPapers)
JEL-codes: O47 O52 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:sav:journl:v:70:y:2022:i:2:p:124-143

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