The Two Disjointed Faces of R&D and the Productivity Gap in Europe

This paper explores the determinants of productivity gaps within the European Union in computing, chemicals, basic metals and food manufacturing – four sectors that vary in terms of the intensity of sectoral R&D. Our analysis reveals that the main causes of these productivity gaps are intensity of unembodied or disembodied R&D activity and R&D embodied in purchased equipment and machinery, and their interplay. While disembodied and embodied R&D are both associated positively to closing productivity gaps, the interaction between the two does not have the same effect. There is no complementarity between these technology acquisition modes, despite both disembodied and embodied technology are crucial for productivity catch up. In a policy context, this suggests possible lack of coordination between R&D policy and technology transfer (that is, foreign direct investment, trade and industrial policy). We show, also, that the productivity gap between ‘peripheral’ (southern and eastern) and ‘north’ EU countries is widening.