Changes in the accumulation of physical capital were not important for Europe’s growth slowdown. Changes in human capital growth were important for Europe’s growth slowdown, but that effect varies by country. This also doesn’t tell me whether it was demographics (as in the US) or some other factor in human capital, like changes in education or working hours. A significant source of the growth slowdown in Europe is due to a drop in productivity growth, pretty much universally. This drop is larger than in the US. If you look at the US, productivity growth rises up until about 2005, and then starts to abate. But if you look at the UK or France, as examples, their productivity growth just sort of tracks 2% up until about 2006, and then it drops down close to zero percent per year, and at times is negative. That’s a far more dramatic drop in productivity growth than the US.
- Date Posted:
- June 16, 2023
The “hyperglobalisation” period when world trade and global value networks grew most rapidly ran from the late 1990s until shortly before the global financial crisis began in 2008. By that point the fall in inflation in the rich world had largely already happened. Given that goods are much more highly traded than services, you’d have expected rising inflation differentials between the two. In fact, the gap remained constant until after the financial crisis, when services inflation actually fell while goods inflation rose. As a rough sense check of the impact of cheaper imports, those goods subject to low-cost Chinese competition like clothing, shoes and electronics make up quite small parts of the consumer price basket. In the eurozone, apparel and footwear are about 5% of the total, compared with 15% for housing and utilities and 10% for restaurants and hotels.