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Europe’s Productivity Weakness: Firm-Level Roots and Remedies
Author:
Oyun Erdene Adilbish
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,
Diego A. Cerdeiro
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Romain A Duval
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https://orcid.org/0000-0002-2775-7172
,
Gee Hee Hong https://isni.org/isni/0000000404811396 International Monetary Fund

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,
Luca Mazzone
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Lorenzo Rotunno
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Hasan H Toprak
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Maryam Vaziri
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Series:
IMF Working Papers
Volume/Issue:
Volume 2025: Issue 040
Language:
English
Publication Date:
14 Feb 2025
DOI:
https://doi.org/10.5089/9798229001441.001
ISBN:
9798229001441
ISSN:
1018-5941
Pages:
28
Keywords:
Firm-level productivity; business dynamism.; EU accession; productivity weakness; productivity problem; frontier firm; trade Barries; firm Size; Productivity; Trade balance; Trade barriers; Total factor productivity; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Europe faces a well-known productivity malaise, with a large and widening aggregate productivity gap relative to the U.S. In this paper, we provide a novel diagnosis of the firm-level roots of Europe’s productivity growth slowdown through an analysis of data covering the universe of firms in Europe and the U.S over their life cycles. Compared to their U.S. counterparts, we identify critical performance gaps among both Europe’s frontier firms and young high-growth firms. Our firm-level analyses reveal that smaller markets and limited market-based financing are key bottlenecks for frontier European firms, while skill shortages and insufficient risk capital, such as venture capital, hinder the formation and subsequent growth of young firms in Europe. These findings suggest that removing remaining intra-Europe barriers to accelerate factor and product markets integration, alongside national reforms to facilitate swifter resource reallocation and enhance human capital, could help revive Europe’s productivity growth.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund