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The institutional roots of post-war European economic underperformance: a regional approach

Published online by Cambridge University Press:  11 March 2011

KERSTIN ENFLO*
Affiliation:
Lund University, kerstin.enflo@ekh.lu.se
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Abstract

This article investigates which institutions and policies were related to the increase in European unemployment since 1970 and the productivity stagnation since the mid 1990s. By using data for 88 regions in nine European countries, national policies and institutions are analysed in a fixed-effects panel-data model to detect their relative importance after controlling for unobservable regional factors. The main finding is that institutions only started to matter after the oil crisis. The strongest institutional effects on employment came from the net reservation wages and employment protection laws. The institutional effects on productivity were mainly channelled through the employment productivity trade-off. By restricting the supply of labour, these effects were positive on productivity in the short run. However, the article shows that the long-run effects were negative and that there may be institutional roots to the European productivity slow-down in the 1990s.

Type
Research Article
Copyright
Copyright © European Historical Economics Society 2011

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