Is Productivity Diverging in the EU? Evidence from 11 Member States

An argument that received a lot of attention in the political and economic discussion surrounding the recent crisis in the EU is that diverging trends in productivity across member countries will undermine the viability of the common currency. This article examines the issue of convergence in multifactor productivity using sector-level data from 11 EU Member States. A state-space model is developed and formal Bayesian model comparisons are performed to infer whether productivity is diverging, both at the aggregate level and at a sector-by-sector basis. The data point towards diverging productivity at the aggregate level, but suggest the opposite for many individual sectors