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Growth in Mature Economies the First CEPR-Modena Conference Centre for Economic Policy Research Growth in Mature Economies The First CEPR-Modena Conference Centre for Economic Policy Research Centre for Economic Policy Research 3rd Floor 77 Bastwick Street London EC1V 3PZ UK Tel: +44 (20) 7183 8801 Fax: +44 (20) 7183 8820 Email: [email protected] Web: www.cepr.org © November 2013 Centre for Economic Policy Research Growth in Mature Economies The First CEPR-Modena Conference Edited by Lucrezia Reichlin and Ferdinando Giugliano Centre for Economic Policy Research (CEPR) The Centre for Economic Policy Research is a network of over 800 Research Fellows and Affiliates, based primarily in European universities. The Centre coordinates the research of its Fellow and Affiliates and communicates the results to the public and private sectors. CEPR is an entrepreneur, developing research initiatives with the producers, consumers and sponsors of research. Established in 1983, CEPR is a European economics research organization with uniquely wide-raning scope and activities. The Centre is pluralist and non-partisan, bringing economic research to bear on the analysis of medium- and long-term policy questions. CEPR research may include views on policy, but the Executive Committee of the Centre does not give prior review to its publications, and the Centre takes no institutional policy positions. The opinions expressed in this report are those of the authors not those of the Centre for Economic Policy Research. CEPR is a registered charity (No. 287287) and a company limited by guarantee and registered in England (No. 1727026). Chair of the Board Guillermo de la Dehesa President Richard Portes Chief Executive Officer Stephen Yeo Research Director Lucrezia Reichlin Policy Director Richard Baldwin The CEPR-Modena Conference The conference is the first of a series of conferences on growth in mature economies to be held in Modena, Italy and co-organized by CEPR with the Center for Economic Research (RECent) of the University of Modena and Reggio Emilia, with the financial support of Fondazione Cassa di Risparmio di Modena. The Organising Committee for the first edition included: Viral Acharya (New York University and CEPR) Graziella Bertocchi (RECent - University of Modena and Reggio Emilia and CEPR) Antonio Ciccone (UPF, Barcelona GSE and CEPR) Nicholas Crafts (Warwick University and CEPR) Marc Ivaldi (Toulouse School of Economics and CEPR) Lucrezia Reichlin (London Business School and CEPR) About the Editors Lucrezia Reichlin is Professor of Economics at the London Business School, non- executive director of UniCredit Banking Group and AGEAS Insurance Group. She is Chair of the Scientific Council at the Brussels based think-thank Bruegel. Between March 2005 and September 2008 she served as Director General of Research at the European Central Bank. She is a co-founder and director of Now- Casting Economics ltd. She is a columnist for the Italian daily paper Il Corriere della Sera. Lucrezia has been an active contributor of the life of the Centre for Economic Policy Research (CEPR) over the years. She has been research director in 2011- 2013, first Chairman of the CEPR Euro Area Business Cycle Dating Committee, co-founder and scientist in charge of the Euro Area Business Cycle Network. Lucrezia received a Ph.D. in economics from New York University. She has held a number of academic positions, including Professor of Economics at the Université Libre de Bruxelles. She has also been a consultant for several Central Banks around the world, including the Board of Governors of the Federal Reserve.. She is a Fellow of the British Academy, a Fellow of the European Economic Association and member of the council of the Royal Economic Society. She is in the advisory board of several research and policy institutions around the world. Ferdinando Giugliano is a leader writer for the Financial Times, where he covers economic and financial issues. He holds a M.Phil and a D.Phil in economics, both from the University of Oxford and has worked as a consultant for the Banca d’Italia. v Contents Foreword ix Introduction 1 1 Lessons from History 9 Nicholas Crafts Discussant 1: Daniel Cohen 16 Discussant 2: Gianni Toniolo 17 General discussion 19 2 Industrial policy 23 John Van Reenen Discussant 1: Marc Ivaldi 27 Discussant 2: Otto Toivanen 28 General discussion 28 3 The Political Economy of Structural Reforms 31 3.1 The political economy of credit cycles 31 Luis Garicano 3. 2 Reforming the Spanish labour market 36 Samuel Bentolila Discussant: Graziella Bertocchi 41 General discussion 42 4 Trade and Growth 45 Richard Baldwin 45 Discussant: Philippe Martin 48 General discussion 49 5 Capital Flows and Growth 51 Jaume Ventura Discussant: Kevin O’Rourke 52 Discussant: Richard Portes 54 General discussion 55 6 Social Costs and Benefits of the Financial Sector 57 Marco Pagano Discussant: David Thesmar 63 General discussion 65 7 Private Equity 67 7.1 Venture and growth capital investors 67 Francesca Cornelli Discussant: Ulf Axelson 71 Discussant: Laura Bottazzi 74 General discussion 75 7.2 Technology 76 Joshua Lerner Discussant: Francesco Caselli 82 General Discussion 84 8 Demography, Finance and Growth 87 Carlo Favero Discussant 1: Tullio Jappelli 92 Discussant 2: Michael Reiter 93 General Discussion 95 References 97 Foreword The 9-10 November 2012 conference in Modena was the first in a series of events focusing on growth in mature economies. The inspiration for the conference came from Lucrezia Reichlin, who thought it important to bring together researchers from across the CEPR network to share different ideas and perspectives on a key policy issue – what can stimulate sustained growth in economies that cannot simply add more capital or import technologies developed abroad? This is an important question not only in the short run, as Europe struggles to emerge from recession, but also over the longer term as population ageing begins to affect these mature economies. The Fondazione Cassa di Risparmio di Modena provided very generous support, without which neither the conference nor this volume would have been possible. We are grateful to them. In addition, the support of the Center for Economic Research (RECent) at the University of Modena Reggio Emilia was essential to the success of the conference. We are also immensely grateful to Graziella Bertocchi, one of our Research Fellows based at RECent, for her tireless efforts to ensure that all arrangements for the conference were put in place in a timely fashion. We are also grateful to Lucrezia, of course, for inspiring the conference and then working with energy and determination to ensure that her vision was realised. We are also grateful both to her and to Ferdinando Giugliano for their hard work in summarising and synthesising the conference presentations. As ever, we also gratefully acknowledge the vital contributions of Anil Shamdasani and Charlie Anderson, CEPR’s Publications Officer, for their characteristic speed and professionalism in producing the book. Stephen Yeo Chief Executive Officer, CEPR 23 October 2013 ix Introduction This book summarises presentations and discussions from the first CEPR-Modena Conference on Growth in Mature Economies held in Modena in November 2012. The conference is the first of an annual series and aims at discussing research, from a variety of fields within economics, of potential relevance for growth in countries which have reached maturity and cannot therefore only grow by accumulation of capital or technology transfer alone. The idea is to establish a forum for the CEPR community involving scholars from different research programmes and therefore establish connections across different specialisations, possibly helping to develop innovative ideas. Presentations are policy oriented, but are all based on original research. At the 2012 conference, we had presentations based on work in economic history, political economy, labour, trade, open macro and finance. Each chapter of this report summarises the content of a presentation and the discussion which followed. At the 2012 conference, several talks focused on Europe and its dismal growth performance. In Chapter 1, Nicholas Crafts offers a long-term perspective on Europe’s growth experience since World War Two. Between 1950 and 1973, Europe experienced remarkable convergence in terms of labour productivity vis-à-vis the US. Between 1973 and 1995, Europe continued to catch up with the technological leader, but this time only in terms of output per hour worked. However, the process of convergence in terms of output per person halted. In the decade between 1995 and 2007, Europe began to fall behind under any productivity indicator. This widening productivity gap is the root of today’s crisis. Crafts’ conjecture is that this divergence is the result of the ICT revolution. With the exception of Britain, ICT-using services have been Europe’s Achilles’ heel, scoring poorly in terms of productivity growth vis-à-vis the US. To Crafts, the ICT revolution would have required an overhaul of Europe’s institutions. Labour and product markets had to be reformed to allow European countries to reap its benefits. Crafts believes Europe suffers from a form of institutional sclerosis. Successive European governments have failed to reform their institutions in a way which was compatible with the ICT revolution and today, according to Crafts, deregulation is needed just as badly. However, he is sceptical that the eurozone crisis will push European governments to remove barriers from competition. To prove his point, he quotes the experience of the 1930s. After the Great Depression, European governments reacted to the demands of the public by introducing capital controls, raising tariffs and restricting competition. In the British case, this led to a productivity slowdown. Crafts fears the same may happen in the eurozone today. 1 2 Growth in Mature Economies There are, however, limits to Crafts’ analysis. First, measurements of productivity are always shaky. If one only looks at more reliable variables, such as GDP, it is not at all clear that Europe had slower growth than the US.
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