UNIVERSITÄT POTSDAM - Prof. Dr. Paul JJ Welfens

1.3 Taking Stock: Transatlantic Growth Differential
In the period 1991-2000 the United States (US) recorded a formidable growth rate of
about 3% p.a. where a considerable impulse for high and sustained growth stems from
high investment in information and communication technology (ICT). Between 1993
and 2000 the US even recorded 4% growth where the acceleration in labor productivity
growth in the second half of the decade was quite remarkable. Roughly one-half of
investment growth in the second half of the 1990s can be attributed to ICT which
mainly is comprised of telecommunications and computers/PCs plus software. Euroland
by contrast has grown only by about 2% in the period 1991-2000 where the large
core countries of Germany, Italy and France have not even achieved 2%; Germany`s
growth rate in 1992-2001 was 1.5% while that in partner countries in the euro zone was
2.3% - hence reunited Germany recorded relatively low growth (with no improvement
in the late 1990s compared to the first half of the decade).
Given the long and strong economic upswing in the US in the 1990s, it was
rather surprising that the inflation rate has remained very low in the US. Obviously, the
nonaccelerating inflation rate of unemployment has reduced in the US, but it is rather
unclear why this should be the case.
The economic upswing in the euro zone in 1999/2000 was rather modest, and
already in 2001 the growth rate of Euroland fell below 2%. The EU has had lower investment
growth than the US and also has failed to position itself adequately in the
changing global innovation race (WELFENS ET AL., 1998; WELFENS ET AL.,
1999). However, one should not overlook remarkable intra-EU differences in economic
growth; the UK, Ireland, Spain, Portugal, the Netherlands, Finland and Sweden recorded
higher growth than the three EU core countries Germany, Italy and France.
With the US – after the end of the Cold War – no longer devoting roughly 55%
of its R&D budget to the military, the international innovation race has accelerated and
increasing specialization should have been realized in EU countries. Empirical studies
point, however, to technological despecialization in OECD countries in the 1990s
(JUNGMITTAG ET AL., 1998). Given intensified technological competition Schumpeterian
rents in medium-technology-intensive sectors can be expected to have reduced
so that rates of return for the respective German firms might have fallen. At the same
time the R&D conversion process in the US, France and the UK after 1990 has stimulated
technological upgrading in the civilian tradables sector which lets one expect that
profitability and stock market performance in those countries should improve relative
to Germany – and to Japan which is the other G-5 country which had a tradition of devoting
more than 90% of R&D funds to civilian markets. Focusing on Euroland’s performance
relative to the US the negative German developments together with the positive
French civilian R&D dynamics might cancel out; at the bottom line the structural
R&D effect of the end of the Cold War seems to have worked in favor of the US.
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