New analysis from the International Monetary Fund suggests that Europe can improve productivity growth by addressing barriers that prevent companies from expanding across the region.
In a ‘Chart of the Week’ op-ed by the IMF‘s Diego Cerdeiro, Stephan Danninger, Morgan Maneely, the fund noted that European firms face a ‘staggering difficulty’ in scaling up, compared to their peers in the United States.
‘In the United States, the stock market valuation of young firms (under the age of 50) is $42.9 trillion, compared to a meagre $5 trillion in the European Union,’ the authors said.
The IMF said this reflects ongoing fragmentation across European markets despite the development of the EU single market.
Market barriers
The authors pointed to barriers in capital markets, labour mobility and consumer markets as key factors limiting business expansion. Capital flows across Europe remain fragmented along national lines, reducing funding opportunities for newer and higher-risk businesses.
At the same time, regulations affecting labour mobility can make it more difficult for workers to move between countries and regions in search of employment opportunities.
‘The result is that the EU has too many small, old, and low-growth companies,’ they noted. ‘The average European firm that has been in business for 25 years or more employs about 10 workers. A comparable US company employs 70 people.
‘It is therefore no surprise that Europe’s labour productivity levels are about 20% below those of the United States.’
Productivity growth
The authors added that Europe could improve productivity growth through deeper integration of capital markets, labour markets and consumer markets.
They argued that greater integration would allow more investment to flow into growing companies, improve access to employment opportunities for workers and give businesses access to larger markets.
‘The good news is that these are all changes that Europe can bring about,’ they added. Read more here.
