Investment and Investment Finance in Europe: Investing in Competitiveness

Topic :

The EIB’s annual economic publication focuses on investment and investment finance in Europe, discussing both cyclical and structural factors. This year’s special topic is investing in competitiveness.

This publication takes a closer look at the European competitiveness challenge. Competitiveness gaps are increasingly seen as the main cause of divergent economic development patterns between countries. They are also identified as an important reason for some of the most disruptive downturns, including the latest EU crisis. Therefore restoring competitiveness is broadly acknowledged as the critical building block for achieving sustainable growth. At the same time, when asked what competitiveness is all about, scholars and policymakers will respond rather differently, reflecting the fact that there is more than one definition of competitiveness and that it is also a matter for controversy.

The starting point in the publication is that a country is as competitive as its firms. Therefore, what makes a country competitive is primarily what makes its individual firms competitive. The publication argues that productivity is the key determinant of a firm’s competitiveness. In this context, Chapter 6 provides a framework for thinking about productivity growth. It emphasises the importance of innovation as the key driver of a firm’s productivity. However, firms need proper incentives and capabilities to excel in their profit-motivated innovation activities. These are spurred by efficient creative destruction and reallocation of resources, appropriate policies and institutions and the ability to quickly benefit from new technological waves. Furthermore, in an increasingly open world it is becoming more and more important for firms in advanced economies to be able to perform high value added activities within global integrated production chains, as discussed in Chapter 7.

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