...addressed the articles by Crafts; Barrell, Guillemineau and Holland; Mc Morrow and Roger; and Bebee and Hunt in this Review. This introduction discusses some of the factors affecting growth, and draws some conclusions from these studies that help us understand why growth may differ between countries for sustained periods of time, and also why underlying, or trend growth rates may vary over time.

Economists normally think of output being produced by combining inputs such as capital, labour and energy in production process described by a production function. The efficiency with which the inputs are used depends on a number of factors, such as the level of technical progress and the environment within which producers find themselves. The economies we are looking at are all basically market based, and hence the obvious environmental factors include the degree of regulation of firms' behaviour and the intensity of competition between firms. They also include labour market and social regulations that affect both the quantity and quality of labour that makes itself available. All these factors are addressed in different ways in the papers in this Review, and all attempt to explain the simple pattern in the data we see in figure 1. Between 1981 and 1992 growth in the Euro Area was only marginally below that in the US and was above that in the UK, with performance around 1987 to 1992 being particularly impressive. (1)

[FIGURE 1 OMITTED]

After 1992 and the completion of the internal market, growth in the Euro Area was uniformly slower than that of the UK and the US, suggesting that there were structural problems in the Euro Area. Growth in Germany slowed particularly in the last period of our data, as Barrell, Guillemineau and Holland show. This coincided with a change in monetary arrangements, with Germany no longer taking a leading role in interest rate setting. There are a number of possible explanations for the fall in relative growth, both in Germany and in the Euro Area. They vary from failures in competition in goods and factor markets and in...

NOTE: All illustrations and photos have been removed from this article.



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