In the last decade there has been an upsurge of studies on international
comparisons of Total Factor Productivity (TFP). The empirical evidence
suggests that countries and regions differ not only in traditional factor
endowments (labour and physical capital) but mainly in productivity and
technology. Therefore, a crucial issue is the analysis of the determinants of such
differences in the efficiency levels across economies.
In this paper we try to assess these issues by pursuing a twofold aim. First, we
derive a regression based measure of regional TFP, which has the nice
advantage of not imposing a priori restrictions on the inputs elasticities; this is
done by estimating a spatial Cobb-Douglas production function relationship for
199 European regions over the period 1985-2006. Secondly, we investigate the
determinants of the TFP levels by analyzing the role played by intangible
factors: human capital, social capital and technological capital. The estimations
are carried out by applying the spatial 2SLS method and the SHAC estimator to
account for both heteroskedasticity and spatial autocorrelation. It turns out that
a large part of TFP differences across the European regions are explained by the
disparities in the endowments of these intangible assets. This outcome indicates
the importance of policy strategies which aim at increasing the level of
knowledge and social capital as stressed by the Lisbon agenda.