Prosperity in a changing world

Structural change and economic growth

Many countries in Europe are searching for a new growth model as they are facing the legacy of the crisis, a weakened outlook for potential growth, and a rapidly changing economic environment. Against this backdrop, the Cologne Institute for Economic Research has analysed how structural change and economic growth are interconnected.

Our policy paper has been guided by the following questions:

• Is there a superior economic model in terms of the structure of the economy? Do countries need to focus on manufacturing or on services?
• What are the main drivers of structural change and how do they affect economic growth?
• Which recipes for economic success can be deduced for European countries?

IW economist Galina Kolev presents her findings on the relationship between the drivers of structural change and economic growth. Photo: IW Köln

While the IW study has confirmed the positive link between the drivers of structural change and economic growth with a thorough empirical analysis, the data also shows that a superior economic model – one that creates higher growth and prosperity per se – does not exist. A clear-cut link between the share of the service sector and per capita income, for instance, is missing. How production is organised and whether it is supported by the right economic framework matters more than the mere sectoral output.

We were pleased to have been able to discuss these questions with Jonathan Haskel, Professor of Economics at Imperial College, London, Martin Uebele, Lecturer in Economic and Social History at the University of Groningen, Gunnar Hökmark, Member of the European Parliament, Kristian Hedberg, Deputy Head of Cabinet of DG GROW, European Commission, Fergal O'Brien, Head of Policy and Chief Economist, Ibec, and Peter Scherrer, Deputy General Secretary, ETUC.