Sustainable Growth, Growth Potential : Tendencies of Potential Growth in the European Union

Abstract

In economic terms, growth theory is an essential dimension of sustainability. The structurally sustainable performance of an economy, that is the sustainable (equilibrium) level of output is expressed in terms of potential output, and its sustainable dynamics in terms of growth potential. In the EU Member States the main structural determinant of potential growth is the dynamics of total factor productivity (TFP). In this respect the level and dynamics of performance vary greatly across the EU. Narrowing the performance gaps compared to the leading economies through major structural reforms can be a crucial factor in strengthening the growth potential. This paper reviews the fundamental correlations for Europe’s growth potential based on quantitative analyses carried out within the referred theoretical framework. Analysing the determinants of growth potential can help justify the inevitable structural reforms and macroeconomic adjustments, and can thereby contribute to the development of an economic theory of sustainability.