Institutions and economic growth: Europe after World War II

Abstract

Introduction The quarter century that ended around 1973 was for Western Europe a Golden Age of economic growth. Real GDP rose nearly twice as rapidly as over any comparable period before or since. Understanding the sources of this admirable performance would shed important light on the causes of the slowdown through which Europe has suffered subsequently. Part of the explanation is surely ‘catch-up’, as Abramovitz (1986) emphasized. The gaps that had opened up vis-à-vis both the United States and Europe's own prewar trend as a result of nearly two decades of depression and war offered exceptional scope for growth after 1945. Figures 2.1 and 2.2 summarize the standard evidence on the operation of these effects. But cross-section regressions relating growth rates to per-capita GDP differentials show that ‘catch-up’ and ‘spring-back’ explain only part of the postwar acceleration: purged of their effects, growth from 1950 to 1973 was still more than 50 per cent faster than it became subsequently. And even in so far as these factors provide the explanation, understanding what enabled post-World War II Western Europe so effectively to exploit the opportunity for closing the gap can have important implications for countries in Eastern Europe and the developing world currently seeking to join the ‘convergence club’. Aside from catch-up, the proximate cause of postwar Europe's growth miracle was high investment. Net investment rates in Europe were nearly twice as high in the 1950s and 1960s as before or since. Scatter plots like those of Figure 2.3 suggest that increasing the gross investment share of GDP from 20 to 30 per cent increased the growth rate by as much as 2 percentage points.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 364 citations exist upstream.