Innovation and Aggregate Economic Performance

Although the divergence over the last decades between
Europe and USA has drawn much attention, the dispersion of rates of
economic growth is even larger among the countries within Europe.
There is reason to presume that the more successful among the
European countries are those that have set more innovations into
production. This paper exploits the correlation between innovation, as
materialized in new products, and falling relative prices . Our analysis
suggests that major European countries have a low capability for
innovation and is lagging behind USA. A handful of peripheral
Europan countries have been more successful and to some extent also
extend significant innovation to services