Scale, congestion, and technical efficiency of European countries: a sector-based nonparametric approach

In this paper, we investigate three aspects of economic growth of European countries: scale, congestion, and technical efficiency. The distinguishing features of the methodology used are, one, countries are exclusively defined in terms of their sectors, and, two, no specific assumptions on any aspect of the growth process (in particular the production function) are required. As such, we can better understand the performances of the countries for each of the three aspects studied, and avoid the drawbacks of specifying the production function. Our results reveal some important patterns useful for policy-makers. Firstly, we highlight the key sectors for each of the three aspects in every country. Next, our analysis reveals that, for each of the three aspects, higher progresses occur more often when more inefficient or non-optimal behaviour is present. Finally, we demonstrate that there is a relationship between these three aspects. All in all, we argue for the need of sector-specific multi-level policies. That is, policies that target the three aspects simultaneously for each sector individually.