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The structural changes in Europe have occurred over the last several decades, reducing output share in the goods sector while increasing its share in overall services. Applying the growth accounting approach, we decomposed output growth in the economy while following the sectoral approach, in ten individual sectors in twenty-six European countries, from 2000 to 2019. Our analysis shows that total factor productivity has accounted for nearly half of European countries' growth in production in the past two decades. The other half is mainly attributed to fixed asset growth and employment growth increases, while its variations among sectors are significant. The output growth in the services sector is significantly more driven by employment growth than in the goods sector, leading to overall employment growth in the economy. Applying the panel pooled OLS model, we found that the relevance of expenditures for research and development is high and positive in all sectors but higher in industry and knowledge-intensive services (information and communication, scientific activities) compared to all sectors' average. To the author's best knowledge, this is the first study presenting output growth decomposition estimates at the sectoral level for a selected group of countries, but also the first one giving estimates of TFP in the total economy for a time period chosen. In addition, this is the first study that shows the relevance of investment in research and development at the sectoral level in this specific time period and group of countries. The study's results may be used in defining national policy priorities, as there are various sectors in terms of their impact on employment and economic growth.


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How to Cite
Bacovic, M. (2021). Sectoral Approach in Output Growth Decomposition and its Determinants in Europe. Management & Economics Research Journal, 3(2), 1-21.
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