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This paper determines the relative importance of technical efficiency and reallocation for aggregate productivity growth in a small open European economy. To this end we use a dataset containing all Belgian firms active in the private sector, both services and manufacturing. We observe at the firm level a number of factors that have been shown to be drivers of productivity differences across firms. More precisely, we have information on human capital such as the level of education and the amount of on-the-job training received by the employees. Moreover we observe the international activities of the firms such as imports and exports. This allows us to make a careful analysis of the micro foundations of aggregate productivity growth by applying the decomposition introduced by Petrin and Levinsohn (2012). The outcome of this exercise will not only provide us with a better understanding of the slowdown of productivity growth in Europe over the past decades, but also give an indication on the role of different productivity drivers in this process.

We provide an analysis of the 2008-2009 trade collapse using microdata from a small open economy, Belgium. First, we find that changes in firm-country-product exports and imports occurred mostly at the intensive margin: the number of firms, the average number of destination and origin markets per firm, and the average number of products per market changed only very little. Second, econometric analysis reveals some composition effects in the intensive margin fall along firm, product and country characteristics. The most important factor explaining changes in exports is the destination country's growth rate of GDP. Had growth rates in 2008-2009 been the same as in 2007-2008, Belgian exports would have fallen by about 57% less than what we observe. Trade in consumer durables and capital goods fell more severely than trade in other product categories, which explains another 22% of the observed fall. Financial variables and involvement in global value chains have some explanatory power on the exports and imports fall respectively, but appear to have affected domestic operations in equal proportion. More generally, exports-to-turnover and imports-to-intermediates ratios at the firm level did neither systematically decrease nor reveal strong firm- or sector-specific patterns. Overall, our results point to a demand-side explanation: the fall in trade was mostly driven by the fall in economic activity. It is not a trade crisis - just a trade collapse.

This paper discusses some of the recent developments in growth theory, doing so from the perspective of a small open economy. After setting out a basic generic model, we show how it may yield two of the key models that have played a prominent role in the recent literature, the endogenous growth model and the non-scale growth model. We focus initially on the former, emphasizing how the simplest such model leads to an equilibrium in which the economy is always on its balanced growth path. One aspect of the model is the importance of fiscal policy as a determinant of the equilibrium growth rate, an aspect that is discussed in detail. We also show how the endogeneity or otherwise of the labor supply is crucial in determining the equilibrium growth rate and its responsiveness to macroeconomic policy. But transitional dynamics are an important aspect of the growth process and indeed much research has been directed to determining the speed with which the economy converges to its balanced growth path. We discuss alternative ways that such transitional dynamics may be introduced. These include (i) restricted access to the world capital market; (ii) the introduction of government capital , and (iii) the two-sector production model, pioneered by Lucas. In the original analysis, the two capital goods relate to physical and human capital and in the international context these naturally can be identified with traded and nontraded capital, respectively. Criticism of the endogenous growth model has led to the development of the nonscale growth model. This too is characterized by transitional dynamics, which are more flexible than those of the corresponding endogenous growth model. This model is much closer to the neoclassical model; in particular, the long-run growth rate is independent of macroeconomic policy. However, since such models are typically associated with slow convergence speeds, policy can influence the accumulation of capital for extended periods of time, leading to significant long-run level effects. The discussion seeks to emphasize the adaptability of the models to a wide range of issues. A final extension addresses the impact of volatililty on growth. This has been extensively analyzed empirically and a stochastic extension of the endogenous growth model provides a convenient framework within which to interpret this research.