The importance of trade and technology for productivity: An empirical assessment across EU regions

This paper investigates the relationship between trade, technology, and regional productivity growth across European Union regions between 2017 and 2023. Leveraging newly available NUTS-2 level data on interregional and international trade flows, we estimate a series of Barro-type growth regressions derived from the Solow model and extended to include institutional quality, foreign direct investment, urbanisation, and the COVID-19 shock. The analysis confirms conditional convergence: less productive regions tend to grow faster, particularly when supported by higher capital intensity and employment in high-tech sectors. Trade exposure is positively associated with productivity growth, but this relationship is not uniform. Regions more engaged in extra-EU trade — particularly those exporting final goods beyond the EU or importing capital goods from abroad — experience stronger productivity gains. In contrast, a higher share of final goods exports within the EU is linked to weaker performance, suggesting possible saturation or weaker technological spillovers within the Single Market. These findings underscore the importance of trade composition and direction in shaping regional development. They highlight the need for EU policies that enhance technological capacity and facilitate global market access for lagging regions. Supporting targeted integration into global value chains, especially in capital-intensive sectors, may offer a pathway to more equitable productivity growth across the Union.