Technological innovation and productivity dynamics in the European manufacturing sector

Abstract

This article examines the complex and often non-linear relationship between technological innovation and productivity dynamics within the European manufacturing sector. It addresses the persistent puzzle of why significant technological investment has not consistently yielded commensurate productivity growth, a phenomenon central to the continent's industrial competitiveness. The analysis argues that this dynamic is not merely a function of technological adoption but is fundamentally shaped by the critical role of complementary investments in human capital and organizational restructuring, which are prerequisites for realizing the full potential of Industry 4.0 technologies. A central theme explored is the bifurcation of the sector, characterized by a widening productivity gap between a small cohort of highly innovative frontier firms and a long tail of small and medium-sized enterprises struggling with adoption barriers. Furthermore, the article investigates the challenges that servitization and the increasing importance of intangible assets pose for conventional productivity measurement. Finally, it considers the dual role of the green transition as both a short-term drag on measured productivity and a potent long-term driver of innovation-led competitive advantage. The findings underscore that future productivity growth hinges on integrated policies that bridge the diffusion gap, modernize economic measurement, and strategically align technological and sustainability agendas.