ABSTRACT
For many years it was acknowledged that the European South (plus Ireland) had managed to be very successful in catching-up. However, the analysis of the knowledge basis of these countries showed that their progress, as measured by the Innovation Performance Index, had been much slower and revealed considerable vulnerabilities to the development of a robust knowledge-based economy (Veugelers and Mrak 2009). The catching-up countries indeed achieved signifi cant GDP per capita convergence, but this process was based to a considerable extent on increasing debts or on policies that led to bubbles and invisible debt accumulation processes. Qualitative changes and policies targeting structural issues were sluggish, although performance differed in each country. This disparity between catching-up in terms of GDP and lagging behind in terms of production and knowledge-related capabilities is particularly relevant not only for explaining the vulnerability of the European South and the broader imbalances in the European economy, but also for designing effi cient production-enhancing policies.
