This paper reassesses the persistent productivity slowdown in Europe relative to the United States, emphasizing the role of energy constraints in shaping long-run growth. I show that since the early 2000s, adverse energy conditions such as higher prices, greater volatility, and heavier import dependence, have redirected European innovation towards energy efficiency at the expense of broader productivity-enhancing technologies. Using a nested CES framework, I document a strong trade-off between total factor productivity (TFP) and energy-saving technical change, with the marginal rate of technological substitution significantly steeper in Europe than in the U.S. Sectoral evidence highlights that this is primarily a case of directed technical change rather than structural reallocation. Patent data further reveal that while Europe patents more in energy efficiency, its innovations rely disproportionately on “Low-tech” spillovers, limiting their quality and impact compared to U.S. inventions that build on "High-tech” knowledge. I develop a growth model with spillovers to formalize these mechanisms and estimate the causal effect of exogenous energy shocks on patenting activity using OPEC supply news as an instrument. The results suggest that Europe’s sharper energy constraints and weaker technological absorption capacity help explain its productivity decoupling from the U.S. 

This paper investigates the interaction between speculative bubbles and credit market conditions, focusing on their implications for resource allocation within the economy. By developing a theoretical model that incorporates overlapping generations and different types of entrepreneurs (distinguished by their project viability and access to credit), I examine how bubbles influence the economic trajectory of entrepreneurial activities, particularly focusing on the creation of bubbles on the credit market and their impact on misallocation. The model suggests that while bubbles can temporarily enhance access to credit and foster investment in new entrepreneurial ventures, they also have the potential to lead to significant economic inefficiencies, primarily through the misallocation of resources towards less productive projects. This misallocation effect is exacerbated under conditions of increased credit access, as less efficient projects find it easier to secure funding. The findings are validated empirically using a dataset that tracks entrepreneurial activities and credit market conditions over several years on the North-American market.