Interdisciplinary scholars and policy makers have claimed that increasing
material productivity not only reduces environmental pressures but also improves
the competitiveness of economies. This is particularly relevant in the context of the
European Union (EU) since it motivates its resource efficiency and circular economy
agenda by referring to this assertion. However, two limitations in the literature
cast doubt on the validity of the claim. First, the literature fails to clarify the concept
and measurement of macroeconomic competitiveness. Second, it lacks to take the
endogeneity of material productivity into account. Addressing both shortcomings,
this paper reviews the concept of macroeconomic competitiveness and identifies six
conventional macroeconomic indicators to approximate it. Moreover, using panel
data of the 28 member states of the EU between 2000 and 2014, the causal impact of
material productivity on the six indicators is estimated, instrumenting material
productivity with the number of deaths from natural hazards. The results provide
evidence for a positive and causal impact of the material productivity rate on the
wage rate and, with lower confidence, on the current account rate, while the
remaining macroeconomic indicators are not significantly affected. Overall, these
results suggest to be cautious with the claim that increasing material productivity
improves macroeconomic competitiveness in the EU. Particularly the positive effect
on the wage rate calls for considering possibilities to channel gains from increasing
material productivity into eco-innovations to reduce the magnitude of potential
rebound effects and thus environmental pressures.

• The causal impact of material productivity on macroeconomic competitiveness in the European Union