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A conditional frontier approach is proposed to capture the role of the technology gap in explaining labour productivity differences in 211 European regions in eighteen countries over the years 1995–2007. Labour productivity growth is driven by capital accumulation and technical change. In lagging behind regions, productivity growth is mainly driven by capital accumulation. The technology gap does not play a role in driving labour productivity growth and remains stable across regions in the considered period. Cohesion policy seems more effective in terms of fixed investment rather than technological capabilities, while technology gap remains a source of unused potential productivity growth.