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  • Author: Marie-Laure Michaud
  • Publication Date: 09-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Over the last two decades, EU institutions have been increasingly concerned with the issues of unemployment reduction and job creation. The EU has recommended that member states develop welfare systems that moderate the negative effects of market relationships on the one hand, and enhance the efficiency of market performance on the other.
  • Topic: Economics, Human Welfare
  • Political Geography: Europe
  • Author: Jorgen Drud Hansen, Morten Hansen
  • Publication Date: 07-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: For almost a decade all three Baltic countries have witnessed substantial deficits on the current accounts of the balance of payments. This paper discusses whether this situation should be a matter of concern. Recent literature on the sustainability of balance of payments deficits is reviewed and put into a Baltic context. The main conclusion is that the recurrent large deficits in the Baltic countries pose a risk for the fixed exchange-rate policies until the countries adopt the euro. In the longer term, large deficits will influence the time path of convergence of living standards between the Baltic countries and the EU as a whole.
  • Topic: Development, Economics
  • Political Geography: Europe, Eastern Europe
  • Author: David Kernohan, Dean A. DeRosa
  • Publication Date: 07-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Economic growth rates in the Gulf region have languished in recent years and need to be raised to accommodate the rapidly growing populations and social aspirations of the region. Using a simple model of world trade, this report investigates the economic impacts of the new customs union of the Gulf Cooperation Council (GCC) and the proposed free trade agreement (FTA) between the GCC and European Union. The quantitative results suggest that the new customs union and proposed EU-GCC free trade agreement both appreciably expand trade and improve economic welfare in the GCC countries, with little significant economic impact on the EU. As expected, the FTA results in larger GCC economic gains than the customs union because it affords GCC consumers greater opportunity to enjoy imports at internationally competitive prices. Although welfare gains under the proposed FTA closely approximate those under open regionalism (concerted trade liberalisation on a most favoured nation basis), reducing the 5% GCC common external tariff to about 3% as part of the FTA negotiations would not only ensure near-maximum trade performance and welfare gains but also add further to the attractiveness of the GCC countries as a location for foreign direct investment.
  • Topic: Development, Economics, Treaties and Agreements, Population
  • Political Geography: Europe
  • Author: Francesco Daveri
  • Publication Date: 07-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Magazines and newspapers often refer to or even take for granted the economic decline of the EU, particularly when contrasting the EU data with US data. The first part of this paper poses the question of whether IT – as often alleged – is really the only cause for the EU's productivity slowdown. The conclusion is that it is not. The non-IT part of the economy has not only contributed to the slowdown but appears to have crucially contributed to the EU-US growth gap as well. There is thus little reason for the EU to target IT-diffusion as an intermediate goal, as implied by the Lisbon strategy. The second part of the paper, after showing that the growth slowdown comes from the reduction of non-IT capital deepening and the lack of acceleration in total factor productivity growth, argues that the slowdown of capital deepening will continue. The scarce resources available for enhancing growth should concentrate on providing incentives to R and innovation at large, rather than financing traditional infrastructures. This is at odds with the goals pursued by the EU within the framework of the European Growth Initiative.
  • Topic: Development, Economics, Treaties and Agreements
  • Political Geography: Europe
  • Author: Namkee Ahn, Juan Ramón García, Juan Francisco Jimeno
  • Publication Date: 07-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Among the working-age population, one of the most damaging individual experiences is unemployment. Many previous studies have confirmed the devastating effects of unemployment on individual well-being, both pecuniary and non-pecuniary. Using the data from the European Community Household Panel survey, we examine the factors that affect unemployed workers' well-being with respect to their situations in their main vocational activity, income, housing, leisure time and health in Europe.
  • Topic: Conflict Resolution, Economics, Human Welfare
  • Political Geography: Europe
  • Author: Jørgen Mortensen
  • Publication Date: 06-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: The present paper discusses the implications of the recent institutional crisis in the EU provoked by the failure of the Economic and Financial Affairs Council (ECOFIN) to impose the sanction on Germany and France provided for in the Stability and Growth Pact, along with Article 104 and the associated protocol of the Maastricht Treaty. The paper situates the debate concerning the application of the Stability and Growth Pact (SGP) in a broader evolution of the struggle between two schools of thought concerning macroeconomic policy–making in the European Union: the school calling for a strengthening of competences at the EU level (federal economic government) and the school arguing for preserving national competences for budgetary policy even in the face of the transfer of competence for monetary policy to the European Central Bank (ECB). The paper argues that the SGP represents an acceptable comprise between the two views of the schools in so far as it establishes rules to be respected without actually transferring competence to the Council in the field of budgetary policy. Consequently, the SGP has not and does not add to the 'democratic deficit' within the EU institutional framework. The paper argues, nevertheless, that the excessive deficit procedure (EDP) puts too strong an emphasis on the government budget deficit and suggests that emphasis on the sustainable level of public debt would ensure a stronger basis for assessing whether a given budget deficit may be considered excessive or not.
  • Topic: Defense Policy, Economics, Treaties and Agreements
  • Political Geography: Europe, France, Germany
  • Author: Christoph O. Meyer
  • Publication Date: 06-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This working document focuses on the dynamics and scope of strategic culture–building in the context of the European Union's aspirations to develop a European security and defence policy (ESDP). It argues that the notion of strategic culture can be useful in assessing the context in which the ESDP will develop further as well as its performance in matters of conflict prevention, management and resolution. Nevertheless, in order to be conceptually and empirically useful, strategic culture needs to be disaggregated into collective norms about the means and ends of security policy, as well as its different carriers such as political elites, societies and armed forces. The paper examines the convergence thesis and suggests three theories to explain convergence informed by realist, constructivist and regional theories of political change. Yet the paper also argues that these forces can affect national strategic cultures differently, depending on the countries' geopolitical positions, the institutional stickiness of domestic ideas, values and norms, and the degree to which such norms are subject to partisan or societal contention. On this basis, the paper advances some hypotheses about the actual extension of the convergence process, which will need to be validated by further empirical study.
  • Topic: Defense Policy, Economics, International Trade and Finance
  • Political Geography: Europe
  • Author: Evgeny Vinokurov
  • Publication Date: 06-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: The Kaliningrad oblast of Russia is currently an important focal point of discussions between the European Union and Russia. Although small in terms of geography and population, Kaliningrad has grown in importance due to the EU enlargement process. Since the break–up of the Soviet Union, the oblast has become an exclave of Russia, and it is now set to also become an enclave within the EU. This paper examines the state of Kaliningrad's economy and trade. The economic crisis that took place in Russia in the 1990s had severe consequences for Kaliningrad, as old patterns of production and trade were disrupted. Since 1999, however, the regional economy has grown with impressive speed. Kaliningrad's Special Economic Zone (SEZ) status has played a crucial role in determining its new patterns of production and trade specialisation. The paper argues that the SEZ regime has made the region's economic growth faster but also vulnerable.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Russia, Europe, Asia
  • Author: Sjef Ederveen, Laura Thissen
  • Publication Date: 07-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This study poses the question about whether labour market institutions can explain unemployment rates in the ten new European Union member states. In five out of the ten new member states, unemployment rates lie above the average in the 15 member states of the European Union (EU-15) that comprised the EU prior to May 2004. The study finds that labour market institutions in the acceding countries are less rigid than in the EU-15. Moreover, labour market institutions explain only a minor part of unemployment in the new EU member states. This does not mean that these countries have no labour market problems. Just as in the EU-15, a great deal of heterogeneity exists among the acceding countries. In some of them, labour market reforms could prove a key issue in improving employment performance. The main worry is the poor labour market performance in Poland and the Slovak Republic, where unemployment has risen to almost 20%. The main reasons for this growth are i) postponed restructuring in combination with tight monetary policy; ii) poor governance; and iii) an increasing labour force.
  • Topic: Economics, Human Welfare
  • Political Geography: Europe
  • Author: Zsolt Darvas, Gyorgy Szapary
  • Publication Date: 03-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: It is generally recognised that countries wanting to join a monetary union should display the optimal currency area properties. One such property is the similarity of business cycles. We therefore undertook to analyse the synchronisation of business cycles between the EMU-12 and the eight new EU members from Central and Eastern Europe (CEECs), for which the next step to be considered in the integration process is entry into the EMU. In contrast to the usually analysed GDP and industrial production data, we extend our analysis to the major expenditure and sectoral components of GDP and use several measures of synchronisation. The main findings of the paper are that Hungary, Poland and Slovenia have achieved a high degree of synchronisation with EMU for GDP, industrial production and exports, but not for consumption and services. The other CEECs have achieved less or no synchronisation. There has been a significant increase in the synchronisation of GDP and also its major components in the EMU members since the start of the run-up to EMU. While this lends support for the existence of OCA endogeneity, it cannot be unambiguously attributed to it because there is also evidence of a world business cycle. Another finding is that the consumption-correlation puzzle remains, but its magnitude has greatly diminished in the EMU members, which is good news for common monetary policy.
  • Topic: Economics, International Cooperation, International Trade and Finance
  • Political Geography: Europe
  • Author: Paolo Guerrieri, Cecilia Jona-Lasinio, Stefano Manzocchi
  • Publication Date: 01-2004
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: The aim of this paper is to identify the degree of information technology (IT) adoption in individual European economies and to analyse the determinants of IT investment among a panel of EU countries. We first analyse the dynamics of IT investment expenditure in 15 European countries from 1992 until 2001 and, by means of a cluster analysis, we draw a picture of IT diffusion in Europe. By clustering the European countries according to their shares of IT spending over GDP, we identify three fairly stable groups of fast, medium and slow adopters. We then build an econometric equation of the determinants of IT investment to use with panel data in estimations for five European economies over the period of 1980 to 2001. We consider aggregate IT investment as well as separate investment in hardware or software. Financial conditions, income growth and comparative advantage turn out to affect IT investment, but we find that the determinants of hardware investment only partially overlap with those of software.
  • Topic: Economics, International Trade and Finance, Science and Technology
  • Political Geography: Europe
  • Author: Ansgar Belke, Rainer Fehn, Neil Foster
  • Publication Date: 12-2003
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Anglo-Saxon countries have been successful in the 1990s concerning labour market performance compared to the former role models of Germany and Japan. This reversal in relative economic performance might be related to idiosyncracies in financial markets, with bank-based financial markets as in Germany and Japan being possibly inferior to stock-market based financial markets in turbulent times and when approaching the economic frontier. A cleavage is related to venture capital markets which are flourishing in Anglo-Saxon but not in German-type financial markets. Venture capital is crucial for financing structural change, new firms and innovations and therefore possibly also nowadays for employment growth.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Japan, Europe, Germany
  • Author: Leonor Coutinho
  • Publication Date: 06-2003
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper reviews the analysis of fiscal policy in the new open economy macro-economics literature, in view of increasing interest in the question of transmission and coordination of policies across countries, stirred by developments in this literature and by the formation of the euro area. The analysis focuses on two main points: (i) the identification of welfare spillover effects to third countries; and (ii) the assessments made so far of the potential gains from pursuing non-cooperative and cooperative fiscal stabilisation policies. Regarding welfare spillovers, some additional results are derived to examine whether the exchange rate regime (flexible or fixed) matters for the size of these spillovers, and whether the type of policy pursued (balanced-budget or debt-financed) matters. Fixed exchange rates only seem to postpone the costs from the short to the long run, but the type of policy is crucial in determining the welfare impact of fiscal expansions. With respect to policy coordination, attention is drawn to the need to reflect on a potential role for fiscal policy as a stabilisation tool, and on possible interactions between fiscal and monetary policy.
  • Topic: Economics, International Political Economy
  • Political Geography: Europe
  • Author: Leonor Coutinho
  • Publication Date: 10-2002
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper analyses alternative monetary policy rules for the ECB, using a two "country" model of the euro area and the US, that assumes monopolistic competition, sticky prices and optimizing agents. The alternative rules analyzed for the ECB are ranked by their ability to stabilize consumption, output, and inflation and maximize consumers' welfare. The analysis contributes toward understanding the trade-offs faced by policymakers in open economies and provides some support for the current design of the ECB's operational framework. The results suggest that stabilizing money-growth, in addition to inflation, gives an additional degree of freedom to stabilize output. Although price stability is likely to remain the primary objective of the ECB, monetary policy must "without prejudice of price stability (...) support the general economic policies in the Community..." (Article 2). Hence monitoring money, under certain assumptions about the shocks hitting the economy, may deliver a better outcome in terms of output stabilization which should allow the ECB to fulfill its secondary but nonetheless important commitment.
  • Topic: Economics, Government, International Trade and Finance
  • Political Geography: United States
  • Author: Roberto Perotti
  • Publication Date: 10-2002
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper studies the effects of fiscal policy on GDP, prices and interest rates in 5 OECD countries, using a structural Vector Autoregression approach. Its main results can be summarized as follows:1 ) The estimated effects of fiscal policy on GDP tend to be small: positive government spending multipliers larger than 1 tend to be the exception; 2) The effects of fiscal policy on GDP and its components have become substantially weaker over time; 3) Under plausible values of the price elasticity, government spending has positive effects on the price level, although usually small; 4) Government spending shocks have significant effects on the nominal and real short interest rate, but of varying signs; 5) In the post-1980 period, net tax shocks have positive short run effects on the nominal interest rate, and typically negative or zero effects on prices; 6) The US is an outlier in many dimensions; responses to fiscal shocks estimated on US data are often not representative of the average OECD country included in this sample.
  • Topic: Economics, Government
  • Political Geography: United States, Europe
  • Author: Carlos Santiso
  • Publication Date: 10-2002
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Should European Union (EU) member states 're-nationalise' foreign aid? Considering the dismal record of the aid managed by the European Commission, this is a legitimate question that European leaders nevertheless seem unwilling to address seriously. Like in America, there is heightened debate across Europe on the purpose of the aid it provides to developing countries. The current debates on poverty reduction, debt relief and, more broadly, the effectiveness of development assistance have brought renewed light on foreign aid.
  • Topic: Foreign Policy, Development, Economics
  • Political Geography: America, Europe
  • Author: Paul Brenton
  • Publication Date: 10-2002
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Much of the attention on the economic aspects of the forthcoming enlargement of the EU have concentrated upon the high-profile issues which are linked to the level of relative economic development in the acceding countries; the perceived threat of large-scale migration and the budgetary costs arising from implementation of EU agricultural and regional policies. This paper briefly discusses that these are not insurmountable problems and stresses that the main difficulties from the next enlargement may arise from the effective inclusion of the acceding countries into the Single Market, the microeconomic hub of the EU. We discuss that the process of regulatory harmonisation will become more difficult in an EU of 25 or more members, which entails greater emphasis on the principle of mutual recognition as the main tool for ensuring freedom of movement of goods and services. However, mutual recognition has its limits and is likely to be less effective the more diverse the countries involved.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Europe
  • Author: Paul Brenton, Bob Anderton, Eva Oscarsson
  • Publication Date: 10-2002
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper brings together and analyses the results of empirical analyses which, in contrast to most other studies, find that trade has been a significant cause of labour market inequality in various industrialised countries. The approach is based upon the concept of outsourcing – whereby the low-skill parts of the production chain are 'outsourced' to low-wage countries. A distinguishing feature of the empirical work is the use of highly detailed trade data, which allow imports from high- and low-wage countries to be separately identified at the industry level. Using cost minimisation framework, we show that imports from low-wage countries have made a significant contribution to the decline in the wage-bill share and/or relative employment of less-skilled workers in the UK, the USA, Sweden and Italy. We also show how the country-specific characteristics of outsourcing can lead to quite different inequality outcomes in different countries. In line with other studies, we also find that technology has played an important role in causing the increase in inequality in many countries. However, there is also some evidence that some of the rapid increase in the application of new technologies in recent decades has been trade-induced through mechanisms such as 'defensive innovation'.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Science and Technology
  • Political Geography: United States, United Kingdom
  • Author: Daniel Gros
  • Publication Date: 09-2002
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper shows that countries with weak banking system and fiscal institutions, might benefit from the presence of foreign banks, which can constitute a commitment and transparency device. Foreign banks can also reduce the probability of self-fulfilling speculative attacks. A strong presence of foreign banks can make a currency peg feasible in the first place by rendering it more resistant to speculative attacks. The European experience is instructive in this respect. In all of the candidate countries from Central and Eastern Europe (CEEC) the banking system is now dominated by foreign banks. This is now taken for granted, but it is unusual if one looks at the existing EU-15 members, where foreign banks play a marginal role in even the smallest economies.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Europe
  • Author: María Garcia-Vega, José A. Herce
  • Publication Date: 08-2002
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: After properly modelling growth externalities and using spatial econometric techniques we investigate whether economic integration promotes interdependent growth among countries. We conclude that this has been indeed the case for advanced OECD countries and that, for those countries belonging to the EU, through successive enlargements, the effect has been even stronger. More precisely, if every (trade) partner of a given country experiences an extra growth of 1 percentage point, this economy will profit from an extra 0.5 point, and if this country belongs to the EU it will have an additional increase of its rate of growth of 0.2 points. Both figures can be interpreted as growth externalities with the latter suggesting that an integration process like the one followed by the EU has an (positive) effect on growth.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Europe