Does Economic Integration Affect the Structure of Industries? Empirical Evidence from the CEE

In this paper we study how European integration would affect the industry location and sectoral specialisation of local economies in the CEE accession countries. The theoretical framework of our study is based on the new eco- nomic geography, which allows us to predict not only the post-integration spe- cialisation patterns, but captures also other general equilibrium effects, such as transition to market economy, which turn out to be highly significant in CEE. Our empirical results suggest that the CEE specialisation pattern would be distinct from the old EU member states. First, the EU integration would reduce regional specialisation in CEE. Second, the bell-shaped specialisation pattern predicted by the underlying theoretical framework is inverse in CEE. We could explain a large portion of these differences by CEE-specific processes, such as integration of the CMEA. These distortions are higher in those regions, which were more integrated in the CMEA. Our simulation results also suggest a convergence in the specialisation across the CEE regions

Regional growth and national development: transition in Central and Eastern Europe and the regional Kuznets curve in the East and the West

Regional disparities in Central and Eastern Europe rose substantially since 1990. Still, prima facie evidence of beta-convergence is often found in the CEE data. To reconcile this seeming paradox, we sketch out and test empirically a hybrid model of regional growth that draws on the regional Kuznets curve and incorporates aspects of cumulative causation and neoclassical convergence. In both CEE and the ‘old’ EU15, regional convergence is strongly linked to the level of national development, non-linearly. But while in the EU15 convergence speeds-up at intermediate/high levels of development, in CEE we find divergence at intermediate levels of national development and no significant return to convergence thereafter. Although this may show that overall development levels are not sufficient yet to mobilise regional convergence, it is also possible that non-convergence is attributable to centripetal forces instigated by the process of transition

Quantity adjustments in the regional labour markets of EU candidate countries

The article comprises an analysis of the adjustment of regional labour markets of former (and present) EU candidate countries to asymmetric shocks. As in EU member states, a substantial part of the adjustment to changes in employment in candidate countries is carried by participation decisions, and migration plays a small role. Candidate countries, however, have experienced larger region-specific shocks to labour demand than member states, and these shocks lead to higher long-run changes in employment. Furthermore, adjustment mechanisms partly explain high regional unemployment. High unemployment regions exhibit a lower capability to absorb region-specific shocks through mechanisms other than higher unemployment. Copyright RSAI 2005.

Regional convergence and growth in Europe: understanding patterns and determinants

The paper examines the pattern of regional convergence and the determinants of regional growth in Europe, providing a discussion of the issues that are of relevance to the theoretical conceptions and the subsequent design of regional development policy, supported by an illustrative empirical analysis. The analysis covers 249 NUTS II regions of the European Union in the period 1990-2003. Using as its basis the standard framework of (absolute) beta-convergence, the paper detects a mirror-image J-shaped relationship between regional growth and regional development levels. This type of relationship indicates that regional divergence factors are getting stronger, and, eventually, dominate, at more advanced levels of development. On the basis of a regional growth model, factors such as agglomeration economies, geography, economic integration and economic structure seem to create an overall unfavourable economic environment for lagging (and, possibly, less favoured) regions. Such an environment generates dilemmas and questions concerning the mix of policies that may promote growth and at the same time reduce regional inequalities in the European Union

The transmission of business cycles

We show that countries characterized by large bilateral trade and financial flows tend to have more correlated business cycles. However, we also find that countries with divergent fiscal policies and highly regulated labour markets are subject to idiosyncratic cycles. Applying these results to the new member states of the EU weakens the optimistic view towards the monetary integration of these countries into the euro area, which is frequently found in the literature. Although our results suggest that extensive trade and financial linkages are likely to result in further increases in business cycle correlation, an increase in labour market regulation and the pursuit of national fiscal policies may result in a counteracting effect. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 The European Bank for Reconstruction and Development.