Offshoring, Relocation and the Speed of Convergence: Convergence in the Enlarged European Union

Economic convergence of the new member states (NMS) of the EU towards the old EU countries (EU-15), not only in terms of real income, but also in nominal terms, is of paramount importance for the whole of the EU. We build a dynamic CGE model, starting from the Balassa-Samuelson two-sector framework, but modify and enlarge it with forward-looking investment, consumption, and labour mobility behaviour to address several other issues like welfare and sustainability in terms of foreign indebtedness. At the same time we evaluate the impact of convergence on the EU-15 countries also, by endogenising offshoring and the related FDI flows from them to the NMS. Thereby we identify various effects of relocation and globalisation on the EU-15 enlarging the standard set of effects of globalisation and demonstrate the key role of their dynamic nature in the process of convergence. We find that in a general equilibrium setting fears of large adverse effects of a relocation of EU-15 manufacturing to the NMS are not well founded. In contrast, offshoring appears to be a win-win case for both the EU-15 and the NMS in terms of real income. The convergence of the NMS is fairly rapid, but will involve a persistent rapid inflation rate.convergence, relocation, new member states, EU-15

On finite-temperature holographic QCD in the Veneziano limit

Holographic models in the T=0 universality class of QCD in the limit of large number N_c of colors and N_f massless fermion flavors, but constant ratio x_f=N_f/N_c, are analyzed at finite temperature. The models contain a 5-dimensional metric and two scalars, a dilaton sourcing TrF^2 and a tachyon dual to \bar qq. The phase structure on the T,x_f plane is computed and various 1st order, 2nd order transitions and crossovers with their chiral symmetry properties are identified. For each x_f, the temperature dependence of p/T^4 and the quark-antiquark -condensate is computed. In the simplest case, we find that for x_f up to the critical x_c\sim 4 there is a 1st order transition on which chiral symmetry is broken and the energy density jumps. In the conformal window x_c<x_f<11/2, there is only a continuous crossover between two conformal phases. When approaching x_c from below, x_f\to x_c, temperature scales approach zero as specified by Miransky scaling.Comment: 66 pages, 29 figure

How to restore sustainability of the Euro?

We reassess the result of unsustainability of the euro with respect to inflation differentials claimed by Wickens (2007) by specifying an open-economy version of a two-region New Keynesian model for EMU and demonstrate that the result by Wickens does not hold in general. We are able to derive a result that the model is determinate for a wide range of policy rules so that the sustainability of the euro area and the member countries is reached over time with respect to supply and demand shocks and emerged imbalances in price levels and competitiveness. We then enlarge the numerical analysis to consider EMU and sustainability in the case, prevailing currently, where a high debt country should both restore its competitiveness and its fiscal balance, and the policies required from the single monetary policy and the national fiscal policies. Strong fiscal consolidation and far-reaching successful structural reforms are needed to reach sustainability in the sense that emerged imbalances in competitiveness and price levels and the threat of ever mounting debt levels could be eliminated over the medium run. We also illustrate how the current deflationary adjustment involves a major polarisation in economic developments within the euro area

Palkankorotusten vaihtoehdot ja talouden kasvu: Toimialatarkasteluja Suomen teollisuudella

The wage norm to be applied in the economy has been intensively debated in Finland. By this is meant, to which level of productivity rise the wage hikes should be linked. In this paper we examine the economy-wide productivity rise vs the industry-level rise in productivity as a basis for a wage norm. We evaluate the consequences of these alternatives from the point of view of three industries of Finnish manufacturing, the development of which has widely diverged from each other, namely paper industry, electronics industry and textile, clothing, leather and footware industry. We form a simulation model and simulate with it the above wage norms over the period 1975-2002. The model describes the investment behaviour and labour demand as a function of wage setting. The results show that the choice of the wage norm can have a substantial influence, especially over the longer run, when it can lead to a sizeable cumulative impact on the industry. The incomes policy norm, i.e., that which takes the aggregate productivity rise as its norm, has given room for the profitable industries to grow, but, on the other hand, led to a deeper recession in the less profitable industries. In the application of the industry norm, it is important to take into account the possible secular rise in the price-cost margin of the industry concerned, which notably applies to the Finnish electronics industry. Doing so, it turns out that the industry wage norm would have fared better in the electronics industry than the aggregate norm. When considering the results, it must be taken into account that the effects caused by changes in labour supply are discarded here

The impact of regionalism on trade in Europe

Using the classical gravity model we try to reach a more systematic view than previously in the literature of the impact of regionalism on the intensity of mutual integration through trade in Europe. We find that European trade is significantly influenced by various regional agreements and intensities of trade are strongly asymmetric between the regions. EMU has a positive impact on bilateral trade intensity, and its effect on total European trade of its member countries is also significantly positive. Both between the EU and CEE countries there are, respectively, significant differences with respect to the intensity in this trade. – Trade ; EU ; EMU ; CEE ; gravity modelKäyttäen klassista ulkomaankauppaa selittävää gravitaatiomallia tavoitteena tässä tutkimuksessa on saada aiempaa systemaattisempi kuva siitä, mikä vaikutus Euroopan taloudellisella arkkitehtuurilla, eli EU:n sisämarkkinoilla, EMUlla, Eurooppa-sopimuksilla, EU:n ja EFTA-maiden välisillä suhteilla sekä bilateraalisilla Venäjä-suhteilla on keskinäiseen integraatioon ulkomaankaupan välityksellä. Tulokseksi saadaan, että Euroopan eri alueellisilla taloudellisilla järjestelyillä on merkittävä vaikutus kaupan intensiteettiin ja että intensiteetit ovat selvästi asymmetrisiä alueiden välillä. EMUlla on positiivinen vaikutus alueen sisäiseen kauppaan ja myös sen kokonaisvaikutus jäsenmaidensa kauppaan Euroopassa on merkitsevästi positiivinen. Sekä EU- että KIE-maiden kesken on merkittäviä eroja kaupan intensiteetin suhteen keskinäisessä kaupassa

Should Sweden join the EMU? An analysis of general equilibrium effects through trade

The paper considers whether Sweden should join the EMU as based on general equilibrium (GE) effects through reduced trade barriers linked to the single cur-rency. We use in this evaluation a gravity model for trade in Europe derived and estimated in the paper, and the estimates of trade barriers linked to EMU reached in the literature. First, we present an alternative derivation of the gravity equation for foreign trade, which is explicitly based on monopolistic competition in the export markets. In contrast to the usual specification, our model allows for the realistic assumption of asymmetry in mutual trade flows. We then present a straightforward methodology how to carry out a simulation, based on the estimated model, of GE effects related to a change in a trade barrier. Numeri-cally, we apply this to analyse the effects of a possible Swedish entrance into EMU. The effects are quite clearly in favour of EMU enlargement, and do not indicate a trade diver-sion effect either for the incumbent EMU countries or the rest of the European countries. However, a stochastic simulation of the effects reveals that there is a substantial uncer-tainty related to the effects of such a change in policies

Climate policies and economic growth

A Climate Agreement, like the one reached in Kyoto in 1997, on reducing greenhouse gas emissions may have important effects on the global and the national economies. The aim of this paper is to make some basic numerical evaluations of the economic effects of climate policies, imposing a ceiling on the use of energy input in production in a single economy. First, we make an evaluation under immobile and internationally mobile domestic factors of production, and infer how much international factor mobility, so-called carbon leakage, can magnify the adverse effects. Next, we introduce optimal endogenous growth, so that environmental policies can potentially lead to the introduction of less-polluting energy technologies. The general conclusion of this is that induced R&D in less-polluting energy technologies is likely to reduce the economic burden of climate policies only marginally. Under an internationally tradable emissions permit scheme, however, the endogenous technical change reacts quite vigorously to the price of the pollution right. Finally, we solve for the optimal subsidy to R&D in clean energy technology in a market economy, and find it to be quite sizeable

Regulation of energy prices in Russia

Russia prices its energy commodities domestically much lower than the prices prevailing in the international market. Using a general equilibrium framework, we analyse reasons for why Russia should or should not use such a price regulation. First, being a major exporter of energy commodities and having considerable monopolistic market power, the country is able to use its supply in order to influence the international energy prices. A rational way to channel this rent to the domestic non-energy sector and to domestic consumers is through a lower, i.e., competitive, domestic price on energy than that in the world market. Second, we introduce the classic infant-industry argument with positive intertemporal spillovers through learning-by-doing linked to current production. These spillovers are likely to be relevant for manufacturing in a transition economy, which argument creates a further reason for a deviation in the pricing of energy to domestic industrial producers from the world market prices. However, an empirical consideration of these results and the estimation of the learningby-doing curve suggest that the first effect can in principle be sizeable, while the second is only marginal and that, overall, Russia is currently subsidising its domestic energy prices clearly too much. Further, we conclude that the country should not subsidise its domestic consumers more than its domestic industry, as it does in reality. We also derive the optimal domestic energy tax and show that it is modest in comparison to its current rate. The optimal pricing policy could therefore have a marked positive effect on the international supply of energy by Russia.Metsäalalla havaittiin perinteisen puunjalostuksen sivuvirtojen olevan merkittävin uutta arvonlisäystä synnyttävä sovellusalue metsäalan koko arvoketjussa. Tosin sellu- ja paperiteollisuuden liepeillä näyttää edelleen oleva voimakas halu tehostaa jalostusprosesseja, missä voitaisiin hyödyntää myös bioteknologioita. Kuitenkin metsäalan kohdalla erityisesti energiasovellusten tutkimus ja koulutus näyttää olevan tulevaisuuden ala. Lisäksi muilla teollisen biotekniikan aloilla on tarvetta jatkossa kehittää tutkimusta ja koulutusta. Bioteknologian perustutkintokoulutukseen sisältyy jo nykyisellään liiketoiminnan periaatteita ja kielenkäyttöä opettavia opintokokonaisuuksia; tätä toimintaa tulisi jatkaa ja mahdollisuuksien mukaan laajentaa. Akateemisen ”perustutkimuksen” ja kaupallistamiseen tähtäävän ”soveltavan tutkimuksen” luonne ja kannustimet ovat selkeästi erilaiset, vaikka biotekniikka-alan perustutkimus näyttää olevan monelta osin käyttötarkoituslähtöistä. Akateemisen tutkimuksen pääkannustimena ovat tieteelliset oivallukset ja tieteellinen julkaisutoiminta, ja käytännön sovellukset voivat olla hyvinkin kaukana tulevaisuudessa. Yhteiskuntamme haasteeksi muodostuu määrätietoisen ja fokusoidun kaupallistamiseen tähtäävän innovaatiotoiminnan tukeminen ja samanaikaine