EMU Enlargement: Which Concept of Convergence to Apply?

The EU-enlargement in mid-2004 will probably be followed by the accession to the European Monetary and Economic Union (EMU), depending on the individual state of convergence of the accession candidates. As a political rather than an economic decision on EMU enlargement is not beyond imagination, we argue that institutional convergence, in particular central bank independence (CBI), is equally - if not more - important for a successful common monetary policy in Euroland than nominal and real convergence, as it indicates an appropriate policy assignment and thereby fosters real and nominal convergence. The paper starts with an assessment of the state of convergence of CEE countries in nominal and real terms. Based on a constitutional political economy framework and the additional requirement for future EMU members to give their central banks an independent status, we then assess the degree of central bank independence in CEE. We apply a measure, namely the index of monetary commitment, which includes external criteria such as convertibility and exchange rate regimes. It can be shown that the degree of central bank independence in CEE countries is considerably high; however, there is a gap to the ECB's independence with respect to external aspects of CBI.Convergence, Central Bank Independence, EMU Enlargement

Why Have Some Monetary Reforms Succeeded and Others Not? - An Empirical Assessment

Monetary history is characterised by crisis and reform. The paper is dedicated to an explanation of what makes monetary reforms successful. A cross--sectional exonometric analysis is schosen to deal wht this problem. It is based on a standard macroeconomic model of commitment and credibility. As the dependent variable, we calculate a post-reform inflation rate. the exogenous variables are the degree of legal commitment and the constraining influence of institutions. The paper allows for the conclusion that monetray commitment, the consideration of institutional constraints and abstinence from the money press are crucial for the success of a monetary reform.Monetary Reforms; Credibility; Commitment; Institutions

Estonian labour market and EMU membership - challenges and policy options

With the planned membership in EMU, Estonia will give up every option to pursue a discretionary monetary policy. This demands a very flexible labour market, returning to equilibrium by itself after a negative external shock. In general, the Estonian labour market regime allows for flexibility and labour force mobility. Nevertheless, there is a serious problem on the Estonian labour market, namely, a mismatch with respect to qualification. The paper discusses three potential remedies for this problem: 1) further development of the relatively underdeveloped social dialogue in Estonia, 2) an increase of the low extent of public labour market spending, and 3) a significant improvement of the education and training system. It turns out that concentration on education policy promises the highest yields. We conclude by referring to earmarked education vouchers. Such a system allows to fully employ the capacities of competition to generate the structure of qualifications necessary to increase the level of employment in Estonia.

A Way to Solve the Euro pean Balance of Payments Crisis? Take a Chance on Market Solutions!

Schulden; Finanzmarktkrise; Schuldenkrise; Europäische Wirtschafts- und Währungsunion

International Tourism, development and Biodiversity: First Evidence

We analyse whether biodiversity can improve the economic growth of Least Developed Countries (LDCs) by increasing the receipts of tourism as one of the world biggest and fastest growing industries. The intention of our examination is to present an alternative utilization of biodiversity, rather than hunting or the agricultural use of habitats. Our hypothesis is that tourism may be an important chance for economic growth in developing countries. We assume that biodiversity is an important factor influencing the demand for tourism. In other words: a rich biodiversity provides a comparative advantage for most LDCs. Using by a simple growth-model, we conclude that only sustainable tourism shows a steady economic growth in the long run, which may result in an economic convergence from LDCs to Developed Countries. The model is supported by an empirical analysis. We assess the determinants of trade in tourism and comparative advantage therein based on cross-country data of incidence and the rate of endangerment of birds, as the probably best explored taxonomic group. Other exogenous variables are GDP per capita, life expectancy (as determinates for safety and infrastructure), coastline, the distance to the equator and the number of UNESCO-World-Heritage sites. The main findings are that LDCs first seem to have a comparative advantage in (sustainable) tourism, that second incidence of birds has a positive impact on inbound tourism receipts per capita, and that third the rate of endangered to total birds is negatively influencing tourism receipts.tourism, economic growth, biodiversity conservation

Can nature promote development? The role of sustainable tourism for economic growth

We analyze whether biodiversity is enhancing the development process in developing countries (DCs) via increasing tourism receipts in a trade based endogenous growth framework. The underlying assumption is that a rich biodiversity - only if used sustainably - provides a comparative advantage in tourism for most DCs. The main empirical findings are that biodiversity while being significantly and positively correlated with inbound tourism receipts in DCs, has no significant relation with tourist arrivals. This can be interpreted as an indicator that mass tourism is not influenced by biodiversity whereas individual tourism (as the superior good) is. Consequently, we are able to show empirical a positive influence of sustainable tourism on economic growth. Therefore, it may be a promising development strategy to invest in biodiversity and attract high budget tourists.tourism, economic growth, sustainable development, biodiversity conservation, cross country analysis

Debt Relief and Changing Governance Structures in Developing Countries

In this paper we empirically discuss the question whether or not debt relief in the past fifteen years has been economically rational. Analysing the determinants of debt relief our results suggest that governance quality did not play a role in the decision of creditor countries to forgive debt in the 1990s. Furthermore, even the actual debt burden of highly indebted poor countries had not been crucial for the decision whether or not debt forgiveness was granted. Rather, debt relief followed a strong path dependence: those countries whose debt had been forgiven in the first half of the 1990s have also been granted debt forgiveness in the second half of this decade. However, this allocation pattern changed at the beginning of the 21st century, where the path dependence was less strong and at least some dimensions of governance quality have been taken into account by donor countries.debt relief, HIPC, development, governance, institutional quality

Entrepreneurship and its determinants in a cross-country setting

The relative stability of differences in entrepreneurial activity across countries suggests that other than economic factors are at play. The present paper offers some new thoughts about the determinants of entrepreneurial attitudes and activities by testing the relationship between institutional variables and cross-country differences in the preferences for self-employment as well as in actual selfemployment. Data of the 25 member states of the European Union as well as the US are used. The results show that country specific (cultural) variables seem to explain the preference for entrepreneurship but not the actual entrepreneurship. The present paper also introduces the remaining four papers of the special issue of the Journal of Evolutionary Economics around the theme Entrepreneurship and Culture.

From Short-Term to Long-Term Orientation - Political Economy of the Policy Reform Process

Despite the fact that policymakers often have a short-term horizon and prefer discretionary over rule bound policy, one can observe policy reform with a focus on rules and long-term orientation. Sometimes reforms are driven by crisis, sometimes they are pursued in times of relative prosperity. The paper analyses reform processes theoretically under the assumption of imperfect knowledge. After the introduction, the second section of the paper shows that rule bound policy encourages a long-term orientation of policymakers, resulting in higher economic dynamics as compared with discretionary policy. In the third section, the political economy of the reform process, i.e. replacing discretionary by rule-bound policy, is analysed in an evolutionary setting. The basic hypothesis is that a policy reform is triggered in a feedback-process determined by four key factors: (1) an emerging shadow economy and growing corruption, (2) external, in particular international pressure, (3) increasing knowledge of policymakers with respect to the effectiveness of policy paradigms and (4) improved economic knowledge of the public. In a fourth section, we draw conclusions and present some preliminary empirical evidence.Dynamic Learning Process, Long-Term-Orientation, Rules, Consistency, Political Business Cycles, Policy Reform