Efficiency of European Funds in the Accession Countries: The Case of Transport Infrastructure Investments in Latvia

A transport infrastructure investment as any kind of transport initiative has an impact on the monetary cost, time cost, efficiency and quality of transportation of goods and people. Prior to launching a transport initiative, all such initiatives are subject to cost benefit analyses at the national and EU level to know whether the present value of total net benefits including environmental impacts exceeds the cost. However, several important welfare issues are not sufficiently addressed in standard evaluation procedures. One issue is whether the so-called direct measurement of user benefit, which consists in quantifying changes in surplus of the users of the transport system, captures all welfare generated in the economy. Another issue is how the gains (or possibly losses) of a transport initiative are distributed among regions. The goal of this paper is to improve the understanding of the impact of transportation policies on short- and long-term spatial development in the new EU member states, which we achieve by performing a systematic and quantitative analysis of socio-economic and spatial impacts of alternative transport investments by carrying out scenario simulations. The scenario simulation results suggest that investments in railroad projects are more efficient in terms of regional welfare than road project investments.EU structural funds, economic integration, CGE

Applied General Equilibrium Analysis of Renewable Energy Policies

In this paper we develop an applied general equilibrium framework for assessing socio-economic impacts of alternative renewable energy policies and apply it to the bioenergy sector. The policy scenarios are assessed in a comparative static analysis. The numerical simulation results allow us to assess and compare welfare and distributional impacts of alternative renewable energy policies. Our empirical findings suggest that the bioenergy sector in Poland would benefit most from an indirect tax reduction. According to our simulation results, reducing the fossil energy sectors’ subsidies would be the second best policy option.Applied General Equilibrium, CGE, Renewable Energy, Bioenergy

Trade growth in a heterogeneous firm model: Evidence from South Eastern Europe

In 2007 a Free Trade Area (BFTA) will be created in the Balkans. In this paper we study the potential impact of BFTA on trade growth in the SEE. Given that welfare impacts associated with trade growth depend on the growth channels, more goods and varieties exported or at higher price or higher volume of goods and varieties are exported, in this paper we investigate the structure of integration-induced export growth in the Balkans. The empirical implementation of our analysis is complicated by the fact that firm-level trade data is not available for the SEE economies. In order to cope with this data paucity, we adopt a heterogeneous firm framework, which allows us to decompose the aggregate trade growth in two parts: the intensive margin of trade and the extensive margin of trade using only aggregate trade data. The empirical findings of our study suggest that the BFTA would primarily trigger trade growth through a growing number of exported goods (the extensive margin of trade).Thus, the actual welfare gains from trade growth in the Balkans might be larger than predicted by previous trade studies. We also found that a variable trade cost reduction would lead to higher export growth rates compared to a fixed trade cost reduction. These results allow us to draw detailed policy conclusions.Balkans, export growth, regional integration, trade costs

Integrated Appraisal of Renewable Energy Strategies: A CGE Analysis

The preparation, implementation, coordination and verification of policy measures is a complex and difficult process. This paper presents the first results of an empirical ex-ante analysis which evaluates the effects of renewable energy policies on the Polish bioenergy sector applying an Applied General Equilibrium model. The empirical results suggest that the Polish bioenergy sector benefits more from an indirect tax reduction than from the removal of fossil energy sector subsidies. Reductions in fossil energy sector output below the reference case (base run) do not impact on all fossil energy sectors equally. The crude oil and natural gas sectors lose less (gain more) compared to other fossil energy sectors by implementing renewable energy policy measures.Impact assessment, renewable energy policy, bioenergy, CGE

Can we use NEG models to predict migration flows? An example of CEE accession countries

In this paper we develop an analytically solvable and structurally estimable economic geography model and apply it to predict migration flows for the period following the CEE’s integration with the EU. The main innovation of our approach is that it endogenises both explanatory variables and the migration rate. The underlying structural parameters are estimated econometrically using a migration equation, which is derived entirely from the theoretical NEG model. Our simulations show that even relatively moderate changes in some of the explanatory variables (such as transport costs) can actuate unpredictable changes (both in sign and magnitude) in other explanatory variables (such as wages). Keeping these explanatory variables fixed, as in reduced-form models, would produce biased results. Our empirical findings advocate that there is enough evidence to predict a selective migration among the three Baltic States. However, labour mobility in the Baltic countries is sufficiently low to make the swift emergence of a core-periphery pattern very unlikely at this geographical level.Migration, economic geography, European regions, integration

Evaluation of Renewable Energy Policies

The world demand for clean and renewable energy is growing, which is a response to stringent environmental policies aimed at reducing greenhouse gas emissions; price instability on the world energy markets and declining fossil energy resource availability. The main goal of the current study is to evaluate alternative renewable energy policies, which we achieve by quantitatively assessing socio-economic impacts of selected policy instruments. In particular, we perform ex-ante scenario simulations using a general equilibrium bioenergy model. Our empirical results suggest that a fossil energy tax is more efficient than a subsidy. In line with previous studies we found that a subsidy lowers the average cost of production, a tax increases the average cost of production. Our empirical results suggest that bioenergy sector benefits more from an indirect tax reduction than from a removal of fossil energy sectors' subsidies.Emission reduction, renewable energy, policy impact assessment

Predicting European Enlargement Impacts: A Framework of Inter-regional General Equilibrium

Although the Computable General Equilibrium (CGE) model is not a new tool for analysing policy impacts, it has not gained a wide popularity in regional applications such as rural economies yet. This study demonstrates how a regional CGE model can be applied for analysing regional impacts of changing global economic conditions as well as for assessing inter-regional and inter-sectoral implications of policy changes with even limited computational resources and lacking a full range of regional economic data required by a formal CGE analysis. In the empirical analysis we have found that rural economies in the Central and Eastern European (CEE) accession countries may expect the largest welfare gains from integration into the European Union (EU) if the EU Structural Fund and CAP support measures are implemented immediately but markets are opened gradually to foreign competition.CGE, EU, regional economies, economic integration

Labour Migration in the Enlarged EU: A New Economic Geography Approach

The paper studies the impact of migration policy liberalisation on international labour migration in the enlarged EU in a structural NEG approach. The liberalisation of migration policy would induce additional 1.80 - 2.98 percent of the total EU workforce to change their country of location, with most of migrant workers relocating from the East to the West. The average net migration rate is decreasing in the level of integration, suggesting that from the economic point of view no regulatory policy responses are necessary to labour migration in the enlarged EU.Labour Migration, Economic Integration, Economic Geography, Market Access.

Structural Estimation of Variety Gains from Trade Integration in Asia

Structural Estimation of Variety Gains from Trade Integration in Asia  The present paper studies variety gains from trade integration in Asia. Applying a heterogenous Örm model we simulate trade integration in Asia in three different scenarios (CIFTA, ASEAN+3, and ASEAN+6). The paper makes three contributions to the literature. First, in addition to traditional gains from specialisation, we also account for gains arising from increased number of different varieties. Second, we explicitly account for di§erences in trade gains between variable and fixed trade cost reduction. Third, using a unique set of firm-level panel data we estimate the underlying trade modelís structural parameters econometrically. We find that the gains from trade integration are substantial. Reducing trade barriers by 15 percent induces trade growth up to 60 percent, which due to the additional extensive margin is more than in trade models with representative firms. Similarly, due due additional welfare gains from variety growth, the gains from trade are up to 17 percent higher than in models with homogenous products.Variety gains, extensive margin, trade integration, Asia, heterogenous firms.

Regional development policies modelling: a framework of general equilibrium

The changes the rural economy and society experience today are wide ranging and complex. They stem to a large extent from changing socio-economic norms and values in a society as well as from the changes of the global economy, of the market policy and trade rules. These changes affect however, not only sectoral markets, but local economies and rural areas in general (FERMAN 1999). At the same time rural economies have to meet rising environmental and recreational claims of the society, which fundamentally change both the structure and the level of goods and services demanded from rural economies (DRABENSTOTT and MEEKER 1999). The European Structural Funds as one of the most important rural development policy planning tools in the EU currently undergo a fundamental re-organisation extending the assistance programs towards Central- and Eastern European countries (VANHOVE 1999). These reforms are deep-going and wide-reaching in their nature and influence the competitiveness of rural economies in Europe in several aspects. They will alter the sectoral structure and the activity levels in rural economies as well as the economic performance of these economies in general. In order to be able to consider these economy-wide impacts of a changing institutional framework in the future rural development planning, it is utmost important to assess these a-priori (JOHNSON and SCOTT 1997). Although the ongoing reforms of the regional development policy in the EU play a significant role in changing the rules and conditions of rural economies, there is another obvious influence on the spatial dynamics of an economy, namely the decreasing importance of agriculture in rural economies. Almost all rural areas in Europe have experienced a decline in the importance of agriculture during the nineties so that only very few rural areas could now be defined as being dependent on agruculture. As a result, the economic structure of rural economies dependends more and more on service activities (LOPEZ-BAZO et al. 1999). The role of rural areas has also been altered, particularly in northern Europe, by an increase in the demand for rural ''''consumption'''' goods, for example for rural leisure goods and for rural tourism (EUROPEAN COMMISSION 1999). A further cause for the rapidly changing relationships between actors, sectors and regions in a spatial economy are the changes in production technologies as well as the emergence of completely new production technologies. The Information Technology (IT) branch, one of the most important example of the so called "New Economy" affect economic space and hence rural areas in various ways. The modern tele-commuting technologies e. g. increasingly separate places people live in and work in. This makes it for people more attractive to live rural and to work urban (DRABENSTOTT and MEEKER 1999). One consequence of these changes has been a blurring of the distinctions between rural and urban space and a concomitant change in the nature and the extent of interdependencies that exist between rural and urban areas. From an economic perspective these growing inter-regional interdependencies alter the degree to which income is generated, retained or leaked from a rural or urban economy and the extent to which regions are interdependent (PONS-NOVELL and VILADECANS-MARSAL 1999). The growing inter-regional interdependencies people live in one region, earn money in another one and spend it in a third one), however, have severe consequences in the regions- socio-economic development and, therefore, have to be considered carefully in regional development planning which requires an inter-regional analysis approach (SCHINDLER, ISRAELEVICH, HEWINGS 1997). The main goal of our study is to develop a reliable analysis tool for exploring the impacts of these changing global economic conditions of rural economies. Another objective of our study is to look for alternative rural development planning options and to compare them within the framework of the European Structural Funds in selected applicant countries. While there is little doubt among economists about the increasing importance of these Funds in Europe-s regional economic development, only few of the studies carried out so far have used an inter-regional and inter-sectoral framework to analyse policy impacts to rural and to urban regions as well as to various sectors of an economy explicitly (AZIS 1997a). Using the example of Latvia our study makes a contribution to close this research gap in understanding and predicting the causal structure of the fundamental changes regional economies experience today in Europe as well as to assess the impacts of potential changes in European regional policy setting within a framework of an inter-regional general equilibrium. We have demonstrated in our paper that an inter-regional CGE model can be quite a useful tool for analysing the impacts of changes in global economic conditions and for assessing the inter-regional as well as the inter-sectoral implications of potential policy changes even if computational resources are limited and a full range of regional economic data required by a formal CGE analysis are not available. We have also asserted in our study that a regional CGE model is an impact model permitting analysis of interdependent effects across various parts of an economy rather than a device for statistic testing of economic variables. In our empirical analysis we found out that the rural economy of Latvia, which was used as an example for Central and Eastern European accession countries, has to expect the largest welfare gains from the integration into the EU if Latvia opens its markets gradually and not if the current policy setting is continued or if it conducts a completely liberal market policy as it is favoured by the Chicago School of Economics. This argument is supported by the fact that the market protection in the EU is currently relatively high in comparison to Central and Eastern European countries. Since especially agricultural markets are highly protected in the EU, above all rural regions will gain from the integration to the EU. Moreover, since many of the rural regions in the CEE will be eligible for the financial aid foreseen within the EU Structural Funds these rural communities will be strengthened financially as well.