Structural features of economic integration in an enlarged Europe: patterns of catching-up and industrial specialisation

This paper discusses the evolution of competitiveness, industrial and trade specialisation in the manufacturing sector of the countries of Central and Eastern Europe (CEECs). It is shown that the paths taken by the different CEECs have been quite diverse and we attempt to apply a combination of a catching-up plus trade specialisation model which is required to understand the patterns of specialisation emerging in Central and Eastern Europe.structural change, international specialisation, catching-up, convergence, central and eastern europe, eu enlargement, international integration, labour markets, Landesmann

Income distribution, technical change and the dynamics of international economic integration

This paper explores the features of a dynamic multisectoral model which focuses on the relationship between income distribution, growth and international specialization. The model is explored both for the steady-state properties and the transitory dynamics of integrated economies. Income inequality affects the patterns of growth and international specialization as the model uses non-linear Engel curves and hence different income groups are characterized by different expenditure patterns. At the same time income distribution is also reflected in the relative wage rates of skilled to unskilled workers, i.e. the skill premium, and hence the wage structure affects comparative costs of industries which have different skill intensities. The model is applied to a situation which analyses qualitatively different economic development strategies of catching-up economies (a 'Latin American' scenario and a 'South East Asian' scenario).income distribution; growth; international economic integration; catching-up; international specialization

Which Growth Model for Central and Eastern Europe after the Crisis?

This Policy Brief discusses the growth prospects of the Central and Eastern European (CEEC) region following the current economic crisis. It argues that the 'integration model of growth' of the CEEC region was characterised by a very high degree of external liberalisation. In one group of economies (mostly the Central European economies) the model turned out to be successful in that it did not generate strong structural imbalances (in trade and current accounts and in growing private sector savings-investment gaps) prior to the crisis. This was quite different in the other group (mostly the Baltic states and the countries in Southeastern Europe, SEE) where unsustainable imbalances developed in part traced back to historical weaknesses of the tradable sectors and in part to choices of exchange rate regimes, to the importance of remittances and to missing instruments to deal with cross-border financial market integration. The analysis suggests a number of factors which will characterise post-crisis condi-tions in CEECs (such as increased savings rates of the household sector, deleveraging, more restricted fiscal pol-icy space, etc.) and in external factors (lower growth in the most important Western European export markets, more difficult effective entry conditions to the EMU, etc.) and discusses an adjusted policy agenda.Finanzkrise, Konjunkturzyklus, Stabilisierungspolitik, Krisenfestigkeit

Entwicklungen der Weltwirtschaft im Kontext der Finanzmarktkrise

GERMAN: Die im August 2007 ausgebrochene Finanzkrise erfüllt alle Kriterien einer systemischen Bankenkrise. Zahlungsschwierigkeiten häufen sich, die Kapitalisierung von Banken sinkt und Aktienkurse fallen, während die realen Zinssätze steigen. Ausschlaggebend für diese Entwicklungen ist der Vertrauensverlust zwischen den Banken nach den großen Abschreibungsverlusten, die aus dem Platzen der US-Sub-Prime-Blase resultieren. Staatliche Unterstützungsmaßnahmen in den USA und im Euro-Raum konnten bislang die am Interbankenmarkt entstandene Liquiditätskrise nicht beenden. Aufgrund des hohen Leverage vieler Banken erforderten die Abschreibungsverluste eine Verkürzung der Bankbilanzen. Dieser Deleverage-Prozess zog den Verkauf von Vermögenswerten und eine restriktivere Kreditvergabe mit sich. Die internationale Vernetzung der Banken und Finanzmärkte führte dazu, dass seit September 2008 auch viele Schwellenländer und mittel- und osteuropäischen Länder (MOEL) die Finanzmarktkrise zu spüren bekamen, nachdem ausländische Investoren Kapital aus diesen Märkten abzogen. Dadurch kämpfen mittlerweile mehrere Länder mit der Finanzierung ihres Leistungsbilanzdefizits, Liquiditäts- und Währungskrisen. Die wichtigsten Kanäle für die internationale Krisenausbreitung sind dabei die internationalen Kapitalflüsse und global agierende Banken. Langfristig werden Länder mit großer Exportabhängigkeit von den USA oder dem Euro-Raum auch unter der konjunkturbedingt schwachen Nachfrage leiden. Der aufgrund der schlechten Konjunkturaussichten seit Mitte 2008 sinkende Ölpreis wird den Abbau der bestehenden externen Ungleichgewichte beschleunigen. Dazu beitragen könnte auch eine relative Verschiebung der Bedeutung von Export und Inlandsnachfrage in den Wachstumsprozessen der USA und China, während die jüngsten Wechselkursentwicklungen einem Equilibrierungsprozess entgegen laufen. Das große Wachstumsdifferential zwischen den Industrieländern und den großen Schwellenländern dürfte bis 2009 bestehen bleiben oder sich sogar ausweiten. 2009 werden die großen Schwellenländer China, Indien, Brasilien sowie Russland den überwiegenden Teil zum Wachstum der Weltwirtschaft beitragen, während der Beitrag der USA, der EU und Japans rezessionsbedingt negativ sein wird. ---- ENGLISH: Developments in the world economy in the context of the financial crisis The financial crisis that erupted in August 2007 has developed into a dramatic systemic banking crisis: the number of defaults in the banking and corporate sector increased, asset prices declined depressing the capitalisation of banks, while real interest rates increased. A major force driving this development is the loss of confidence among banks following the huge write-downs in the wake of securitization and the burst of the US-sub prime bubble. State interventions in the US and the Euro area were unable to resolve the liquidity crisis on the inter-bank market. Due to the high leverage of many banks, the incurred losses required a shortening of banks' balance sheets. The de-leveraging process implied the sale of assets and a more restrictive lending policy by banks. By September 2008 international linkages between banks and financial markets caused the financial market crisis to spread to many emerging markets and also the Central and Eastern European Countries (CEEC) as foreign investors withdrew capital from these markets. Since then many CEEC have struggled with the financing of their current account deficits, with liquidity and currency crises. Countries with strong export dependency on the US or the Euro-area started to suffer from weakened demand. Developments with regard the previously built-up large global external equilibria moved in different directions: The move into recession of many consuming countries since mid-2008 caused oil prices (and other commodity prices) to recede. This contributes towards a reduction in existing external imbalances. The sharp fall in domestic demand in the US economy is another contributing factor, whereas the latest exchange rate development (appreciating dollar) acts as a counterbalancing force in this equilibrating process. Growth differentials between industrialised countries and some of the major emerging markets mean that in 2009 in spite of the general global slow-down, it will only be the major emerging markets such as China and India which will contribute positively to the growth of the world economy, whereas the US, the EU and Japan will all make negative contributions.transitional economies, comparative study, economic growth, fiscal and monetary policy, macroeconomic forecast, macroeconomic analysis

Income Distribution, Technical Change and the Dynamics of International Economic Integration

This paper explores the features of a dynamic multisectoral model which focuses on the relationship between income distribution, growth and international specialization. The model is explored both for the steady- state properties and the transitory dynamics of integrated economies. Income inequality affects the patterns of growth and international specialization as the model uses non-linear Engel curves and hence different income groups are characterized by different expenditure patterns. At the same time income distribution is also reflected in the relative wage rates of skilled to unskilled workers, i.e. the skill premium, and hence the wage structure affects comparative costs of industries which have different skill intensities. The model is applied to a situation which analyses qualitatively different economic development strategies of catching-up economies (a 'Latin American' scenario and a 'South East Asian' scenario).income distribution, growth, international economic integration, catching-up, international specialization

Migrants and Economic Performance in the EU15: their allocations across countries, industries and job types and their (productivity) growth impacts at the sectoral and regional levels

Studies regarding the migrants’ impact upon performance variables and in particular upon productivity growth – which is the focus of this study - are few although there has been an increased interest in this area. This study addresses this issue in a cross-country and regional perspective with a focus on EU-27 countries at the industry level. In the first part of the study the focus is on employment patterns of migrants regarding their shares in employment, the composition in terms of places of origin, and an important aspect of the analysis is the study of their ‘skills’ (measured by educational attainment levels) and the utilisation of these skills relative to those of domestic workers. The second part of the study conducts a wide range of ‘descriptive econometric’ exercises analysing the relationship between migrants employment across industries and regions and output and productivity growth. We do obtain robust results with respect to the positive impact of the presence of high-skilled migrants especially in high-education-intensive industries and also more generally – but less robustly – on the relationship between productivity growth and the shares of migrants and of high-skilled migrants in overall employment. There is also an analysis of the impact of different policy settings with respect to labour market access of migrants and to anti-discrimination measures. The latter have a significant positive impact on migrants’ contribution to productivity growth. In the analysis of impacts of migrants on value added and labour productivity growth at the regional level we add migration variables to robust determinants of growth and find positive and significant relationships between migrants’ shares (and specifically of high-skilled migrants) and regional productivity growth. The limitations of the study with respect to data issues, causality and selection effects are discussed which give scope for further research.migration, productivity, employment structures

Prospects for Further (South) Eastern EU Enlargement: Form Divergence to Convergence?

This paper looks at the experience of South East Europe which – for the purposes of this paper – includes the former states of Yugoslavia except for Slovenia (i.e. Croatia, Serbia-Montenegro, Bosnia-Herzegovina, and Macedonia), Albania, and the two EU candidate countries, Bulgaria and Romania. For all these economies, accession to the EU will be the overriding driving force of the policy-making agenda for the foreseeable future, albeit with widely different time horizons in the individual economies. In Part One we describe the South East European (SEE) ‘region’ as one which has over the 1990s significantly ‘fallen behind’ in the process of economic development relative to the group of Central and Eastern European (CEE) economies which will join the EU in 2004. While developments are somewhat heterogeneous, there is, in particular, an abysmal employment record which has not even started to turn around, as well as an extremely bad productivity and export performance. In Part Two, we discuss in greater detail the conditions required to move towards a sustained growth and catching-up process. We analyse the problematic states of transition in some of the SEE economies as well as the basic disequilibria (fiscal, external, labour markets) which need to be resolved for sustained development to take place. The prospects of making up for the lost decade and dealing with the unresolved disequilibria will be a crucial issue in evaluating the prospects of EU accession some time in the future. We discuss the stumbling blocks both from the SEE side and the EU side in developing a clear perspective of integration with the EU.South East Europe, Balkan economies, convergence, EU enlargement

Potential switchovers in comparative advantage: Patterns of industrial convergence

Although there exists a vast literature on convergence and divergence of income levels across countries or regions at the aggregate level, there is only little work on convergence and/or diver- gence processes of productivity and wage levels at the more disaggregated industrial level. These are especially important in the context of international trade as these determine the dynamics of comparative advantages and the resulting trade structures between developing and developed countries. In the first theoretical part, we discuss some theoretical aspects of uneven sectoral productivity and wage catching-up processes and their links to dynamic comparative advan- tages and trade structures. In the second part we present an econometric study of catching-up of wages, productivity, and labour unit costs. The analysis is conducted at the industrial level (ISIC 3-digit) over the period 1965-1995 for a set of catching-up economies compared to more advanced countries.catching-up; comparative advantages; unit labour costs; convergence patterns; industrial development

International production, structural change and public policies in times of pandemics

The COVID-19 pandemic is reshaping the world economy at a pace never seen before. Both supply- and demand-side conditions have been affected, putting all relevant dimensions of the economy under unprecedent stress. At the time of writing this introduction, the virus is continuing to infect and kill large numbers of people in several countries, especially in the US, Brazil and India. In Europe, the contagion curve has flattened almost everywhere through the widespread application of draconian lockdown and social distancing measures. By drastically reducing interpersonal contacts, such measures were instrumental to mitigate the health consequences of the pandemic. At the same time, they caused a dramatic drop in global GDP and employment, resulting in a major economic slowdown which is paving the way for a recession even worse than the one triggered by the Great Financial Crisis of 2008