Essays on Economic Integration

Globalization has become one of the most widely used buzzwords of the late twentieth century and the early twenty-first century. People discuss them with passion, concern and sometimes disappointment. Globalization takes numerous forms, from wider coverage of trade to deeper foreign direct investment and from broader technology dissemination to larger migration of labor. Despite the hype and excitement, globalization from economic point of view simply means economic integration. In this thesis, new results are provided on properties and implications of economic integration concerning distribution of produc tion, relative growth, income inequality and exchange rates dynamics. In this section the relevance of the research is emphasized and the structure of the thesis is described.Vanuit een economisch gezichtspunt betekent globalisering simpelweg economische integratie. Kapitaalmarktintegratie blijkt niets te veranderen aan de inkomensverdeling, in zowel kapitaal exporterende als kapitaal importerende landen. Munandar stelt dat economische integratie leidt tot een situatie waarin het aandeel in de totale productie van elk lid van een geïntegreerde economie gelijk zal zijn aan zijn aandeel in de voorraad productieve factor van de geïntegreerde economie. Hij verwacht dat op lange termijn de inkomensongelijkheid bij iedere generatie zal afnemen door nivellering van de lonen. Bovendien geeft Munandar door middel van een aantal los van elkaar te lezen essays de mogelijkheid om een blik te werpen in de 'black box' van globalisering

The Limiting Distribution of Production in Integrated Economies: Evidence from US States and EU Countries

We show that in a fully integrated economy, in which there is free mobility of goods and factors, each member’s share of total output will equal its shares of total stocks of productive factors (i.e., physical and human capital). We label this result the equal-share relationship. This relationship also holds in the presence of technological differences or costs of factor mobility among members if outputs or inputs are properly measured to reflect such differences or costs. The equal-share relationship is the limiting distribution of output and factors among members of a fully integrated economy, and it constraints the set of policies that can affect each member’s relative growth within an integrated economy. We empirically examine for the equal-share relationship for alternative economic groups (i.e., US states, EU countries, Developing Countries and a World comprising 55 countries). Our findings indicate that the equal-share relationship holds strongly for US states, holds weakly for EU countries, but does not hold for Developing Countries or the World

On the Extent of Economic Integration: A Comparison of EU Countries and US States

European economic integration is commonly believed to be incomplete, and that further reforms are needed. In this context, the union of U.S. states is considered the benchmark of complete economic integration and is often the basis for comparison regarding the extent of E.U economic integration. Yet, with low trade barriers and with productive factors at least notionally mobile across E.U. countries, is the belief that U.S. states are more integrated than E.U. member states correct? To address this question, this paper first develops three theoretical predictions about the distribution of output and factors that would arise among members of a fully integrated economic area in which goods, capital and labor are freely mobile and policies are harmonized. These theoretical predictions are then empirically tested using data on the output and factor stocks of 14 E.U. member states and the 51 U.S. states (includes District of Columbia) for the period 1965 to 2000. The empirical results convincingly support each theoretical prediction. Hence, contrary to popular belief, the extent of E.U. economic integration is not statistically different from that among U.S. states

Zipf's Law for Integrated Economies

We first demonstrate that, within a fully integrated economy (FIE) in which there is free mobility of goods and factors, each FIE member's share of total FIE output will equal its shares of the total FIE stock of each productive factor. This equal-share property implies that, if economic policies are also largely harmonized across FIE members, the growth in any member's output and factor shares can be viewed as a random event. This then implies that the limit distribution of output and factor shares across FIE members will conform to a rank-share distribution that exhibits Zipf's law. This result means that growth models of FIE members must embody the assumption of homogeneity of random growth processes across members. Given its importance for our understanding of underlying growth mechanisms for such members, we empirically examine for evidence of Zipf's law for the distribution of output and factor shares of two (presumably) integrated economies: the 51 US states and 14 countries of the European Union (EU). Our findings support Zipf's law for US states and indicate convergence towards this law among EU countries

The Euro Introduction and Non-Euro Currencies

This paper documents the existence of large structural breaks in the unconditional correlations among the British pound, Norwegian krone, Swedish krona, Swiss franc, and euro exchange rates (against the US dollar) during the period 1994-2003. Using the framework of dynamic conditional correlation (DCC) models, we find that such breaks occurred both at the time the formal decision to proceed with the euro was made in December 1996 and at the time of the actual introduction of the euro in January 1999. In particular, we document that most correlations were substantially lower during the intermittent period. We also find breaks in unconditional volatilities at the same points in time, but these are of a much smaller magnitude comparatively