The Deficit–Interest Rate Connection: an empirical assessment of the EU

The progressive deterioration of public finances in most developed countries, during the last two decades, prompted an extensive discussion on the effects of government deficits on the interest rate and, consequently, on employment and economic growth. The empirical literature, largely focused on the US, is far from conclusive. This paper examines this relationship in six core EU countries using non-causality tests, including the recently proposed LA-VAR test. The evidence suggests that, contrary to the conventional economic theory, no causal effect from the deficits to the interest rate can in general be found. On the contrary, the econometric tests highlight the preponderant negative consequences of high interest rates on the government total deficit

Assessing the Endogeneity of OCA Conditions in EMU

The academic and political discussion about which countries met the conditions for joining EMU was decisively influenced by the Frankel and Rose (1997) hypothesis concerning endogenous OCA properties. The answer to their question "Is EMU more justifiable ex post than ex ante?" was a definite yes in their ex ante analysis. Our ex post examination of the euro's first decade, however suggests that the hypothesis does not hold for some countries. This paper utilizes panel data estimation techniques to compute OCA indices that help assess the OCA endogeneity hypothesis and signal current external and fiscal imbalances.Optimum currency areas; OCA index; Monetary union.

Student based funding in higher education systems with declining and uncertain enrolments: the Portuguese case

Higher education systems have generally been adapting to increasing demand, higher quality requirements and severe financial constraints. In Portugal, where public funding critically depends on the new enrolments, the short term uncertainties of declining applications exacerbate systemic long term underfunding certainties. Unfavourable demographics explain most, but not all, recent negative trends in demand for higher education. In such uncertain context strategic planning is difficult, and predicting new enrolments, and thus the volume of public funds, became a new and major challenge for universities. This paper proposes an empirical analysis of demand's main determinants, allowing a more precise picture of future enrolments and funding.demand for higher education; determinants of university participation; financing higher education; enrolments forecasting.

Determinants and projections of demand for higher education in Portugal

This paper formulates a model of demand for higher education in Portugal considering a wide range of demographic, economic, social and institutional explanatory variables. The estimation results suggest that the number of applicants reacts positively to demographic trends, graduation rates at secondary education, female participation, compulsory schooling and the recent Bologna process. Demand reacts negatively to the existence of tuition fees and to unemployment rates. Within an adverse demographic and economic context, forecasts of demand for the next two decades suggest the need to increase participation rates, to avoid funding problems in the higher education system and increase long-term economic development prospects.Demand for higher education; determinants of university participation; applications forecasting.

Monetary integration in Eastern and Southern Africa: choosing a currency peg for COMESA

African countries involved in monetary integration projects have been advised to peg their currencies against an external anchor before the definite fixing of exchange rates. In this study we estimate optimum currency area indices to determine, between four alternatives, which international currency would be the most suitable anchor for COMESA members and for a set of other selected African economies. We conclude that the euro and the British pound prevail over the US dollar or the yen; that the euro would be the best pegging for most, but not all, COMESA members; and that some of these economies display evidence of more intense integration with third countries, with which they share membership in other (overlapping) regional economic communities, than within COMESA.Optimum currency areas; Monetarry anchor; Currency pegs; African regional economic communities; African monetary integration.

Explaining Demand for Higher Education

Recognizing the crucial role of higher education for the development of nations and individuals, many countries have recently established ambitious targets for the percentage of graduates in their population by 2020. In peripheral European Union countries, however, such objectives may be difficult to attain. In fact, both the current stringent fiscal consolidation processes and the overall depressed economic environment may exert negative effects upon domestic demand for higher education. Such uncertain context increases the need for efficient policies and henceforth the value of obtaining reliable information on the variables that are more likely to influence demand. In this study, we employ the partial least squares methodology, which allows modeling with many variables, even with relatively few observations, to identify the most relevant determinants of demand for higher education. We focus in the case of Portugal, a country where applications for higher education are centralized and thus provides a long and reliable set of data on aggregate demand. The results of our empirical analysis suggest that the most relevant determinants of demand are institutional and/or policy dependent and, therefore, may be controlled by decision makers and managed to support national strategic objectives. These results, obtained for Portugal, are also useful particularly for other southern European Union countries, which share some of the Portuguese economic, social, demographic and cultural characteristics

The CEECs as FDI attractors: are they a menace to the EU periphery?

The change of economic, social and political orientation in Central and Eastern European countries (CEEC), together with their expressed intention of joining the European Union (EU) in a foreseeable future, have raised a number of challenging questions. One object of interest has been the implications of Eastern openness in terms of international capital reallocation. This paper concentrates on the issue of foreign direct investment (FDI), which is considered a major channel of economic integration. In fact, in the particular case of these countries, a dramatic change in the pattern of FDI inflows took place in recent years. A number of studies have surveyed the determinants of FDI to this region but the issue still remains relatively unexplored from the empirical point of view. Using a random effects panel data model in the analysis, we try to empirically uncover the main determinants of FDI and to examine the probability of FDI diversion from the EU periphery to these transition economies. This issue is especially interesting for the EU periphery in general, and for cheap labour suppliers such as Portugal in particular, since there are reasons to believe that ‘the east may be getting what would otherwise come south’

Monetary and Fiscal Policies in EMU: some relevant issues

The coexistence in EMU of one common monetary policy and several domestic fiscal policies raises a number of problems of both academic and political interest. First, there are reasons to assess a hypothetical need to also centralise fiscal policies in such circumstances, according to what prevails in federal states. Second, given that this hypothesis has not reached consensus in the EU, nor is it expected to do so in the near future, the issue of how to co-ordinate monetary and fiscal policies, in order to achieve the desired outcomes in both global and individual terms, arises. Third, the fact that policy spill-overs are enhanced in the EMU, the need to avoid free riding behaviour on the part of member states and the apparent non-reliance on financial markets to discipline sovereign debtors led to the option of restricting the autonomy of domestic fiscal policies by setting up constraints upon the relative levels of deficits and debts. Due to these restrictions, it is important to investigate the existence of alternative options in case of economic shocks that are specific to an economic area, or that do not equally affect all EMU members. Theory suggests that financial markets, when integrated, can provide relief by supplying the means to finance recovery. However, the lack of integration, uncovered by empirical analyses especially in peripheral EU areas, indicates that financial markets cannot be fully relied upon as mechanisms of adjustment. The current study analyses these topics of interest for monetary and fiscal policies in EMU.Regional Input, Monetary and Fiscal Policies, EMU