Russian Business Interests and the Enlarged European Union

The European Union is Russia's most important partner in foreign economic activities. With its eastward enlargement in 2004 the European Union has—not only in geographical terms—moved even closer to Russia. It should be expected that strong economic ties cause Russian business interests to influence related matters of foreign policy. This study therefore starts by identifying Russian business interests vis-a-vis the EU. Apart from those businesses already heavily involved in transactions with the EU, businesses with ambitious plans for future engagement and businesses which face heavy competition from EU companies are also included. In a second step these business interests are then analysed in detail. The specific interests of Russian companies are depicted to establish the points of conflict with EU positions. The article then describes how Russian companies lobby their government in order to gain support and how the Russian government reacts. The result is a more detailed assessment of the role of Russian business in Russia's policy towards the EU.     

Two Dimensions of Convergence: National and International Wage Adjustment Effects of Cross-border Outsourcing in Europe

The paper proposes a distinction between the two dimensions of convergence—within and between countries—when analyzing the impact of cross‐border outsourcing on real wage rates in the EU‐15 and the CEEC. In the CEEC, international outsourcing has not affected the adjustment of average real wage rates at the manufacturing industry level, but it has led to a closure of the gap within a typical EU economy. Between‐country convergence is likewise fostered by cross‐border outsourcing, supporting the hypothesis that outsourcing facilitates international factor price equalization.     

Nudging Merit Goods: Conceptual,Normative, and Practical Connections

Abstract

Mainstream economics has traditionally maintained a respect for preferences and the choices that individuals make based on them. But recent advances in psychology and behavioral economics have led scholars and policy-maker to doubt if people make wise choices in their own interests. Based on this, libertarian paternalists endorse choice interventions—nudges—designed to steer people to decisions that will better promote their interests. However, the complex, multifaceted, and subjective nature of interests implies that policy-makers are imposing externally chosen interests for people’s own when designing nudges. In this sense, policy-makers are treating the interests they choose to advance like merit goods as described by Richard Musgrave, goals or ends that are explicitly judged by policy-makers to be worth advancing even if they are not ranked highly or chosen consistently by individuals themselves. This paper will make explicit the conceptual and normative connections between nudges and merit goods, arguing that nudges can be considered delivery mechanisms for merit goods, and recommending that libertarian paternalists abandon their claim to be advancing people’s true interests and instead adopt the objective theories of good used to justify merit goods.     

Lobbying and innovation in the European Union

Aside from anecdotal evidence, lobbying activities and the role of vested interests in the EU have not been scrutinized. This article attempts to cast focus on the relationship between lobbying and aspects of innovation in the EU. The modest performance of the EU compared to the innovation frontier has been attributed to an array of factors, one of which is the adverse effect of vested interests. The lack of new, innovative enterprises has been identified as a decisive factor behind the productivity stagnation and lobbying by incumbents poses as a credible culprit. In this article, I create a novel firm-level database through the cross-fertilization of data from the growing Transparency Register (EC and EP), AMADEUS (BvD), the OECD, Eurostat, and the European Commission in order to address the complex relationship between vested interests, innovation, and competition. The preliminary findings indicate that more R&D intensive firms tend to spend significantly larger amount of funds on lobbying, primarily competing for EU grants and government procurement. Using data for country-sector concentration, I find that the relationship is stronger in the presence of low competition. Despite the improvements required in the documentation of lobbying activities, these results provide preliminary tangible evidence on the effect of vested interests on innovation performance.     

The migration of professionals within the EU: Any barriers left?

As shown by the intense legislative effort at the European Union level, the mutual recognition of professional qualifications represents an important step towards the completion of the single EU labor market. In this paper we provide the first empirical evidence on the link between intra‐EU mobility and mutual recognition of professional qualifications. Our results show that bilateral EU migration is positively affected by the destination country's rate of recognition of professional qualifications obtained in another EU member state.     

Resisting Protectionism after the Crisis: Strategic Economic Discourse and the EU–Korea Free Trade Agreement

In 2006 the European Commission announced its Global Europe strategy, which proposed pursuing a series of ambitious Free Trade Agreements (FTAs) premised on exchanging the EU's remaining ‘pockets of protection’ for market access. The first of these agreements was signed with South Korea in October 2010. This article asks how the Commission's Directorate-General (DG) for Trade could successfully conclude this agreement in the aftermath of the Financial Crisis. Given a strong mobilisation of protectionists with access to policy-makers, this liberal policy outcome cannot be explained purely in terms of institutional insulation, as in much of the literature on EU trade policy, nor be simply ‘read off’ from the material interests of societal actors. This article, therefore, develops a constructivist framework which broadens our understanding of the power of strategically invoked economic discourses. By developing a novel analytical strategy to determine the intentional invocation of such discourses, it is able to show how DG Trade constructed an ideational imperative for liberalisation in Global Europe, enabling it to overcome opposition to the EU–Korea FTA. Beyond its contribution to constructivist scholarship, this article draws attention to the neglected dimension of ideas in trade policy and highlights the continued purchase of neoliberalism after the crisis.     

JUST A BIG MISUNDERSTANDING? BIAS AND BAYESIAN AFFECTIVE POLARIZATION

I present a model of affective polarization—growth in hostility over time between two parties—via quasi-Bayesian inference. In the model, two agents repeatedly choose actions. Each choice is based on a balance of concerns for private interests and the social good. More weight is put on private interests when an agent's character is intrinsically more self-serving and when the other agent is believed to be more self-serving. Each agent Bayesian updates about the other's character, and dislikes the other more when she is perceived as more self-serving. I characterize the effects on growth in dislike of three biases: a prior bias against the other agent's character, the false consensus bias, and limited strategic thinking. Prior bias against the other's character remains constant or declines over time, and actions do not diverge. The other two biases cause actions to become more extreme over time and repeatedly be “worse” than expected, causing mutual growth in dislike, that is, affective polarization. The magnitude of dislike can become arbitrarily large—even when both players are arbitrarily “good” (unselfish). The results imply that seemingly irrelevant cognitive biases can be an important cause of the devolution of relationships, in politics and beyond, and that subtlety and unawareness of bias can be key factors driving the degree of polarization.     

Industry-level emission trading between power producers in the EU

This paper investigates how restrictions for emission trading to the energy-intensive power sector will affect the magnitude and distribution of abatement costs across EU countries vis-à-vis a comprehensive EU emission trading regime. It is found that emission trading between European power sectors allows the harvest of a major part of the efficiency gains provided by full trade as compared to strictly domestic action. However, trade restrictions may create a more unequal distribution of abatement costs across member states than is the case for a comprehensive trade regime. The reason for this is that restricted permit trade enhances secondary terms-of-trade benefits to EU member countries with low marginal abatement costs at the expense of the other EU member states.     

Cap and trade to solve environmental problems ——an analysis of approach in the EU

Environmental problem is a global problem, which has been emphasized by many countries all over the world. To handle the climate change, international community has tried many means. This paper will focus on the approach called "cap and trade", and analyze its application in the EU—the EU Emissions Trading System (EU ETS). The effectiveness of the EU ETS in different phases will be analyzed in detail, as well as the benefits of the EU ETS comparing with other means of reducing greenhouse gas. It can be found that "cap and trade" is a successful mechanism to reduce the greenhouse gas s and other countries are supposed to learn from the experience of the EU ETS.     

Coalitional Colonel Blotto Games with Application to the Economics of Alliances

In Borel’s Colonel Blotto game two players simultaneously allocate their respective endowments of a resource across n battlefields, the higher allocation wins each battlefield, and players maximize the number of battlefields won. Here we examine two players who may form an alliance before separately competing in two disjoint Colonel Blotto games against a common adversary. Despite a lack of common interests, unilateral transfers—in a direction consistent with the exploitation hypothesis—arise for a range of parameter configurations. Such transfers alter the adversary’s strategy and the combination of the direct and strategic effects benefits both allies.     

No Credit for Transition: European Institutions and German Unemployment

The Stability and Growth Pact, adopted by members of the European Union,imposes tight limits on government deficits. But since the collapse of Communism,Europe has been faced with the problems of economies in transition: and reunifiedGermany—the leading economy of the EU—combines a prosperous western stateand an eastern economy in the process of transition. In a model where unions play akey role in wage bargaining and transition imposes a substantial burden on thenational budget, we analyze the implications of balancing the budget for the path ofunemployment. Where high but temporary costs are financed by raising taxes onemployment to satisfy the Stability and Growth Pact, then the title is a misnomer:relative to a policy of `tax smoothing', the pact increases unemployment and slowsgrowth. In designing fiscal rules for Europe, the benefits of tax smoothing must beweighed in the balance along with the virtues of fiscal discipline.     

TESTING THE BAUMOL–NORDHAUS MODEL WITH EU KLEMS DATA

Baumol's (1967 ) seminal model of structural change predicts that large service industries financed mainly through taxes and social contributions—like health care and education, for instance—will acquire ever‐larger shares of total expenditures and that, concomitantly, overall productivity growth will decline. Applying a new testing strategy for Baumol's model, Nordhaus (2008 ) finds strong evidence in favor of the “cost and growth diseases” in U.S. GDP‐by‐industry data (published by the Department of Commerce's Bureau of Economic Analysis). The aim of the present paper is twofold. The first is to check whether Nordhaus's results can be reproduced using U.S. industry data from the EU KLEMS database. Second, Nordhaus's testing methodology is applied to European Union data from the same database. The results suggest that—although there are differences vis‐à‐vis the U.S.—the EU also shows symptoms of “Baumol's diseases.”     

Limited Consumer Attention in International Trade

This paper introduces a model of limited consumer attention into an otherwise standard new trade theory model with love‐of‐variety preferences and heterogeneous firms. In this setting, we show that international integration needs not be welfare enhancing if the consumers' capacity to gather and process information is limited. Rather, it intensifies competition for scarce consumer attention, which causes mutual overbidding of producers in their advertising expenditures. The mutual overbidding renders advertising—which is informative in principle—wasteful and diverts purchases to imported goods at an inefficient scale. Wasteful advertising provides scope for policy intervention in the form of an advertising tax. However, if the tax instrument is not allowed to discriminate against foreign producers, it cannot eliminate inefficient diversion of consumer purchases to imports; hence it needs not be successful in securing gains from international integration in this framework.     

Trade Effects of European Union Enlargement: an ex post model of trade between Spain and Latin America

Past research on European Union (EU) Enlargement has tended to neglect the effects on trade with non-preferred trading partners. This paper examines the consequences of EU enlargement on trade between Spain and the Latin American countries with which it has traditional economic and cultural ties. An import demand functions model was estimated for the period 1964–93. The country-level results showed that Spanish accession to the EU only had large adverse effects on its imports from Argentina. The results for non-agricultural products indicated a general absence of negative effects on Spanish imports. The aggregate results from the ex post model provide support for some, but not all, of the ex ante predictions of previous studies.     

Normative Power Europe and the Moral Economy of Africa–EU Ties: A Conceptual Reorientation of ‘Normative Power’

‘Normative power’ is an increasingly popularised concept in the study of EU external relations in fields including military policy, human rights, and international trade. Defined by Manners, it acknowledges the normative foundations of the European project, examines how Europe acts to (re)shape internationally accepted norms, and makes the claim that Europe ought to influence external partners' conception of ‘normal’ behaviour in pursuit of a just global order. This article, however, argues that a moral economy perspective is central to a critical reorientation of the concept of normative power towards appraisal of discrepancies between nominal EU norms and material EU policy outcomes. Examining Europe's ‘normative power’ in its relations with the African, Caribbean, and Pacific (ACP) countries, it demonstrates how a moral economy of ACP–EU ties has been instituted in negotiation with European ethical norms as to solidarity with ‘the poor’. Nevertheless, the moral economy of ACP–EU ties is seen not to be ‘moral’ in terms of outcomes for vulnerable citizens in ACP countries. Rather the embedding of moral norms concerning pro-poor ‘development’ has rationalised asymmetric economic ties. ‘Normative power’ is understood as the EU's utilisation of moral norms in the public legitimisation and self-rationalisation of geopolitical interest and commercial gain in its relations with external ‘partners’.     

EU Banks Rating Assignments: Is There Heterogeneity between New and Old Member Countries?

We model EU countries' bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether “old” and “new” EU countries are rated differently and to determine whether “new” ones are assigned lower ratings, ceteris paribus, than “old” ones. We find that country‐specific factors (in the form of heterogeneous intercepts) are a crucial determinant of ratings. Whilst “new” EU countries typically have lower ratings than “old” ones, after controlling for financial variables we also discover that all countries have significantly different intercepts, confirming our prior belief. This intercept heterogeneity suggests that each country's rating is assigned uniquely, after controlling for differences in financial factors, which may reflect differences in country risk and the legal and regulatory framework that banks face (such as foreclosure laws). In addition, we find that ratings may respond differently to the liquidity and operating expenses to operating income variables across countries. Typically ratings are more responsive to the former and less sensitive to the latter for “new” EU countries compared with “old” EU countries.     

Revenue Sharing and Information Exchange under Non‐discriminatory Taxation*

The international exchange of tax information, and its merits compared to withholding taxation, has emerged as a central topic in international tax policy. We characterize and compare the outcomes that emerge, in a two‐country world, with and without information exchange, under the assumption that countries are unable to tax residents and non‐residents differentially. The analysis focuses on the role of asymmetries in country size (capturing a key feature of tax havens) and on the impact and potential desirability of schemes to share the revenue raised by withholding (as under the new EU savings tax arrangements) or (more innovatively) as a consequence of information exchange. We show that, irrespective of any difference in country size, it is in the interests of both countries, in terms of tax revenue, that all revenue collected from non‐residents be transferred to the residence country—which would entail taking the EU practice even further from the norm, but is currently the standard in relation to information exchange. A withholding scheme with revenue fully reallocated in this way gives both countries more revenue than does information sharing, whatever the allocation under the latter.     

Competing Para-Sovereignties in the Borderlands of Europe

This article is broadly concerned with how we conceptualise the geography of the tensions between the nominally stable orders of the modern state system against the turbulence of the past few decades in relation to that order, especially in the realm of border controls. Specifically, it considers the rescaling and relocation of border enforcement in the European Union in relation to state sovereignty. The article argues that existing “soft” conceptualisations of the EU’s relationship to sovereignty and bordering—“shared,” “joint,” “multi-level,” “consociational”—are inadequate to understand the transformations of exercises of sovereign power in European borderlands. Instead, we are witnessing the emergence of competing para-sovereignties acting within the same spaces, with both traditional states and the incipient state-like EU fulfilling particular bit roles in realms that were traditionally viewed as the exclusive responsibilities of modern, sovereign, territorial states. This dynamic is made visible in recent years in observing individual humans negotiate and subvert the fluid political geographies of European border space. Examples are taken from the activities of the EU border agency Frontex in southeastern Europe.     

An Economic Analysis of the Language Market

Two savages, who had never been taught to speak, but had been brought up remote from the societies of men, would naturally begin to form that language by which they would endeavor to make their mutual wants intelligible to each other, by uttering certain sounds whenever they meant to denote certain objectives.—Adam Smith. The consequences of Adam Smith's prediction are examined by Abrams in a modern context.     

Foreign portfolio diversification and risk-sharing

We investigate income smoothing associated with international portfolio diversification by decomposing the net factor income (NFI) channel into interests, dividends and retained earnings, for OECD and EU countries. We find that interest receipts and equity dividend payments contribute significantly to absorb domestic income shocks. Geographically concentrated portfolios and, in particular, biases toward EU markets have a strong negative effect on the degree of risk-sharing.