FDI spillovers in new EU member states

Using an unbalanced panel of firm‐level data in Bulgaria, Poland and Romania, we examine the impact of foreign firms on domestic firms’ productivity. In particular, we try to answer the following research questions: (1) Are there any spillover effects of foreign direct investments (FDI), and if so, are they positive or negative? (2) Are spillover effects more likely to occur within or across sectors? (3) Are the existence, the direction and the magnitude of spillovers conditioned by sector and firm‐specific characteristics? Our findings show that FDI spillovers exist both within and across sectors. The former arise when foreign firms operate in labour‐intensive sectors, while the latter occur when foreign firms operate in high‐tech sectors. Moreover, we find that domestic firm size conditions the exploitation of FDI spillovers even after controlling for absorptive capacity. We also detect a great deal of heterogeneity across countries consistent with the technology gap hypothesis.     

Evolution of trade patterns in the new EU member states

The paper analyses the evolution of the trade specialization pattern in the new EU member states. Relying on the empirical approach of the Markov transition matrices it analyses both the changes in the external shape of the distribution of comparative advantages and the intra‐distribution dynamics. The new members show a dynamic trade pattern: they gained comparative advantages relatively fast in sectors in which they were lagging behind at the beginning of the transition, notably in some ‘high tech’ products. In addition, many specialization improvements occurred in those items for which world demand expanded at the fastest rate over the nineties.     

The quality and variety of exports from the new EU member states

The goal of this article is to evaluate the variety and quality of exports from the new EU member states (NMSs) in the period 1999–2009. The practical relevance of such an analysis is threefold: recent studies underline the importance of export variety for economic growth; empirical results show that export variety was influenced by the EU membership; and looking separately at export quality permits a better understanding of price competitiveness. Our results show that all NMSs significantly increased the average number of brands exported to the EU market, the largest increases being observed in 2004 and after. This indicates that integration into the EU market occurs in the extensive as well as the intensive dimension. We also find that all NMSs increased the average quality of their exports during the decade studied although there are differences between countries. Thus, a large part of the increase in the prices of exports from NMSs resulted from improving quality and did not result in a loss of competitiveness. Finally, estimates of relative quality are much more stable than relative prices, suggesting that our measure of relative quality is better than the traditional proxy.     

Labour market implications of EU product market integration

European labour markets are in a state of flux due to the changing market situation induced by international integration. This process affects wage formation through more fierce product market competition and increased mobility of jobs. This development is by some observers taken to enforce labour market flexibility, while for others it signals an erosion of social standards and in turn possibly the welfare society. Since labour is not very mobile in Europe, the effects of international integration on labour markets are mostly indirect via product market integration. We review the channels through which product market integration affects labour markets and perform an empirical analysis of the convergence and interdependencies in wage formation among EU countries. We find that integration is changing labour market structures and inducing wage convergences as well as stronger wage interdependencies, but it is a gradual process. Moreover, the present study does not support the view that international integration will lead to a 'race to the bottom' and rapidly erode domestic labour markets standards, nor that it will relieve politicians of the need to consider labour market reforms to improve labour market performance.     

Public sector efficiency: evidence for new EU member states and emerging markets

In this article, we analyse public sector efficiency in the new member states of the EU compared to that in emerging markets. After a conceptual discussion of expenditure efficiency measurement, we compute efficiency scores and rankings by applying a range of measurement techniques. The study finds that expenditure efficiency across new EU member states is rather diverse especially as compared to the group of top performing emerging markets in Asia. Econometric analysis shows that higher income, civil service competence and education levels as well as the security of property rights seem to facilitate the prevention of inefficiencies in the public sector.     

Labor shares in the old and new EU member states - Sectoral effects and the role of relative prices

The paper studies the labor share among countries of the European Union, with a particular attention to the newer member states of Central and Eastern Europe (CEEU). We find that CEEU countries typically have lower labor shares than older EU member states, both in the aggregate and at the sectoral level. Structural change, while quite pronounced among the CEEU economies, plays only a minor role in the evolution of the labor share. The exception is agriculture, which for some countries has a sizable impact on the level and dynamics of the labor share - partly because of important measurement problems. We also find that a significant part of the difference in conventionally measured labor shares between the more developed EU countries and less developed CEEU countries can be attributed to differences in relative prices. This is consistent with a productivity-based explanation: we show that a simple, calibrated two-sector model with sectoral productivity differentials can explain 36–71% of cross-country variations in the non-agricultural labor share.     

Capital flows and speculative attacks in prospective EU member states1

This paper examines the capital flow experience of transition economies which are also prospective EU members with a view to shedding light on the likely problems they might encounter with exchange rate policy in the run up to euro area membership. We show that they have been experiencing fairly sizeable capital flows since the early 1990s. We explain these flows using two separate models. The first explains the level of capital flows using panel data from the prospective EU members. The second concentrates specifically on estimating the probability of a country experiencing downward speculative pressure. In both cases, the contribution of domestic factors and contagion is explored. The results suggest that, while domestic factors have some role to play, it is rather limited. Moreover, there is clear evidence of contagion effects, suggesting that macroeconomic policy in the prospective EU members will be complicated by capital flows in the run up to euro area membership.     

New EU member states and the Euro: economic readiness,benefits and costs

All of the new EU member states (NMSs) have made a commitment to adopt the Euro. This essay considers the countries’ economic readiness to adopt the Euro as well as the economic benefits and costs of adoption. Paper applies a method suggested by Bayoumi and Eichengreen (1997) and finds that the changes of real effective exchange rates between the Euro area and the new EU member states follow the pattern predicted by the optimum currency area theory. This finding allows the construction of the readiness for adoption index for every NMS. The tangible benefits (for NMSs) of adoption are also examined in this essay. Analyses suggest that the costs of currency exchange and hedging against the uncertainty in foreign exchange markets account for about 0.08–0.012% of the countries’ GDP. In addition, countries that adopt the Euro might expect lower inflation and interest rates. This essay also examines the possible costs of adoption. These are in the forms of the lost ability to use monetary policy tools and set the level of seigniorage. Analysis suggests that many countries had given up their independence over monetary policy even before the accession to the EU. In addition, bigger NMSs have not used seigniorage as the source of fiscal income. However, they used exchange rate flexibility to depreciate their currencies during the recent crisis.     

Stock market integration of emerging Asian economies: Patterns and causes

In this study, we examine the patterns and causes of stock market integration of selected emerging Asian nations against the US, Australia, China, and India for the period 1 January 2001 to 31 March 2012. We compare patterns of market integration for countries on a daily, weekly, or monthly basis using the time-varying correlation technique, namely, GARCH-dynamic conditional correlations (DCCs). In doing so, we suggest that opportunities in cross border investment vary by frequencies. We also divide daily data into subsamples and find that correlations were strongest during the global financial crisis (GFC) of 2007–09. The time varying bilateral correlations are found to be highly volatile. We also investigate the causes of identified correlations and find that apart from the GFC, the underlying economic and financial conditions have also been responsible for the higher correlations between these stock markets.     

Monetary integration strategies and perspectives of new EU countries

The poor record of economic convergence between the euro area and those countries that joined the European Union (EU) in May 2004 raises serious doubts about the possibility for the latter countries to adopt the European single currency in the not too distant future. In fact, many new EU countries would have to make considerable efforts in order to fulfil all EMU criteria by the end of the present decade. These efforts could lead to output and growth losses in these countries, which would run counter to their catching‐up process with respect to the rest of the EU. To avoid a number of shortcomings elicited by the obligation to respect the convergence criteria in the short term, and also to avoid the financial instability risks implied by participation in the ERM II, this paper suggests an alternative plan for integrating the new EU countries monetarily. The plan consists in creating a European settlement agent in charge of the final payment of the new EU countries’ international transactions. These transactions would be settled using an international monetary standard whose creation would eliminate instability on the foreign exchange market by its being the yardstick that the current international monetary system lacks.     

Relative inflation dynamics in the new EU member countries of Central and Eastern Europe

Following their EU accession, the new member countries from Central and Eastern Europe (CEE) must achieve sustainable price stability as one of the pre-conditions for joining the Economic and Monetary Union (EMU) and adopting the euro. This article examines the distribution dynamics of inflation rates in ten new EU members from CEE relative to the EMU accession benchmark inflation over the period 1990–2009. In contrast to previous studies, we use nonparametric methods to test for convergence in inflation rates between CEE and the EMU benchmark as well as within the CEE sample. Over the entire sample period, we detect a general shift in the CEE inflation distribution toward the EMU benchmark along with intradistributional convergence. However, this process is not uniform. In the early years, it was equally likely for CEE inflation rates to move toward or away from the benchmark. The resulting multimodal distribution gave way to a unimodal distribution in the years leading up to the EU accession, accompanied by a marked shift toward the EMU benchmark. In more recent years, emergence of a bimodal distribution signaled the stratification of relative inflation in CEE into two convergence clubs, which has intensified since the start of the global economic crisis.     

我国A股市场与B股市场的协整研究

运用现代经济计量学协整和Granger因果检验的方法,对我国的A股、B股股票市场之间的互动关系进行分析,结果表明B股市场对境内投资者开放后,二者开始具有均衡关系。     

Meeting Maastricht: Nominal convergence of the new member states toward EMU

This paper estimates whether the new member states (NMS) that joined the EU in 2004 have achieved a form of inflation and long-term interest rate convergence. Using quarterly data from the mid-1990s, convergence is evaluated through a series of unit root and cointegration tests. Both univariate and panel tests are performed, including tests for a large number of combinations of inflation and interest rates satisfying the Maastricht inflation and long-term interest rate criteria. It is generally found that nominal convergence in inflation has been attained among the NMS. There is, however, less evidence of convergence in long-term interest rates. Possible exceptions include Estonia and the Czech Republic and, to a lesser extent, Slovakia which has since joined the euro area. There is also a large degree of consistency between the various unit root and cointegration tests in both the univariate and panel variations.     

Stock market integration and risk premium: Empirical evidence for emerging economies of South Asia

This article investigates the dynamics of regional financial integration and its determinants in an international setting. We test a conditional version of the International Capital Asset Pricing Model (ICAPM) accounting for the deviations from Purchasing Power Parity (PPP) as well as temporal variations in both regional and local sources of risk. Using data from five major South Asian markets (Malaysia, Thailand, Singapore, Indonesia, and Sri Lanka), our results support the validity of an ICAPM and indicate that the risk is regionally priced. Furthermore, we show that changes in the degree of regional stock market integration are explained principally by the U.S. term premium, and the level of market openness, whatever the measure of currency risk. Finally, and as expected, the degree of stock market integration varies considerably over time and from one market to another. As intense market integration induces both benefits and risks, our findings should have significant implications for economic policies and market regulations in emerging, frontier-emerging and transition countries, particularly for countries from the same region.     

Stock market and investment: the signalling role of the market

The evidence in this paper suggests that the q-theory of investment is not adequate to explain capital expenditure decisions at the firm level. Managerial as well as market perception is important, with the former more critical than the latter. The results also suggest that stock market activity has only limited implications for the resource allocation process in the economy. The evidence for the q-theory, based on firm-level data, confirms the previous finding in the literature that the poor empirical performance of the model in the past has been due in part to the use of aggregate data at the economy level. These findings have important implications for the debate in the literature regarding the relationship between shareholder myopia and managerial myopia. There is a notion in the literature that the stock market puts too much pressure on managers, who in turn indulge in myopic behaviour by underinvesting for the long-term, especially by way of R and D expenditures. The results presented here suggest that, given the limited role that market perception elements play in the determination of capital expenditures at the firm-level, shareholder myopia is unlikely to lead to managerial myopia.     

Trade integration and the EU economic membership criteria

The purpose of this paper is to consider whether the European Union (EU)'s economic membership criteria for the Central and Eastern European countries (CEECs) and Cyprus (the Candidate Countries) are fulfilled. To this end, I examine the actual and potential levels of trade between the Candidate Countries and the EU countries using the gravity model. The results show a high degree of trade integration between all Candidate Countries and the EU, indicating that the Candidate Countries would not face any serious difficulties in coping with the competitive pressure and market forces within the Union in the medium term. The European Commission, however, suggested the contrary for some of the Candidate Countries in its opinions of 1997.     

Stock market reactions to environmental disclosures: new evidence from China

We study how the stock market in China responds to announcements by an environmental risk index and find that China’s stock market penalizes firms associated with unfavourable environmental news if the information is provided directly to investors in a manner that is easily understood. We also find that the negative impact on stock prices fades after multiple disclosures of the same information.