Location choices of multinational firms in Europe: The role of EU cohesion policy

Using data on 5509 foreign subsidiaries established in 50 regions of 8 EU countries over the period 1991-1999, we estimate a mixed logit model of the location choice of multinational firms in Europe. In particular, we focus on the role of EU Cohesion Policy in attracting foreign investors from both within and outside Europe. We find that, after controlling for the role of agglomeration economies as well as a number of other regional and country characteristics and allowing for a very flexible correlation pattern among choices, Structural and Cohesion funds allocated by the EU to laggard regions have indeed contributed to attracting multinationals. These policies as well as other determinants play a different role in the case of European investors as opposed to non-European ones.     

Eastward enlargement of the EU: Will agricultural policy be an obstacle?

The political preparations for enlarging the European Union to include the Central European countries are in full swing, but economic policy preparations have not yet begun. There is a need for adjustment primarily in the Central European countries, but also in sensitive areas in the EU itself, particularly the Common Agricultural Policy. Will agricultural policy be an obstacle to eastward enlargement?     

The impact of EU common agricultural policy decoupling on farm households: Income vs. investment effects

This paper analyses the effects of decoupling (as introduced in the 2003 reform of the EU Common Agricultural Policy) on farm income and investment behaviour. The results of a dynamic multi-objective household model for 80 farm households in 8 EU countries are analysed and presented through a measure of investment-income elasticity as a reaction to decoupling. The results highlight the differing and contrasting reactions of farm households to policy changes. The main conclusion is that the diversity of farm specialisations and the dynamics of long-term adaptation should be taken into account more explicitly in the evaluation of policy impacts on EU farming systems.     

Economic Benefits of Gender Equality in the EU

To analyse how gender equality measures can contribute to economic growth in the EU, the European Institute for Gender Equality studied the impacts of reducing gender inequalities in areas relevant from a macroeconomic perspective: STEM education, labour market activity and pay. It also considered the demographic changes that would take place if these gender gaps are reduced and a more equal distribution of unpaid care work between women and men is achieved. The study is the first of its kind to use a robust econometric model to estimate a broad range of macroeconomic benefits of gender equality at the EU level. The results of the modelling show that improved gender equality would have a largely positive effect on GDP per capita and on employment of women. The positive impacts are due to an increase in productivity and an improvement to the potential productive capacity of the economy.     

Financing EU cohesion policy in Central and Eastern Europe

Following publication of Agenda 2000 the EU Commission has been criticised as overly optimistic on the budgetary consequences of the envisaged accession of a number of Central and East European Countries. This article briefly reviews the evolution of regional disparities within the EU and the impact of the Structural and Cohesion Funds on the present recipient regions. It then investigates whether it is financially feasible to extend EU regional policy to the five likely new CEEC member states without a major reform of the present system.     

Impact of EU agricultural policy on developing countries: A Uganda case study

Despite substantial reforms, the European Union (EU)'s Common Agricultural Policy (CAP) is still criticised for its detrimental effects on developing countries. This paper provides updated evidence on the impact of the CAP on one developing country, Uganda. It goes beyond estimating macrolevel economic effects by analysing the impacts on poverty. The policy simulation results show that eliminating EU agricultural support would have marginal but nonetheless positive impacts on the Ugandan economy and its poverty indicators. From the perspective of the EU's commitment to policy coherence for development, this supports the view that further reducing EU agricultural support would be positive for development.     

Access of Tunisian Fruits and Vegetables to the EU Market: Potential Impacts of the Revision of the Entry Price System

Agricultural trade flows worldwide continue to be subject to country restrictions of a tariff and non-tariff nature. This is more so in the case of fruits and vegetables in view of their multiplicity. This hinders the exports of these products, which is an important objective sought by the economy of Tunisia. This article simulates the potential consequences of a possible opening up of the European market borders on fruits and vegetables coming from Tunisia and the rest of the world (ROW), following alternative tariff reduction schemes of the entry price mechanism practiced by the EU, particularly in its ad-valorem duty. The analysis uses a partial equilibrium model that takes into consideration economic aspects related to the exports of these products, regardless of their interactions with other agricultural commodities. The model is composed of a series of behavioral equations describing excess demand and supply of fruits and vegetables of all trading partners and attempts to simulate “international” market equilibrium for these commodities. Tomatoes, oranges and peaches were selected for the analysis and three trading blocs were taken into consideration: The European Union, Tunisia and the ROW. Two policy scenarios were examined (a) reduction by one third of the ad-valorem tariff and (b) its total elimination. The results suggest that the impacts would be concentrated in specific periods, varying with products and regions. In addition to possible trade volumes, Tunisia and other countries may also gain in value from exports. A significant increase in the prices of peaches and tomatoes for Tunisia would result from the liberalization process of the EU market. Volumes and prices of EU domestic supplies would however exhibit moderate reductions.     

EU Enlargement Creating a Framework for the Eu-Russian Rapprochement

Abstract

The Eastern enlargement of the European Union has substantial influence on EU external policy and its relations with non-EU countries, including Russia. In this situation, Russia's main concern is to avoid the creation of new dividing lines after the enlargement. This paper will argue that instead of dividing Europe, the EU enlargement would create a framework for further cooperation and eventually rapprochement between the EU and Russia. Therefore, Russia would be able to benefit from this process. The paper will analyse the consequences of the EU enlargement for Russia and examine the main political concepts determining directions of this rapprochement between the European Union and Russia: New Neighbourhood, Common Spaces and Eastern dimension.     

Estonian foreign trade on the threshold of joining the EU

Estonia, together with Poland and Hungary, heads the list of eastern European candidate countries in its progress towards meeting the criteria for EU membership, according to the assessment by the European Commission published in November 2000. Estonian foreign trade still shows a deficit, however. The following article analyses the reasons for this, evaluates the effects to be expected from EU membership and discusses the policy implications. The article was written under the frame-work of grant no. 3974 of the Estonian Science Foundation.     

EU Enlargement and the Portuguese Economy

The main focus of the present paper is on the emerging and likely future trade effects of enlargement. Though our particular concern is with Portugal, we set the scene by comparing the trade structures of the 10 countries of Central and Eastern Europe (i.e. the eight CEE accession states plus Bulgaria and Romania) – including an analysis of the individual cases of the Czech Republic, Hungary and Poland – with those of the EU15 as a whole, and with those of the 4 EU cohesion countries. The elimination of trade barriers between incumbents and accession states will have two trade‐related effects on EU incumbents: an increase in bilateral flows with the CEEC and a shift effect as the CEEC displace some incumbent exports to EU markets. The first effect is likely to be strongest for those incumbents for which there is a strong overlap between their export structure and the import structure of the CEEC. Portugal emerges as one of the economies with the least overlap. The displacement effect, we conclude, is likely to be particularly strong in the case of Portugal, given the high degree of similarity between Portuguese exports and those of the CEEC. Portugal appears to be ‘being squeezed from below’ in that, for the majority of its traditional export sectors, the CEEC became progressively more competitive during the second half of the 1990's. Portuguese specialisation was increasingly confined to low‐technology, low‐added‐value sectors with declining demand, as strong FDI inflows to the CEEC led to an increasing preponderance of more dynamic sectors in their export structures. Thus, Portugal is also being squeezed from above. This suggests that there may be substantial industrial disruption, in response to which labour‐market flexibility and dynamic entrepreneurial response is crucial. Intersectoral mobility is generally easier the more highly educated the workforce – an indicator on which Portugal scores poorly. The Portuguese labour market, however, displays a high degree of flexibility, consistent with its long lasting low rate of unemployment. Continued flexibility will help minimise these likely adjustment costs. Besides the trade and industry effects, other topics considered in the paper include the implications of enlargement for Portugal's ability to attract FDI, the likely consequences for Portugal of inward migration from the CEEC to the EU, and the implications of enlargement for Portugal's budgetary relations with the rest of the EU.     

Migration and institutions: Evidence from internal EU mobility

Despite the formal achievement of the free movement of labour within the EU , the institutional characteristics of the labour markets of the Member States may influence European mobility. The paper seeks empirical evidence of the relationship between labour market institutions and intra‐EU migrations, estimating a gravity model for bilateral migration for the period 2001–11. The results indicate that trade union density negatively correlates with the size of bilateral migrations: destinations with relatively high union density are associated with lower migration inflows. Since these countries tend to have a relatively flat earnings distribution, it is also investigated whether their earnings structure reduces their attractiveness as destinations hindering the access to their labour market. Even if a dependence between the earnings dispersion and migrations is found, trade union density remains the main driver of migration patterns. Clear effects of employment protection on EU mobility are not found.     

The EU Commission's proposals for reform of the CAP

Reform of the Common Agricultural Policy continues to be one of the major challenges facing the EU. In its mid-term review of the Agenda 2000 the European Commission has presented a number of proposals which are discussed by the contributors to this Forum.     

Turkey: Toward EU Accession

The purpose of this paper is to study selected aspects of Turkish accession to the EU. Joining the EU will require that Turkey attains macroeconomic stability, adopts the Common Agricultural Policy, and liberalizes its services and network industries. Furthermore, joining the EU will require Turkey to adopt and implement the whole body of EU legislation and standards – the acquis communautaire. According to the EU membership criteria, new members must be able to demonstrate the ‘ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union’. Thus Turkey will be expected to adopt the euro when it is ready to do so, but not immediately upon accession. Integration will boost allocative efficiency in the Turkish economy which in turn will make the country a better place to invest. Furthermore, Turkey will reap the benefits from monetary integration and from migration of labour to the EU. But the welfare gains will have a price, and the price will be the adjustment costs associated with the adoption of the acquis communautaire. The final section of the paper considers the effects of accession on the EU in terms of migration and budgetary effects.     

Productivity,Employment and Growth in European Integration

We compare the evolution of key macroeconomic indices for the European Union (EU), viewed as a unified economy, with that of the USA and Japan for the period 1950–95, report the process of convergence in the EU, and analyze the effect of its potential enlargement through the accession of 10 Central and Eastern European countries (CEEC) that are in active negotiation for EU membership. The EU has followed a path of rising labor productivity, declining capital productivity and rising capital intensity typical of advanced capitalist economies. Its productivities in the 1990s lie between those of the USA and Japan. There is evidence of convergence of EU-15 relative labor productivity and capital intensity levels to those of the USA. Relative real wages also seem to be converging. Profit rates in all three economies fell, most rapidly before 1975. There is a general pattern of convergence in the EU members in the evolution of labor productivity, capital productivity, real wage, gross profit rate, investment per worker, consumption per worker and capital intensity. The evidence for a specific membership effect on convergence is weak. The CEEC have much lower relative labor and capital productivity than any other countries that have entered the EU. The process of development in the CEEC will have to follow an atypical path of increasing or constant capital productivity and rising labor productivity in order to converge to EU norms. EU membership might have a positive impact on the prospective economic growth in the CEEC in these respects, as the vehicle for the transmission of critical changes in technology and productive organization.     

Growth crisis in the EU — challenges and prospects

The following article uses a production function approach to analyse the long-term trends of the European growth potential. It describes the possibility of a further significant decline in the potential growth rate and the mechanisms of this decline. EU Member States are divided into five country groups, and the potential growth rates of each of these as well as the contribution of different growth factors are analysed. The great challenges facing the “catch-up” (Mediterranean and new) Member States with regard to convergence are outlined. Finally, the paper summarises the long-term trends, the impacts of potential shock scenarios on potential growth and the new risks originating from the crisis.     

Reform of the EU Sugar Market

After years of negotiations, the European Union finally reformed its sugar market in November 2005. Unilateral trade concessions, ongoing WTO negotiations and internal pressures were pushing the EU for a change. The following short article highlights some of the key features of the reform and the implications for EU member countries, world sugar markets and countries that currently enjoy preferential access to the EU market.      

EU accession: Negotiating “environmental dumping”?

“Environmental dumping” is a concern frequently raised in discussions on the potential risks involved in the eastern enlargement of the European Union¹ (EU).² There is a general concern that the Central and Eastern European accession countries may be neither willing nor able to fully apply the EU’s environmental acquis communautaire, the body of Community environmental legislation, once they have joined the EU. As a result, these countries would benefit from a competitive advantage when selling their goods on the Internal Market. This article asks whether, and in which specific cases, such concerns may be justified.     

Evaluation of the Information and Communications Infrastructures of Bulgaria and Romania Following Their Accession to the EU

ABSTRACT

The European Union (EU) completed a massive expansion in 2004. On January 1, 2007 Bulgaria and Romania were admitted into the union. EU accession requires the fulfillment of a list of requirements relating to judicial, economic, information and social infrastructures. This article examines Bulgaria's and Romania's National Information Infrastructures (NII) analyzing traditional, high technology and competitive structures. Comparisons are made to the original 15 European Union member countries' (EU15) NII structures and to those ten countries which entered in 2004 (EU10). Results of the analysis indicate that Bulgaria and Romania compare favorably on traditional measures, though high technology infrastructures lag considerably in some instances, and will be costly to build well beyond available EU funding sources. The gap will provide opportunities for western high technology firms which should be favorably embraced by the two resource strapped governments.     

EU enlargement and labour markets in the CEECs

The implications for labour markets are central to any political and economic evaluation of EU Eastern enlargement. The resulting new levels of unemployment and of wages will have direct effects on social welfare in the acceding countries as well as in the present member states of the EU. Furthermore, employment and wages are substantial factors of political stability in the central and eastern European countries (CEECs). The following paper analyses the present situation on the labour markets in the CEECs and discusses the effects of their reintegration into the Western European system and the resulting implications for labour market and wage policy institutions. Helpful comments by participants of the 2nd convention of the CEEISA “Globalisation of International Relations—Implications for Central and Eastern European Countries”, Warsaw, 15–17 June 2000, and of the 4th International IMAD Conference “Institutions in Transition”, Portoroz (Slovenia), 23–24 June 2000, are gratefully acknowledged.