Real exchange rates,economic performance,and trade balances in the central european free trade association

The relationships between real exchange rates dynamics, domestic economic growth, and external economic positions are examined for four East European countries: Poland, Hungary, Slovakia, and the Czech Republic. Results show that in Poland the dynamic of the trade balance is independent of both the real exchange rate and industrial production. In both Hungary and Slovakia, trade balances appear to have strong autonomous components, albeit in circumstances where the influence of real exchange rates and industrial production dynamics cannot be entirely denied. The Czech Republic's situation is, however, substantially different from its Central European Free Trade Assocation partners. The growing trade balance deficit appears to be determined by both the continuing real appreciation of the Czech currency and a mildly accelerating industrial production growth. Both are the consequence of accelerating capital inflow.     

Power laws in EU country exports

International trade flows are highly concentrated in the top units of analysis. In this paper, we study the size distribution of exports at the product level, using Comext data for the 28 EU countries over the period 2002–2014. We fit power law relationships running log rank–log size regressions. The estimated Pareto exponent may be interpreted as a single measure of the inequality between the top products; it thus constitutes an alternative to other measures of export diversification. The Pareto exponent estimates are quite stable for most EU countries between 2002 and 2014. However, some countries stand out for their increase or decrease in the Pareto exponent. Some preliminary evidence suggesting negative correlation between volatility in EU country exports and export diversification at the product level is also provided.     

Is growth corrupted or bureaucratic? Panel evidence from the enlarged EU

This article aims at analysing the issue of conditional convergence in the new enlarged European Union (EU) over the period 1995–2012 by means of panel data techniques. We examined the issue of conditional convergence in the enlarged EU giving particular attention to the effects of corruption and bureaucracy on growth controlling for a widely used set of explanatory variables such as investment (domestic and foreign), human capital formation, inflation, general government final consumption and trade openness. Furthermore, we examine if growth responds differently to corruption and bureaucracy in the new EU members by means of two group-specific interaction variables to capture possible different responses to corruption and bureaucracy. The analysis reveals evidence of conditional convergence in the enlarged EU, with investment share, foreign direct investment, human capital, and country openness appearing as robust growth drivers. In contrast, inflation and government consumption rather hamper growth. Furthermore, the effects of corruption and bureaucracy on growth seem to differ across old and new EU members.     

ICT and Productivity in Europe and the United States Where Do the Differences Come From?

In this paper we analyse labour productivity growth in 51 industriesin European countries and the United States. Using shift-sharetechniques we identify the industries in which the U.S. is leadingmost strongly. With a detailed decomposition analysis we identifywhether the sources of the U.S. advantage are due to fasterproductivity growth, higher industry productivity levels relativeto the country aggregate, different employment shares or fasterchange in employment shares of rapidly growing industries. Theresults show that U.S. productivity has grown faster than inthe EU because of a larger employment share in the ICT producingsector and faster productivity growth in services industriesthat make intensive use of ICT. Wholesale and retail trade andthe financial securities industry account for most of the differencein aggregate productivity growth between the EU and the U.S.(JEL N10, O47, O57)     

Kosovo – EU trade relations: a dynamic panel poisson approach

To inform policymaking following trade liberalization between Kosovo and the EU within the framework of the Stabilisation and Association Agreement (SAA), we specify a gravity model to investigate Kosovo’s trade in goods with 28 EU countries over the period 2005–2013. We reconcile competing methodological requirements by using a dynamic Poisson approach to estimation. Together, persistent trade patterns and an unfavourable combination of demand and supply elasticities suggest that trade liberalization in isolation is not sufficient to promote exports but may need to be incorporated within a wider policy and institutional framework. In addition, our findings suggest that trade costs should be a particular focus for policy: distance has a big negative influence on Kosovo’s exports to EU countries; while diaspora communities promote Kosovo’s exports to EU markets, most likely because they offset trade costs.     

Similarity in trade structures,integration and catching‐up1

In this paper, we look at the role of export composition in the growth process, considering how increased similarity in trade structure among countries can induce catching‐up in income levels in a group of countries in transition. We analyze the sectoral export patterns of the Central and Eastern European countries (CEECs) by comparing them to those of the current members of the European Union (EU), focusing on countries’ specialization as suppliers for the EU market, and we assess whether similar export patterns foster the catching‐up process of the CEECs. Our main result is that similarity in export composition has a positive, significant and non‐linear impact on catching‐up, and seems to be driven by the growth of the main export market and delocalization of production more than by other factors.     

Income growth and atmospheric pollution in Spain: An input-output approach

The relationships between economic growth and environmental pressures are complex. Since the early nineties, the debate on these relationships has been strongly influenced by the Environmental Kuznets Curve hypothesis, which states that during the first stage of economic development environmental pressures increase as per capita income increases, but once a critical turning point has been reached these pressures diminish as income levels continue to increase. However, to date such a delinking between economic growth and emission levels has not happened for most atmospheric pollutants in Spain. The aim of this paper is to analyse the relationship between income growth and nine atmospheric pollutants in Spain. In order to obtain empirical outcomes for this analysis, we adopt an input-output approach and use NAMEA data for the nine pollutants. First, we undertake a structural decomposition analysis for the period 1995-2000 to estimate the contribution of various factors to changes in the levels of atmospheric emissions. And second, we estimate the emissions associated with the consumption patterns of different groups of households classified according to their level of expenditure.     

The J-curve in the emerging economies of Eastern Europe

Devaluation or depreciation of a currency worsens the trade balance before improving it, resulting in a J-curve pattern. A new definition of the hypothesis implies a short-run deterioration combined with the long-run improvement. By using monthly data over the January 1990–June 2005 period from 11 east European emerging economies, most of which are the new European Union (EU) members or the EU candidate countries, this article uses the bounds testing approach to cointegration and error-correction modelling and finds empirical support for the J-curve hypothesis in three countries of Bulgaria, Croatia and Russia. The results have important implications for policymakers involved in economics in terms of using exchange rate policy as a policy device to achieve real convergence toward EU standards.     

China's economic growth and its real exchange rate

The shocks that underlie China's comparatively rapid growth include gains in productivity, factor accumulation and policy reforms that increase allocative efficiency. The well-known Balassa–Samuelson hypothesis links productivity growth in tradable industries with real appreciations. Yet it relies heavily on the law of one price applying for tradable goods, against which there is now considerable evidence. In its absence, other growth shocks also affect the real exchange rate by influencing relative supply or demand for home product varieties. This paper investigates the pre-conditions for the Balassa–Samuelson hypothesis to predict a real appreciation in the Chinese case. It then quantifies the links between all growth shocks and the Chinese real exchange rate using a dynamic model of the global economy with open capital accounts and full demographic underpinnings to labor supply. The results suggest that financial capital inflows most affect the real exchange rate in the short term, while differential productivity is strong in the medium term. Contrary to expectation, in the long term demographic forces prove to be weak relative to changes in the skill composition of the labor force, which enhances services sector performance and depreciates the real exchange rate.     

Re-visiting the Savings-Led Growth Hypothesis and Its Stability in East Asian Economies

The causal relationships between savings and economic growth have been given special attention because it has significant implication on policy-making. Nevertheless, the direction of causality remains unclear as previous studies failed to provide persuasive evidence to support the savings-led growth hypothesis. Therefore, the primary aim of this study is to empirically re-investigate the savings–growth nexus in selected East Asian economies. It covers the quarterly sample period from 1970:Q1 to 2011:Q4. Our empirical results reveal that savings, economic growth and some other variables are cointegrated in these economies. Additionally, the causality results exhibit that the causal effect from savings to economic growth is stable over the period of analysis. Therefore, the probability of success in boosting economic growth through any policy action to induce greater savings is the greatest in the case of East Asian economies.     

Does tourism development promote economic growth in transition countries? A panel data analysis

This study examines causal relationships between tourism spending and economic growth in 10 transition countries for the period 1988–2011. Panel causality analysis, which accounts for dependency and heterogeneity across countries, is used herein. Our empirical results support the evidence on the direction of causality, and are consistent with the neutrality hypothesis for 3 of these 10 transition countries (i.e. Bulgaria, Romania and Slovenia). The growth hypothesis holds for Cyprus, Latvia and Slovakia while reverse relationships were found for the Czech Republic and Poland. The feedback hypothesis also holds for Estonia and Hungary. Our empirical findings provide important policy implications for the 10 transition countries being studied.     

The demand for skills and labour costs in partner countries

We analyse the consequences of trade integration in Europe (1995–2005) detecting how the labour costs in partner countries affect the domestic demand for high‐ and low‐skilled labour in ‘Old’ (EU‐15) and five ‘New’ EU member states. In general, independently of the skill level of workers, the results suggest complementarity between domestic and foreign labour. However, when we take into account the typology of sectors, the demand for the high skilled in low skill intensive sectors in ‘New’ EU members is boosted by the increase of the average labour cost in ‘Old’ EU members. Thus in low skill intensive sectors, the high skilled in ‘New’ member countries can substitute for employment in EU‐15 countries.     

What can eastern European countries learn from the Slovak economy? A twin deficit growth approach

This paper applies an extended growth model to the Slovak economy and explains the potential pitfalls that a transition economy faces on the way to converging with other advanced European countries. Our empirical analysis shows that Slovakia grew at a higher rate than that allowed by the balance-of-payments equilibrium rate and that this is consistent with the accumulation of trade deficits over time. A scenarios analysis shows that improving trade competitiveness, changing import and export shares toward a current account balance, and financing the economy at a lower cost will be the most successful ways to achieve higher growth.     

The Endogeneity of Optimum Currency Areas Criteria: Some Evidence from the European Union and Portugal

Observing the statistical relationship between business cycles correlation and trade intensity in the European Union, euro zone, and the Portuguese economy, we conclude that there is, in general, a positive effect that supports the endogeneity argument proposed by Frankel and Rose (The Economic Journal 108(449):pp. 1009–1025, 1998). However, if we analyse this relationship in sub-periods – 1967–1975, 1976–1985, 1986–1992, and 1993–2003 – we conclude that endogeneity hypothesis just hold in the first two, although the correlations are increasing. This could mean that, after the Single European Act in 1986, other forces beyond trade are contributing to business cycle synchronization. The Portuguese business cycle correlation with the European Union and the Euro zone had also increased in these four decades, despite the fact that endogeneity hypothesis is at a 90 percent confidence level. We also analyse the bilateral relationships between the Portuguese economy and the other European Union countries and find that the endogeneity is confirmed in just four cases: Spain, Ireland, Netherlands, and UK.     

How might the negative impact of higher education on growth be explained? The role of vertical qualification (mis)match in an MRW‐type model

This study explores the impact of higher education on growth in 11 new EU members over the period 2000–2016 using an augmented MRW‐type model which takes into account the quality of education and vertical mismatch. More precisely, it tests whether the accelerating increase of college graduates causes an oversupply of educated labour which, in turn, extends the qualification mismatch and adversely affects growth of per capita income. We find that an increase of the most educated labour force does not per se lead to a higher growth rate. The impact of human capital becomes positive and statistically significant only if graduates with occupations requiring tertiary education are considered in the model. In addition, the econometric outcome implies that the extent of skill mismatch is determined primarily by the rising female population with college education and the gross value added of trade‐related services.     

Free Trade and Economic Growth

This paper extends the Das (2005) model to set up an equilibrium growth model with heterogeneous labor to analyse the growth effects after trade openness. We prove that if the terms of trade large enough before opening trade, then it is more likely that opening trade would accelerate economic growth for a small open country, vice versa.     

The economic and trade effects of the UK–Korea free trade agreement on the United Kingdom,Korea, Japan,China, and the European Union

We explored a comparative static computable general equilibrium model with six regions and 12 sectors to estimate the impacts of the recent UK–Korea free trade agreement (FTA) along with the European Union (EU)–Korea FTA. The empirical results provide quantitative evidence of the impact on national GDP, national exports and imports by sector, and the changes in exports or imports among the United Kingdom, Korea, Japan, China, and the EU. The UK–Korea FTA, along with the EU–Korea FTA, increases GDP and welfare for the United Kingdom and Korea; moreover, there is a large increase in automobiles, transport equipment, and machinery exports between Korea and the United Kingdom. The GDP and welfare level of non-member countries such as Japan and China will slightly decline. Exports from the United Kingdom and Korea to non-member countries are also expected to decrease in most manufacturing sectors. The UK–Korea FTA will lead to increases in imports between the United Kingdom and Korea due to mutual trade creation effects and trade diversion effects. However, non-member countries such as Japan's exports are expected to experience a large decline in automobiles to the United Kingdom and in most manufacturing products to Korea due to the negative impact of the UK–Korea FTA.     

Free trade and economic growth: The role of talent diversity

To analyse the impact of the diversity of talent distribution on the equilibrium growth rate, this paper develops an equilibrium growth model with heterogeneous labor. We show that the growth effect after free trade depends on the diversity effect and the trade effect. In addition, we prove that if talent diversity is great enough then opening trade will stimulate economic growth. In contrast, if talent diversity is small enough then trade openness is detrimental to economic growth.     

Growing Trade in Intermediate Goods: Outsourcing,Global Sourcing,or Increasing Importance of MNE Networks?

Growth in trade is often seen to have played a dominant role in integrating national economies. Analyses of this role have, however, almost exclusively been based on trade in final goods. This paper attempts to address this problem by analyzing recent growth in intermediate goods. Three possible causes are posited for this growth: outsourcing, global sourcing, and the increasing importance of MNE networks. These are examined in two analytical frameworks: one using OECD input–output table data and one using German time‐series data. Results from both frameworks give strong support to the hypothesis that international production plays a great role in explaining the strong increase in intermediate inputs imports of developed countries. The evidence for the hypothesis that the increasing importance of the MNE network causes the growing trade in intermediate goods is especially strong. The outsourcing hypothesis receives also some support.     

Trade liberalization and institutional reforms1

The accession of Central and Eastern European (CEE) countries to the European Union (EU) is expected to lead to the new member countries becoming more like the older members, including in terms of trade. In this paper, we focus on two factors promoting CEE–EU trade integration: trade liberalization and institutional reforms. Measures of trade liberalization undertaken by both parties during the 1990s were very substantial, but did not always produce the expected upsurge of regional trade flows. Much less progress has been made in improving the functioning of CEE institutions (e.g., progress in the privatization process or in reducing corruption). Countries where most important changes at the institutional level occurred were also those that most increased their trade with the EU. Comparing the impact of these two factors, we find that improving institutions in CEE countries can generate as much trade as the removal of all tariff and non‐tariff barriers. The paper also addresses the issue of the presence of reversed causality between trade and institutions, and the pro‐trade effect of institutional similarity.