The Fading Attraction of Central Regions: an Empirical Note on Core–Periphery Gradients in Western Europe

Abstract

This paper describes sectoral core–periphery gradients across Western European regions over the period 1975–2000, and it estimates the impact of EU membership on countries’ internal geography. Overall, it is found that the centrality of European regions has been losing importance as a determinant for the location of employment. Central regions have gained employment share in none of the eight broad sectors analysed, whereas peripheral regions have significantly gained employment share in four of these sectors. Accession to the EU has favoured countries’ peripheral regions in terms of manufacturing employment and their central regions in terms of service employment.     

There is no smoke without a fire: The effect of government interventions in less advanced economies

The lack of liquidity in the interbank market during the crisis of 2007–2011 led governments to impose different policies to rescue their countries’ banking sectors. While in advanced countries interventions in the banking sector were mostly related to a lack of liquidity and significant asymmetric information regarding counterparty risk, in many less advanced countries they had a precautionary motive. In our article, we investigate the effectiveness of policy interventions on healthy banking markets, with possible negative spill-over effects from other countries. To this extent, we use an event study methodology to test the effect of liquidity and financial sector policy announcements on interbank spread changes in six Central and Eastern European (CEE) countries over the period between 2007 and 2011. We find that standard liquidity interventions did not provide effective stabilization. In fact, our evidence suggests that the spread widened after their announcement, probably as a result of the negative signal and consequently increased risk aversion of banks. In such situations, regulators should consider policy instruments that aim to decrease uncertainty in the market.     

Trust and corruption: The influence of positive and negative social capital on the economic development in the European Union

Why are the Scandinavian countries in the European Union significantly richer than Southern/Eastern European countries? We try to answer this question from an empirical social capital perspective. In particular, we are interested in the interplay of social trust as a positive and corruption as a negative manifestation of social capital. The opportunities to provide answers by multivariate modelling are, however, limited by several problems related to small sample size and low degrees of freedom. Regarding these problems, we test the interrelating influences between positive and negative social capital by applying a path model that accounts for Granger-like causal effects. Our empirical results, referring to a sample of up to 25 EU countries, show that corruption might harm poor European countries but is not able to affect social trust. However, corruption in itself means that resources end up in the wrong places and not in socioeconomically optimal investments. There is, therefore, a direct damaging effect of corruption on wealth. This implies that economic actors have to invest higher transaction and control costs which will bind resources to non-productive purposes and thus destroy economic wealth. Most remarkable is that the augmentation of positive social capital could work as an effective counterforce to corruption, even if it does not compensate for the economic loss caused by corruption. Thus, adding the social capital perspective may contribute to understanding present day variation in the wealth of European nations by the damaging effect of corrupt activities and/or the positive force of social trust.     

Accounting Accruals and Stock Returns: Evidence from European Equity Markets

Abstract

In this paper, I show a generalisation of the negative relation of traditional accruals and percent accruals with future returns in 11 of 16 European countries. Positive abnormal returns from hedge portfolios on both accrual measures summarise the economic significance of this generalisation. The magnitude of returns obtained from traditional accruals is higher than that obtained from percent accruals, contrary to existing evidence from the U.S. capital market. The magnitude of the accrual effect on stock returns based on both accrual measures is stronger in countries with higher individualism, lower uncertainty avoidance, higher equity-market development, higher equity-market liquidity, lower transaction costs, higher analyst coverage, lower analyst optimism, and lower ownership concentration. In markets where minorities have legal protection against expropriation by corporate insiders and where accrual accounting is permitted, the accrual effect based only on percent accruals is positive. Earnings opacity does not appear to exhibit a significant influence. Overall, the evidence suggests that cross-country differences in culture, equity-market setting, analysts' research output, investor protection, and ownership structure play an important role in explaining variation on the magnitude of the accrual anomaly in Europe.     

The impact of obesity on employment

Using data from two rounds of the Health Survey for England I investigate the impact of obesity on employment. I use three approaches: a univariate probit model; propensity score matching; and IV regression using a recursive bivariate probit model. Conditional on a comprehensive set of covariates, the findings show that obesity has a statistically significant and negative effect on employment in both males and females. In males the endogeneity of obesity does not significantly affect the estimates, and the magnitude of effect is similar across the three methods. In females, failure to account for endogeneity leads to underestimation of the negative impact of obesity on employment.     

Does financial development stimulate environmental sustainability? Evidence from a panel study of 115 countries

This paper investigates the moderation effect of financial development (FD) on the environmental Kuznets curve (EKC). Using comprehensive panel data of 115 countries spanning the 1990–2016 period and dividing the countries into different income groups, the researcher found systematic differences in the relationship between significant indicators of environmental degradation and economic growth. More specifically, the interaction effect of FD on the relationship between gross domestic product (GDP) growth and CO₂ emissions are positive; nevertheless, the interaction effect of FD on the relationship between GDP squared and CO₂ emissions become negative for all income groups and therefore supports the EKC. Moreover, the interaction effect of FD is negative on the relationship of GDP with both CH₄ and PM_2.5 emissions in the middle‐income groups, whereas the interaction effect of FD on the relationship between GDP squared and PM_2.5 emissions are negative for the high‐income group. Our results suggest that FD can reduce environmental degradation without adversely impacting on growth.     

ARE THE OUTPUT EFFECTS OF MONETARY POLICY ASYMMETRIC? EVIDENCE FROM A SAMPLE OF EUROPEAN COUNTRIES

ABSTRACT This paper examines whether the effects of monetary policy on output in Europe are asymmetric. Data from the 1953–90 period are used to identify money-supply shocks and their effects on output for a panel of 18 European countries. Many different specifications and estimation methods strongly support asymmetry: negative money-supply shocks are shown to have a statistically significant effect on output, whereas the effect of positive shocks is statistically insignificant. A similar asymmetry governs the output effects of interest rate changes. The sources of these asymmetries are traced to similar behavior for consumption and investment. These findings imply that positive money-supply shocks may be an ineffective anti-recession policy, and more generally, that the monetary component of the optimal stabilization policy should be less activist than generally thought.     

Retirement timing in Europe: does sector make a difference?

This study uses Survey of Health, Ageing and Retirement in Europe data and event history analysis to determine the effect of sector of employment on retirement timing of older workers aged 50+ in 11 European countries. The findings suggest that older workers in the industrial and financial sectors retire earlier than those in the service sector.     

Fiscal policies and business cycles in an enlarged euro area

This paper compares the cyclical properties of fiscal policies across the 12 original eurozone countries and the future members from Central and Eastern Europe. For the sample period 1995–2005, the fiscal balance exhibits less inertia and is more counter-cyclical in Central and Eastern European countries than in members of the eurozone. The main differences arise from the revenue side. Differences in the formation of fiscal policy between current and future eurozone countries decrease over time. Both autonomous and counter-cyclical fiscal policies have little or no effect on cyclical variability in the eurozone countries, while such policies appear to be effective in Central and Eastern European countries.     

The price responsiveness of housing supply in OECD countries

The responsiveness of housing supply to changes in prices bears important implications for the evolution of housing prices and the speed of adjustment of housing markets. Based on a stock-flow model of the housing market estimated within an error correction framework, this paper estimates the long-run price elasticity of new housing supply in 21 OECD countries. Estimates suggest that the responsiveness of housing supply to price changes varies substantially across countries. It is relatively more flexible in North America and some Nordic countries, while it is more rigid in continental European countries and in the United Kingdom. The responsiveness of housing supply depends not only on national geographical and urban characteristics but also on policies, such as land use and planning regulations.     

What matters in disclosures of key audit matters: Evidence from Europe

New regulation in the European Union has introduced the mandatory disclosure of key audit matters (KAMs) to audit reports. The EU has identified KAMs as significant risks, significant transactions or events, or significant judgments by auditors. This paper aims to determine the factors that influence the number of KAMs that auditors disclose in the main European countries under the new regulation. We predict that the litigation risk, reputation loss, auditor–client relationship, precision of accounting standards, and the effect of regulators and supervisors’ activities affect the number of KAMs that auditors disclose. The sample consists of firms on the FTSE 100, CAC 40, or AEX 25 that have disclosed KAMs at the 2016 fiscal year‐end. In line with our hypotheses, the findings show that a higher number of business segments (complexity) and more precise accounting standards lead to the disclosure of a higher number of KAMs. Contrary to our expectations, the results indicate that a positive association exists between the audit fee and the number of KAMs disclosed. As audit fees can be related to higher client risk, this finding could indicate that litigation risk dominates any auditor–client dependence. Further, although auditors often view their audits of banks as complex, the findings show a negative association between banks and the number of disclosed KAMs. This evidence may be related to the fact that financial institutions are in a highly regulated and supervised industry that reduces the need to disclose the KAMs.     

The role of fiscal policies for external imbalances: Evidence from the European Union

We revisit the relation between budget deficits and current account deficits for 28 European Union countries from 1996 to 2019. We find that an increase in budget deficit of 1 pp of GDP results in a deterioration of the current account deficit of 0.318 pp of GDP, which supports the Twin Deficits Hypothesis. On the other hand, dynamic panel estimates partially corroborate the Ricardian Equivalence Hypothesis in the presence of a fiscal rules index. In addition: i) the relation between the two deficits is asymmetric and the negative impact of the recent Eurozone banking and sovereign debt crisis on the current account balance is observed; ii) with right-wing governments, the impact of the budget balance on the current account balance is mitigated; if the government is on the left, the impact of the budget balance on the current account balance is amplified; iii) after 2010, the budget balance positively affects the current account balance; and iv) the positive impact of the budget balance on the current account balance is higher in the cases of non-Eurozone countries, high budget deficit countries, and low exports countries, whereas it is lower in the cases of Eurozone countries, low budget deficit countries, and high exports countries.     

The productivity of transport infrastructure investment: A meta-analysis of empirical evidence

Investments in transport infrastructure have been widely used by decision makers to encourage economic growth, particularly during periods of economic downturn. There has been extensive research on the linkage between transport infrastructure and economic performance since the late 1980s, characterised by widely varying evidence. We conduct a meta-analysis of the empirical evidence on the output elasticity of transport infrastructure, based on a sample of 563 estimates obtained from 33 studies. Previous meta-analyses have focused on total public capital and hence cannot appropriately explain the wide variation in the productivity effect of transport infrastructure nor provide guidance to policymakers on the returns to investment in different types of transport infrastructure. Our results indicate that the existing estimates of the productivity effect of transport infrastructure can vary across main industry groups, tend to be higher for the US economy than for European countries, and are higher for roads compared to other modes of transport. The variation in the estimates of the output elasticity of transport is also explained by differences in the methods and data used in previous studies. Failing to control for unobserved heterogeneity and spurious associations tends to result in higher values, while failing to control for urbanisation and congestion levels leads to omitted variable bias. These findings can be used to inform future research on the choice of model specification and estimation and transport-related policy making.     

Disability and the labor force participation of older men in Canada

I use a latent variable model to estimate the effect of disability status on the labor force participation of older men in Canada, with data from the National Population Health Survey. The estimates from this paper indicate that disability status has a large negative effect on the labor force participation of older Canadian males. It is difficult to compare these estimates with previous Canadian estimates because of differences in methodology and data. However, my estimates appear to be larger than those from US data. Some of the implications of these estimates for disability policy are also discussed.     

Ageing of routine jobs in Europe

We study how the de-routinisation of jobs affects workers at different ages in 12 European countries. We combine O*NET occupation content data with EU-LFS individual data for the 1998–2015 period to construct five task content measures: non-routine cognitive analytical, non-routine cognitive interpersonal, routine cognitive, routine manual, and non-routine manual physical. We find that the shift away from routine work and toward non-routine work occurred much faster among workers aged between 25 and 44 than among older workers. In the majority of countries, the ageing of the workforce occurred more quickly in occupations that were initially more routine-intensive, as the share of older workers in these occupations was rising and the share of young workers declining. At the same time, the unemployment risk related to the routine task intensity was increasing, especially among individuals between the ages of 15 and 34, and to a larger extent in countries with fast ICT capital growth and in countries not increasing their participation in global value chains.     

Navigating through firm–environmental groups' relationships: The impact of societal trust on corporate environmental strategy

This study examines the impact of societal trust on corporate environmental strategy with particular reference to the firm–environmental groups' relationship, which has received very little attention in trust literature. Using data on 2332 firms from 16 countries, we find that societal trust exerts a negative effect on the likelihood of ISO 14001 certification. The negative relationship between societal trust and the likelihood of ISO 14001 is more pronounced for firms having intense collaboration with environmental groups. However, this effect appears to be weak in higher market uncertainty. These findings, besides significantly adding to the literature, have practical and managerial implications.     

Future of capitalism: Is it failing?

This special issue includes six papers on issues regarding the recent 2007–2009 global financial crisis. They discuss the underlying reasons for the crisis, offer reforms for preventing future crises, and provide some empirical estimates of the unit price of risk associated with the crisis. In addition, the experience of some individual countries and the European Union dealing with the crisis is explored. Regarding future prospects, the appetite of Chinese and Indian citizens for a capitalistic society is evaluated, and it is investigated whether capitalism is a necessary condition for political freedom.     

Do Danes and Italians Rate Life Satisfaction in the Same Way? Using Vignettes to Correct for Individual‐Specific Scale Biases

Self‐reported life satisfaction is highly heterogeneous across similar countries, a phenomenon that may be explained by the different scales and benchmarks that people use to evaluate themselves. This study uses cross‐sectional data gathered from older populations in ten European countries to compare estimates from a model that assumes reporting styles are constant across respondents against estimates from a model in which anchoring vignettes help correct for individual‐specific scale biases. Variations in response scales explain much of the difference in the raw data. Moreover, the cross‐country ranking in life satisfaction depends significantly on scale biases.     

Just vote no! Union–busting in the European fast–food industry: the case of McDonald’s

This paper examines the problem of effectively regulating the labour relations practices of multinational corporations. It focuses on the activities of the McDonald’s Corporation in a number of European countries. The findings suggest that public and private codes of conduct have a very limited effect and that determined and well–resourced corporations can not only undermine regional forms of regulation—such as that provided by the European Union—but also, and to a considerable extent, national–level regulation. This is particularly evident in the area of independent trade union representation. Although its aim of avoiding collective bargaining and union recognition wherever possible is only partially successful, McDonald’s appears to have developed a number of highly effective strategies for limiting the presence of trade unions at restaurant level, particularly in avoiding or undermining statutory works councils and union representation rights.     

The exchange rate pass-through in the new EU member states

This paper aims to complete our understanding of the relationship between changes in nominal effective exchange rates and prices in the new EU member states. I investigate the exchange rate pass-through to import, producer and consumer prices for ten Central and Eastern European countries with quarterly data from January 1996 to December 2011. In a first step, the pass-through estimates are derived from a dynamic panel data model through the generalized method of moments. A statistically significant exchange rate pass-through to consumer, producer and import prices is found, both in the short and long run. In a second step, I proceed to an individual analysis, country by country, and find support for an increased heterogeneity in the exchange rate pass-through estimates. In a third step, I assess the drivers of the estimated exchange rate pass-through coefficients and find support for a significant impact of exchange rate volatility, inflation volatility, import dependence, and the output gap, as well as the global outlook.