nep-eec New Economics Papers
on European Economics
Issue of 2006‒06‒03
twenty-six papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Euro area banking sector integration - using hierarchical cluster analysis techniques By Christoffer Kok Sørensen; Josep Maria Puigvert Gutiérrez
  2. Long-run money demand in the new EU Member States with exchange rate effects By Christian Dreger; Hans-Eggert Reimers; Barbara Roffia
  3. Financial integration, international portfolio choice and the European Monetary Union By Roberto A. De Santis; Bruno Gérard
  4. Output growth differentials across the euro area countries - some stylised facts By Nicholai Benalal; Juan Luis Diaz del Hoyo; Beatrice Pierluigi; Nikiforos Vidalis
  5. Which news moves the euro area bond market? By Magnus Andersson; Lars Jul Hansen; Szabolcs Sebestyén
  6. Cyclical inflation divergence and different labor market institutions in the EMU By Alessia Campolmi; Ester Faia
  7. Tobacco Taxation in the European Union By Sijbren Cnossen
  8. The Euro-changeoverand Euro-inflation: Evidence from Eurostat's HICP By Marco G. Ercolani and Jayasri Dutta
  9. New empirical insights into the growth effects of economic integration within EU By Tomasz Brodzicki
  10. The Effects of EMU on Structural Reforms in Labour and Product Markets By Romain Duval; Jørgen Elmeskov
  11. Modelling inflation in the Euro Area By Eilev S. Jansen
  12. The Process and Side-Effects of Harmonisation of European Welfare States By Gareth Davies
  13. The Fallacy of “Job Robbing”: A Meta-Analysis of Estimates of the Effect of Immigration on Employment By Simonetta Longhi; Peter Nijkamp; Jacques Poot
  14. National Party Politics and Supranational Politics in the European Union: New Evidence from the European Parliament By Clifford J. Carrubba; Matthew Gabel; Lacey Murrah; Ryan Clough; Elizabeth Montgomery; Rebecca Schambach
  15. Short-term forecasts of euro area real GDP growth - an assessment of real-time performance based on vintage data By Marie Diron
  16. Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector By Karsten Neuhoff; Kim Keats; Misato Sato
  17. Company Tax Reform in Europe and its Effect on Collusive Behavior By Dirk Schindler; Guttorm Schjelderup
  18. EU Merger Remedies: A Preliminary Empirical Assessment By Tomaso Duso; Klaus Gugler; Burcin Yurtoglu
  19. The Real Exchange Rate Misalignment in the Five Central European Countries By Frait, Jan; Komarek, Lubos; Meleck, Martin
  20. Economic integration, regional structural change and cohesion in the EU new member-states By Dimitris Kallioras; George Petrakos; Georgios Fotopoulos
  21. Monetary Policy and Asset Prices : What Role for Central Banks in New EU Member States? By Frait, Jan; Komarek, Lubos
  22. Exchange-rate policies and trade in the MENA countries By Amina Lahrèche-Révil; Juliette Milgram
  23. How to Catch Foreign Fish? FDI and Privatization in EU Accession Countries By Bruno Merlevede; Koen Schoors;
  24. Exchange Rate Regimes, Foreign Exchange Volatility and Export Performance in Central and Eastern Europe: Just Another Blur Project? By Balázs Égert; Amalia Morales-Zumaquero;
  25. Can the European low-cost airline boom continue?: Implications for regional airports By Nigel Peter Stewart Dennis
  26. Corporate Tax Reform and Foreign Direct Investment in Germany – Evidence from Firm-Level Data By Johannes Becker; Clemens Fuest; Thomas Hemmelgarn

  1. By: Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Josep Maria Puigvert Gutiérrez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In this study we apply cluster analysis techniques, including a novel smoothing method, to detect some basic patterns and trends in the euro area banking sector in terms of the degree of homogeneity of countries. We find that in the period 1998-2004 the banking sectors in the euro area countries seem to have become somewhat more homogeneous, although the results are not unequivocal and considerable differences remain, leaving scope for further integration. In terms of clustering, the Western and Central European countries (like Germany, France, Belgium, and to some extent also the Netherlands, Austria and Italy) tend to cluster together, while Spain and Portugal and more recently also Greece usually are in the same distinct cluster. Ireland and Finland form separate clusters, but overall tend to be closer to the Western and Central European cluster.
    Keywords: Financial integration, cluster analysis, banking sector.
    JEL: C49 F36 G21
    Date: 2006–05
  2. By: Christian Dreger (German Institute for Economic Research (DIW) Berlin, 14191 Berlin, Germany.); Hans-Eggert Reimers (Hochschule Wismar, University of Technology, Business and Design, PF 1210, 23952 Wismar, Germany.); Barbara Roffia (Directorate General Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Generally speaking, money demand models represent a natural benchmark against which monetary developments can be assessed. In particular, the existence of a well-specified and stable relationship between money and prices can be perceived as a prerequisite for the use of monetary aggregates in the conduct of monetary policy. In this study a money demand analysis in the new Member States of the European Union (EU) is conducted using panel cointegration methods. A well-behaved long-run money demand relationship can be identified only if the exchange rate as part of the opportunity cost is included. In the long-run cointegrating vector the income elasticity exceeds unity. Moreover, over the whole sample period the exchange rates vis-à-vis the US dollar turn out to be significant and a more appropriate variable in the money demand than the euro exchange rate. The present analysis is of importance for the new EU Member States as they are expected to join in the future years the euro area, where money is deemed to be highly relevant - within the two-pillar monetary strategy of the European Central Bank (ECB) - in order to detect risks to price stability over the medium term.
    Keywords: Money demand, new EU Member States, exchange rate, panel cointegration.
    JEL: C23 E41 E52
    Date: 2006–05
  3. By: Roberto A. De Santis (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Bruno Gérard (Norwegian School of Management BI, Elias Smiths vei 18, Box 580 N-1302 Sandvika, Norway.)
    Abstract: We investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries over the 1997 to 2001 period. We first argue that financial integration is not a global phenomenon, as equity and bond home biases declined significantly only among European countries, Australia, New Zealand and Singapore. Then, we show that the European Economic and Monetary Union (EMU) eased the access to the equity market and, to a larger extent, the bond market; thereby, enhancing regional financial integration in the euro area. Beside the effect of the EMU, the strongest determinants of the changes in portfolio weights are expected diversification benefits and the initial degree of underweight.
    Keywords: Home bias, Risk diversification, International portfolio weights, EMU.
    JEL: C13 C21 F37 G11
    Date: 2006–05
  4. By: Nicholai Benalal (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Juan Luis Diaz del Hoyo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Beatrice Pierluigi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Nikiforos Vidalis (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: The aim of this study is to investigate the extent to which the dispersion of real GDP growth rates has changed over the past few years and whether the synchronisation of business cycles has increased among the euro area countries. The study is divided into two main parts. The f irst focuses on the dispersion of real GDP growth rates across the euro area countries, while the second studies the synchronisation of business cycles within the euro area. The study shows first that dispersion of real GDP growth rates across the euro area countries in both unweighted and weighted terms has no apparent upward or downward trend during the period 1970-2004 as a whole. Second, since the beginning of the 1990s, the dispersion of real GDP growth rates across the euro area countries has largely reflected lasting trend growth differences, and less so cyclical differences, with some countries persistently exhibiting output growth either above or below the euro area average. Among other things, this might be due to different trends in demographics, as well as to differences in structural reforms undertaken in the past. Thirdly, the degree of synchronisation of business cycles across the euro area countries seems to have increased since the beginning of the 1990s. This f inding holds for various measures of synchronisation applied to overall activity and to the cyclical component, for annual and quarterly data, as well as for various country groupings. In particular, the degree of correlation currently appears to be at a historical high. In addition to these main findings, certain other stylised facts on dispersion and synchronisation are presented. JEL Classification: C10; E32; O40.
    Keywords: Dispersion of GDP growth across the euro area countries; trend and cycle; synchronisation of business cycles within the euro area.
    Date: 2006–05
  5. By: Magnus Andersson (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Lars Jul Hansen (Danmarks Nationalbank, Havnegade 5, 1093 Copenhagen, Denmark); Szabolcs Sebestyén (Department of Fundamentos del Análisis Económico, University of Alicante, 03080 San Vicente del Raspeig, Spain.)
    Abstract: This paper explores a long dataset (1999-2005) of intraday prices on German long-term bond futures and examines market responses to major macroeconomic announcements and ECB monetary policy releases. In general, adjustments in prices are quick and new information is usually incorporated into prices within five minutes of announcements. The volatility adjustment is more long-lasting than that in the conditional mean, and excess volatility can be observed up to 30 minutes after the releases. Overall, German bond markets tend to react more strongly to the surprise component in US macro releases compared to euro area and domestic releases, and the strength of those reactions to US releases has increased over the period considered. The paper also provides evidence that the outcome of German unemployment figures has been known to investors ahead of the prescheduled release.
    Keywords: Monetary policy, intraday data, macroeconomic announcements.
    JEL: E43 E44 E58
    Date: 2006–05
  6. By: Alessia Campolmi (Department of Economics, Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005, Barcelona, Spain.); Ester Faia (Department of Economics, Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005, Barcelona, Spain.)
    Abstract: This paper relates the size of the cyclical inflation differentials, currently observed for euro area countries, to the differences in labor market institutions across the same set of countries. It does that by using a DSGE model for a currency area with sticky prices and labor market frictions. We show that differences in labor market institutions account well for cyclical inflation differentials. The proposed mechanism is a supply side one in which differences in labor market institutions generate different dynamics in real wages and consequently in marginal costs and inflations. We test this mechanism in the data and find that the model replicates well the empirical facts.
    Keywords: Cyclical inflation divergence, labor market institutions, EMU.
    JEL: E52 E24
    Date: 2006–05
  7. By: Sijbren Cnossen
    Abstract: Later this year, the European Commission has to submit a report to the Council of Ministers and the European Parliament with its views on tobacco tax policy in the EU. A 2004 publication issued by the Commission expressed the beliefs that tobacco consumption should be controlled by increasing tobacco excises and that harmonization should proceed on the basis of specific rates. This article reviews and evaluates EU tobacco tax policies. It supports the move towards specific taxation, but notes that there are conceptual and empirical limits to excessively high tobacco taxes. Smokers appear to pay their way and cigarette smuggling is a growing menace to health and revenue objectives.
    Keywords: tobacco taxation, European Union
    JEL: H20 H80
    Date: 2006
  8. By: Marco G. Ercolani and Jayasri Dutta
    Abstract: Though anecdotal evidence suggests that retail price inflation increased tem- porarily in January 2002 when Euro notes and coins were introduced, the evi- dence from official statistics largely refutes this. We test for the presence of a sudden temporary increase in inflation for Euro-changeover countries. We use the countries that did not join the Euro: Denmark, Sweden and the UK; as a control group. Though the results are sensitive to the estimation method, we do uncover weak evidence of a minor increase in aggregate inflation in January 2002 for the countries that did join the Euro. Similar tests for the Restaurant sector find a strong Euro-changeover effect on temporary inflation. Summary tests for 129 other price sub-categories are also discussed.
    JEL: D12 D40 D84 E31 E52 E63 L89
    Date: 2006–02
  9. By: Tomasz Brodzicki (University of Gdansk)
    Abstract: This paper investigates the existence of medium and long-run growth effects of economic integration within the European Union. We apply the system GMM methodology to estimate a number of dynamic panel data models. The study is undertaken for a panel sample consisting of 27 advanced economies and covering eight time periods between 1960 and 1999. We propose a number of new economic integration variables which presumably better reflect the complex nature of the economic integration process within the EU characterized by gradual widening and deepening. Our results point to an existence of a positive long-term relationship between economic integration and growth rates of real GDP per capita. At the same time we identify a negative medium-run effect on growth of accession into the EU. Both deepening and widening of the economic integration are found to be beneficial to long-term growth performance of Member States. The benefits associated with accession and membership in the EU are found to be asymmetrical.
    Keywords: economic growth, European economic integration, dynamic panel data models, system GMM estimator
    JEL: F15 O53 C23
    Date: 2005–05–24
  10. By: Romain Duval; Jørgen Elmeskov
    Abstract: Structural reforms in labour and product markets are required in a number of euro-area countries. A question in this regard, which is the topic of this paper, is whether belonging to the euro area tends to help or hinder structural reform. The paper first reviews the theoretical arguments and the existing empirical literature – in both cases finding conclusions that point in opposite directions. Next, the paper uses an OECD database on labour market reform developed recently and an update of OECD indicators of product market regulation to compare progress in labour and product market reform over the decade since 1993 between euro-area countries and other OECD countries. Overall, euro-area countries appear to have made relatively good progress in structural reform but it is much less clear from the descriptive evidence whether progress can be ascribed to membership of Economic and Monetary Union. To explore further the role of monetary regime for structural reform, the paper undertakes an econometric examination of the likelihood that countries undertake reform in five specific areas of labour and product market policies. Based on pooled cross-country/time series Probit regressions covering 21 countries and the period 1985-2003, it is found that structural reform is strengthened by high unemployment, crisis as reflected in a large output gap, healthy public finances, reforms in other policy fields and small country size. Further, countries that pursue fixed exchange-rate regimes or participate in monetary union, and therefore have little or no monetary autonomy, appear to undertake less structural reform – with the effect possibly being concentrated on large countries. <P>Les effets de l’UEM sur la mise en œuvre des réformes structurelles sur les marchés du travail et des biens Des réformes structurelles sur les marchés du travail et des biens s’avèrent nécessaires dans un certain nombre de pays de la zone euro. Une question à ce propos, qui constitue le sujet de cet article, est de savoir si l’appartenance à la zone euro tend à favoriser ou à freiner la mise en oeuvre de réformes structurelles. L’article passe tout d’abord en revue les arguments théoriques et la littérature empirique – qui dans les deux cas aboutissent à des conclusions contradictoires. L’article utilise ensuite une base de données OCDE sur les réformes des marchés du travail développée récemment, ainsi qu’une actualisation des indicateurs OCDE de réglementation des marchés des biens, afin de comparer les progrès en matière de réformes des marchés du travail et des biens au cours de la décennie écoulée depuis 1993 entre les pays de la zone euro et les autres pays de l’OCDE. Dans l’ensemble, il apparaît que les pays de la zone euro ont relativement bien progressé en matière de réformes structurelles, mais il est beaucoup moins évident au vu de l’analyse descriptive que ces progrès peuvent être attribués à l’appartenance à l’Union Économique et Monétaire. Afin d’explorer plus avant le rôle du régime monétaire dans la mise en œuvre de réformes structurelles, l’article effectue une analyse économétrique de la probabilité que les pays entreprennent des réformes dans cinq types de politiques relatives aux marchés du travail et des biens. Sur la base de régressions de type Probit sur données de panel couvrant 21 pays au cours de la période 1985-2003, il ressort que la mise en œuvre de réformes structurelles est renforcée par un chômage élevé, une crise économique telle que mesurée par un écart de production élevé, une situation saine des finances publiques, l’existence de réformes dans d’autres domaines et la faible taille du pays considéré. En outre, les pays participant à un régime de changes fixes ou à une union monétaire, et qui par conséquent disposent d’une autonomie limitée voire inexistante de leur politique monétaire, apparaissent entreprendre moins de réformes structurelles – cet effet étant potentiellement plus marqué dans le cas des grands pays.
    Keywords: labour markets, marché du travail, euro, Euro, Economic and Monetary Union, Union économique et monétaire, product markets, political economy, économie politique, reforms, marchés des biens, réformes
    JEL: D7 O52
    Date: 2005–07–25
  11. By: Eilev S. Jansen (Norges Bank and Norwegian University of Science and Technology)
    Abstract: The paper presents an incomplete competition model (ICM), where inflation is determined jointly with unit labour cost growth. The ICM is estimated on data for the Euro area and evaluated against existing models, i.e. the implicit inflation equation of the Area Wide model (AWM) - cf. Fagan, Henry and Mestre (2001) - and estimated versions of the (single equation) P* model and a hybrid New Keynesian Phillips curve. The evidence from these comparisons does not invite decisive conclusions. There is, however, some support in favour of the (reduced form) AWM inflation equation. It is the only model that encompasses a general unrestricted model and it forecast encompasses the competitors when tested on 20 quarters of one step ahead forecasts.
    Keywords: inflation, incomplete competition model, Area Wide model, P*-model, New Keynesian Phillips curve, model evaluation, forecast encompassing.
    JEL: C22 C32 C52 C53 E31
    Date: 2004–06–20
  12. By: Gareth Davies
    Abstract: Abstract: This paper describes the ways in which EU law forces Member States to reorganise their welfare states, focusing on the effects of free movement and competition principles on health care, education, and social insurance. It then considers the consequences of such reorganisations for national identity and social cohesion, for domestic and foreign policy and European integration, and as the creation of a new welfare industry. The thesis of the first part is this: that the negative harmonisation of welfare services via judicial application of free movement rules is potentially further reaching than often realised, and difficult to reverse. As a result of changes in welfare provision many services are now provided ‘for remuneration’. Moreover, legal, policy, and philosophical factors make it difficult to create a wholesale exemption for welfare. On the other hand, positive harmonisation remains politically unpopular and difficult to achieve, and at more than a very abstract framework level would probably be economically and organisationally undesirable too. Hence Europe is moving towards a continent-wide market for welfare services. The thesis of the second part, considering the consequences of such a development, is that this probably has far greater implications for national identity and social structure than it does for welfare itself. It is possible to achieve high quality universal welfare service provision in regulated markets, but the absence of the huge public or quasi-public institutions which are a part of European life will change the texture of society. This is potentially threatening to social cohesion, and also to the European sense of our place in the world, in which contrasts with the US, in which welfare states often play a role, are prominent. Any such changed sense of self could – indeed should – have wide-ranging effects on state behaviour, even extending to foreign policy. As well as this, the creation of a European market for welfare provides opportunities for deepening European integration and involving the EU in central aspects of individual life. Finally, welfare is potentially the world’s largest industry. However strange it may be to see it that way, privatising provision in Europe may create actors who can and will become global, perhaps using their expertise to help build welfare states around the world.
    Date: 2006–01–05
  13. By: Simonetta Longhi (University of Essex); Peter Nijkamp (Vrije Universiteit Amsterdam); Jacques Poot (University of Waikato)
    Abstract: Immigration is a phenomenon of growing significance in many countries. Increasing social tensions are leading to political pressure to limit a further influx of foreign-born persons on the grounds that the absorption capacity of host countries has been exceeded and social cohesion threatened. There is also in public discourse a common perception of immigration resulting in economic costs, particularly with respect to wages and employment opportunities of the native born. This warrants a scientific assessment, using comparative applied research, of the empirical validity of the perception of a negative impact of immigration on labour market outcomes. Applying meta-analytic techniques to 165 estimates from 9 recent studies for various OECD countries, we assess in this paper whether immigration leads to job displacement among native workers. The ‘consensus estimate’ of the decline in native-born employment following a 1 percent increase in the number of immigrants is a mere 0.024 percent. However, the impact is somewhat larger on female than on male employment. The negative employment effect is also greater in Europe than in the United States. Furthermore, the results are sensitive to the choice of the study design. For example, failure to control for endogeneity of immigration itself leads to an underestimate of its employment impact.
    Keywords: Immigration; Employment; Meta-Analysis
    JEL: F22 J61
    Date: 2006–05–22
  14. By: Clifford J. Carrubba (Department of Political Science, Emory University); Matthew Gabel (Department of Political Science, University of Kentucky); Lacey Murrah (Department of Political Science, Emory University); Ryan Clough (Department of Political Science, Emory University); Elizabeth Montgomery (Department of Political Science, Emory University); Rebecca Schambach (Department of Political Science, Emory University)
    Abstract: Political parties play an important role in structuring political competition at different levels of governance in the European Union (EU). The political parties that contest national elections also participate in the EU legislative institutions, with the governing parties at the national level participating in the Council of Ministers and a broad range of national parties represented in the European Parliament (EP). Recent research indicates that national parties in the EP have formed ideological coalitions -- party groups -- that represent transnational political interests. These party groups appear to manage legislative behavior such that national interests -- which dominate the Council of Ministers -- are subjugated to ideological conflict. In this paper, we demonstrate that the roll-call vote evidence for the impact of party groups in the EP is misleading. Because party groups have incentives to select votes for roll call so as to hide or feature particular voting patterns, the true character of political conflict is never revealed in roll calls.
    JEL: H77
    Date: 2005–09
  15. By: Marie Diron (Brevan Howard Asset Management LLP, London, SW1Y 6XA, United Kingdom.)
    Abstract: Economic policy makers, international organisations and private-sector forecasters commonly use short-term forecasts of real GDP growth based on monthly indicators, such as industrial production, retail sales and confidence surveys. An assessment of the reliability of such tools and of the source of potential forecast errors is essential. While many studies have evaluated the size of forecast errors related to model specifications and unavailability of data in real time, few have provided a complete assessment of forecast errors, which should notably take into account the impact of data revision. This paper proposes to bridge this gap. Using four years of data vintages for euro area conjunctural indicators, the paper decomposes forecast errors into four elements (model specification, erroneous extrapolations of the monthly indicators, revisions to the monthly indicators and revisions to the GDP data series) and assesses their relative sizes. The results show that gains in accuracy of forecasts achieved by using monthly data on actual activity rather than surveys or financial indicators are offset by the fact that the former set of monthly data is harder to forecast and less timely than the latter set. While the results presented in the paper remain tentative due to limited data availability, they provide a benchmark which future research may build on.
    Keywords: Forecasting, conjunctural analysis, bridge equations, real-time forecasting, vintage data.
    JEL: C22 C53 E17 E37 E66
    Date: 2006–05
  16. By: Karsten Neuhoff; Kim Keats; Misato Sato
    Abstract: The allowance allocation under the European Emission trading schemes differs fundamentally from earlier cap and trade programs, like SO2 and NOx in the USA. Because of the iterative nature of negotiations of the overall budget, the allocation also has to follow an iterative process. If power generators anticipate that their current behaviour will affect future allowance allocation, then this can distort today’s decisions. Furthermore, the National Allocation Plans (NAPs) contain multiple provisions dealing with existing installations, what happens to allocation when they close, and allocations to new entrants. We provide a framework to assess the economic incentives and distortions that provisions in NAPs can have on market prices, operation and investment decisions. To this end, we use both analytic models to illustrate the incentives effects and results from numerical simulation runs that estimate the magnitude of impacts from different allocation rules.
    Keywords: Allowance allocation, Emission trading, Power sector, Economic incentives
    JEL: D24 D92 Q28 L10
    Date: 2006–05
  17. By: Dirk Schindler; Guttorm Schjelderup
    Abstract: We study how harmonization of corporate tax systems affects the stability of international cartels. We show that tax base harmonization reinforces collusive agreements, while harmonization of corporate tax rates may destabilize or stabilize cartels. We also find that bilateral and full harmonization to a common standard is worse from society’s point of view than unilateral harmonization to a minimum tax standard.
    Keywords: corporate tax systems, tacit collusion
    JEL: H87 L10
    Date: 2006
  18. By: Tomaso Duso; Klaus Gugler; Burcin Yurtoglu
    Abstract: Mergers that substantially lessen competition are challenged by antitrust authorities. Instead of blocking anticompetitive transitions straight away, authorities might choose to negotiate with the merging parties and allow the transactions to proceed with modifications that restore or preserve the competition in the involved markets. We study a sample of 167 mergers that were under the European Commission’s scrutiny from 1990 to 2002. We use an event study methodology to identify the potential anticompetitive effects of mergers as well as the remedial provisions on these transactions. Stock market reactions around the day of the merger’s announcement provide information on the first question, whereas the stock market reactions around the commission’s final decision day convey information about the outcome of the bargaining process between the authority and the merging parties. We first classify mergers according to their effects on competition and then we develop hypotheses on the effects that remedies are supposed to achieve depending on the merger’s competitive outcome. We isolate several stylized facts. First, we find that remedies were not always appropriately imposed. Second, the market seems to be able to predict remedies’ effectiveness when applied in phase I. Third, the market also seems able to produce a good prior to phase II’s clearances and prohibitions, but not to remedies. This can be due either to a measurement problem or related to the increased merging firms’ bargaining power during the second phase of the merger review. <br> <br> <i>ZUSAMMENFASSUNG - (Auflagen im Fusionskontrollverfahren der EU: Eine erste empirische Bewertung) <br> Fusionen, die den Wettbewerb auf einem Markt vermindern oder verhindern, werden von Antitrustbehörden angefochten. Anstatt wettbewerbswidrige Zusammenschlüsse direkt zu blockieren, können die Behörden beschließen, mit den Parteien zu verhandeln und die Fusion mit Auflagen zu genehmigen, durch die der Wettbewerb in den entsprechenden Märkten wieder hergestellt oder aufrechterhalten wird. Wir analysieren eine Stichprobe von 167 Fusionen, die von der Europäischen Kommission zwischen 1990 und 2002 überprüft worden sind. Wir verwenden eine "event study" - Methodologie, um sowohl die möglichen wettbewerbswidrigen Wirkungen von Fusionen als auch die Wirkung der von der Behörde beschlossenen Auflagen zu untersuchen. Die Reaktion der Aktienpreise der beteiligten Unternehmen - sowohl der fusionierenden als auch der Wettbewerber - um den Tag der Fusionsankündigung liefert Informationen für die erste Frage, während die Reaktionen von Aktienpreisen um den Tag der EU-Kommissionsentscheidung Informationen über das Ergebnis der geheimen Verhandlungen zwischen der Behörde und den involvierten Parteien geben. Zuerst klassifizieren wir Fusionen entsprechend ihrer Effekte auf den Wettbewerb und dann entwickeln wir Hypothesen auf die Wirkung, welche die Auflagen in Abhängigkeit von den Wettbewerbseffekten der Fusion erzielen soll. Unsere Analyse ergibt einige stilisierte Fakten. Zuerst finden wir, dass die Auflagen von der EU-Kommission nicht immer adäquat angewandt wurden. Auflagen scheinen jedoch eine Wirkung auf die fusionierenden Unternehmen zu haben. Sie sind besonders effektiv, wenn sie bereits in Phase I des Fusionskontrollverfahrens eingesetzt werden. Jedoch scheint der Markt unfähig zu sein, eine gute Vorhersage für die Wirkung von Auflagen in Phase II zu produzieren. Dieses Ergebnis kann entweder auf einem Meßproblem beruhen oder es wird durch eine erhöhte Verhandlungsstärke der fusionierenden Unternehmen während der zweiten Phase der Fusionskontrolle verursacht.</i>
    Keywords: Merger Control, Remedies, European Commission, Event Studies.
    JEL: L4 K21 C12 C13
    Date: 2005–09
  19. By: Frait, Jan (Czech National Bank, Prague); Komarek, Lubos (Czech National Bank, Prague); Meleck, Martin (University of New South Wales, Sydney)
    Abstract: The paper focuses on the developments of real exchange rates and their fundamental determinants in the five new EU Member States (Czech Republic, Hungary, Poland, Slovakia, and Slovenia). First, the approaches that can be used for estimation of equilibrium real exchange rates are briefly discussed. Then, we use well-established determinants of real exchange rates associated with the behavioral equilibrium exchange rate (BEER) approach to assess misalignments of the real exchange rates for the five new EU Member States. The estimates of the equilibrium exchange rates are obtained by means of both purely statistical approaches (HP filter, band-pass filter) and applying several multivariate estimation methods to our reduced-form BEER model. The results obtained indicate that the tendency towards appreciation of real exchange rates in the economies under consideration have been driven primarily by fundamental determinants.
    Keywords: Exchange rate misalignments ; equilibrium exchange rates ; ERM II ; Central European Countries
    Date: 2006
  20. By: Dimitris Kallioras; George Petrakos; Georgios Fotopoulos
    Abstract: The European economic landscape has changed dramatically during the last decade, following the collapse of the bi-polar world. The parallel and interacting processes of economic integration and transition are the driving forces of these changes. In this context, the EU new member-states (including the candidate countries of Bulgaria and Romania) have experienced, often forcefully and painfully, the impact of these processes as a pre-condition for catch-up and integration with the prosperous EU-15 countries. Being still in progress, these processes have altered the intraregional division of labor, affecting the patterns of regional specialization and industrial concentration and increasing the level of interregional competition and inequalities, in a newly emerged internationalized environment. The extent and the impact of these changes, however, are still issues of major scientific dialogue and concern, with many unknown parameters. The need for this first period of transition and economic integration (decade of 90s) to be re-evaluated is evident concerning the mobility of economic activities and possible re-location of industries, the behaviour of the individual regions, the dynamics of regional discrepancies and the stability of the territorial structures. The overall scientific objective of this paper is to identify and explain in a cross-country and comparative analysis the structural industrial patterns in the area of EU new member-states bringing together the findings and reports of the scientific bibliography. Furthermore, a static and dynamic analysis takes place in order to uncover in more depth the possible relation between economic integration, regional structural change and cohesion in these countries. To this direction, a number of research questions are addressed: What is the impact of economic integration to the evolution of regional industrial patterns? Have advanced and lagging-behind regions developed similar or different types of specialization? What is their mix of activities? Over time, do they become more similar or dissimilar? Have metropolitan regions the same mix of activities with peripheral and border regions? Do their economic structures become more similar or dissimilar over time? Are there particular types of structural change more closely related to strong growth performance? The main part of the analysis is conducted on a basis of employment data, as a proxy for industrial structures in NUTS III spatial level, disaggregated by manufacturing branches according to NACE rev.1 two-digit classification. Emphasis is given to the countries of Bulgaria, Romania, Slovenia, Hungary and Estonia due to lack of statistical information (regional-structural figures) for the other countries under research. However, despite this shortcoming, the country sample of our analysis can be considered representative of the whole area since it covers all its parts i.e. Southeastern Europe–Balkans (Bulgaria, Romania), Central Europe (Slovenia, Hungary), Eastern Europe–Baltic (Estonia). The research covers the period between 1990 and 1999, a period of extreme significance since it includes both the shocks and the upsets of the early transition (sub-period 1991–1995) and the recent, more independent, trends (1995–1999). The reported findings and conclusions of this research may be a valuable basis for the understanding of the impact of economic integration on regional structure change and cohesion and, as a result, be the basis for the discussion of the appropriate policies of cohesion in the enlarged EU-27.
    Date: 2005–08
  21. By: Frait, Jan (Czech National Bank, Prague); Komarek, Lubos (Czech National Bank, Prague and Prague School of Economics)
    Abstract: The paper deals with the relationship between monetary policy and asset prices. Besides surveying the general discussion, it attempts to extend it to recent developments in the new Member States of the EU (NMS), namely the Czech Republic, Hungary, Poland and Slovakia (the EU4). After a brief description of the current macroeconomic situation in the NMS, the appropriate reaction of monetary policy to asset price bubbles is dealt with and the main pros and cons associated with this reaction are summarised. Afterwards, the risks of asset market bubbles in the EU4 countries are evaluated. Since the capital markets are still underdeveloped and the real estate price boom seems to be a natural reaction to the initial undervaluation, the risks are viewed as rather small. The conclusion is thus that it is crucial for central banks in mature economies as well as in the NMS to conduct their monetary policies as well as their supervisory and regulatory roles in a way that does not promote the build-up of asset market bubbles. In exceptional times, central banks of small open economies must be ready to use monetary policy steps as a kind of insurance against the adverse effects of potential asset market bubbles.
    Keywords: Monetary Policy ; Asset Markets ; Central Banking ; New EU Member States
    JEL: E52 E58 G12
    Date: 2006
  22. By: Amina Lahrèche-Révil (University of Picardie); Juliette Milgram (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: Compared to the new European members (NEM) and to the new candidate countries, the Middle-East and North African (MENA) countries are a very heterogeneous and fragmented EU frontier. As far as monetary issues are concerned, exchange rate regimes are very different and bilateral exchange rates quite volatile. Moreover, weak trade integration and generalized capital controls constitute major obstacles to economic and financial integration. Existing works yet suggest that anchoring to the euro would undoubtedly be the best exchange-rate strategy for most MENA countries. Monetary integration and trade integration are interdependent. This is especially the case when trade flows are sensitive to the volatility of exchange rates or to movements in relative prices. The objective of this paper is to evaluate the potential of monetary integration in the South Mediterranean area, in a context of trade liberalization and of a strong orientation of trade flows towards the EU. The empirical part of the paper would rely on a gravity equation of trade which would include exchange rates volatility and relative prices, in order to gauge the impact of de facto exchange-rate and monetary conditions on trade integration. The sample of countries is large (OECD, NEM, MENA and Asian countries) in order both to have robust estimates and to investigate whether the MENA countries exhibit a specific sensitivity of trade flows to exchange-rate volatility and exchange-rate misalignments. The impact of the competitiveness of third countries will also be investigated. This latter issue is especially important, though seldom assessed, when it comes to the potential trade-diverting effect of the latest EU enlargement on MENA trade wit the EU. The gravity setting also allows simulating the consequences for the trade of MENA countries of a deeper monetary integration, by comparing the impact on trade of a regional monetary integration and of a euro peg.
    Keywords: Exchange rate regime, trade, regional integration, Euro, MENA
    JEL: F15 F31 F33
    Date: 2006–05–31
  23. By: Bruno Merlevede; Koen Schoors;
    Abstract: We examine the determinants of FDI stocks of ‘old’ EU-members in ten accession countries. Our partial adjustment framework results in a dynamic panel data analysis. In addition to the traditional variables, such as market potential and unit labour costs, we find institutional development to be a robust determinant of equilibrium FDI stocks. The adjustment towards equilibrium is rapid. The relationship between FDI and the privatization process is complex. Non-direct privatization schemes negatively affect the speed of adjustment, whereas direct privatization strategies positively affect the equilibrium itself. Privatization history increases equilibrium FDI stocks, independently of the method applied.
    Keywords: foreign direct investment, privatisation, partial adjustment
    JEL: F20 F23 P33
    Date: 2005–08–01
  24. By: Balázs Égert; Amalia Morales-Zumaquero;
    Abstract: This paper attempts to analyze the direct impact of exchange rate volatility on the export performance of ten Central and Eastern European transition economies as well as its indirect impact via changes in exchange rate regimes. Not only aggregate but also bilateral and sectoral export ows are studied. To this end, we rst analyze shifts in exchange rate volatility linked to changes in the exchange rate regimes and second, use these changes to construct dummy variables we include in our export function. The results suggest that the size and the direction of the impact of forex volatility and of regime changes on exports vary considerably across sectors and countries and that they may be related to specic periods.
    Keywords: exchange rate volatility, export, trade, transition, structural breaks
    JEL: F31
    Date: 2005–07–01
  25. By: Nigel Peter Stewart Dennis
    Abstract: At a time when the traditional major airlines have struggled to remain viable, the low-cost carriers have become the major success story of the European airline industry. This paper looks behind the headlines to show that although low-cost airlines have achieved much, they too have potential weaknesses and face a number of challenges in the years ahead. The secondary and regional airports that have benefited from low-cost carrier expansion are shown to be vulnerable to future changes in airline economics, government policy and patterns of air service. An analysis of routes from London demonstrates that the low-cost airlines have been more successful in some markets than others. To attractive and historically under-served leisure destinations in Southern Europe they have stimulated dramatic growth and achieved a dominant position. To major hub cities however they typically remain marginal players and to secondary points in Northern Europe their traffic has been largely diverted from existing operators. There is also evidence that the UK market is becoming saturated and new low-cost services are poaching traffic from other low-cost routes. Passenger compensation legislation and possible environmental taxes will hit the low-cost airline industry disproportionately hard. The high elasticities of demand to price in certain markets that these airlines have exploited will operate in reverse. One of the major elements of the low-cost business model involves the use of smaller uncongested airports. These offer faster turn-arounds and lower airport charges. In many cases, local and regional government has been willing to subsidise expansion of air services to assist with economic development or tourism objectives. However, recent court cases against Ryanair now threaten these financial arrangements. The paper also examines the catchment areas for airports with low-cost service. It is shown that as well as stimulating local demand, much traffic is captured from larger markets nearby through the differential in fare levels. This has implications for surface transport, as access to these regional airports often involves long journeys by private car. Consideration is then given to the feasibility of low-cost airlines expanding into the long-haul market or to regional operations with small aircraft. Many of the cost advantages are more muted on intercontinental services – for example, aircraft utilisation is already high and few routes have sufficient local demand without the use of hubbing. Large turbo-prop aircraft such as the DHC Dash 8 400 series offer very good economics compared to regional jets on short to medium sectors where demand is too thin to support a Boeing 737 operation. flybe is using these on certain ‘third level’ routes in Britain and other opportunities are identified in mainland Europe. It is concluded that there are still good growth prospects for low-cost airlines in Europe, especially in France, Italy and some of the new EU member states but rather than growing to dominate the air transport industry, an equilibrium position is likely to be reached. Some regional airports may see their services reduce once the market becomes saturated or the relative competitive position of the major airports and airlines improves.
    Date: 2004–08
  26. By: Johannes Becker; Clemens Fuest; Thomas Hemmelgarn
    Abstract: Does the reduction of the effective tax burden on corporations trigger foreign direct investment? We take the German tax reform of 2000 as a natural experiment in order to isolate the impact of corporate taxation on the investment of foreign-held affiliates in Germany. We do so by exploiting the very rich MiDi data base from the Deutsche Bundesbank. Although we deliberately choose an approach which is likely to underestimate the tax effects on investment we find significant evidence that the tax reduction had the intended effect of - ceteris paribus - fostering inward direct investment. We find an elasticity of inward foreign direct investment with respect to the effective marginal tax rate of -0.7. We repeat the analysis for different subgroups and find high degrees of heterogeneity. Our results do not allow to decide whether the model of discrete investment choices or the model of marginal adjustment of the capital stock performs better in explaining the investment data.
    Keywords: corporate taxation, foreign direct investment
    JEL: H21 H25
    Date: 2006

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