nep-eec New Economics Papers
on European Economics
Issue of 2008‒04‒15
seventeen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency By Menzie D. Chinn; Jeffrey A. Frankel
  2. Structural breaks in the lending interest rate pass-through and the euro By Giuseppe Marotta
  3. The Labour Market Consequences of Self-employment Spells: European Evidence By Ari Hyytinen; Petri Rouvinen
  4. International Differences in Wage Inequality: A New Glance with European Matched Employer-Employee Data By Hipolito , Simon
  5. Mergers, acquisitions and technological regimes: the European experience over the period 2002- 2005 By Damiani, Mirella; Pompei, Fabrizio
  6. An Economic Assessment of EC Merger Control: 1957–2007 By Bruce Lyons
  7. Financial Integration of Stock Markets among New EU Member States and the Euro Area By Babecký, Jan; Komárek, Luboš; Komárková, Zlatuše
  8. Labor Market Outcomes of Immigrants and Non-Citizens in the EU: An East-West Comparison By Kahanec, Martin; Zaiceva, Anzelika
  9. Is FDI into China Crowding Out the FDI into the European Union? By Laura Resmini; Iulia Siedschlag
  10. Regional Labour Market Disparities in an Enlarged European Union By Peter Huber
  11. How to Reform the EU Budget? A Multidisciplinary Approach By Filipa Figueira
  12. Fiscal and Accounting Aspects Concerning the Reverse Charge in the Context of Accession to the European Union By Ecobici, N
  13. European integration, FDI and the geography of French trade. By Miren Lafourcade; Elisenda Paluzie
  14. Part-time work as a transitional phase? The role of preferences and institutions in Germany, Great Britain and The Netherlands. By Dekker, Ronald
  15. Unemployment durations after temporary work: Evidence for Great Britain and Germany By Dekker, Ronald
  16. Fertility Response to Financial Incentives - A UK Evidence from the Working Families Tax Credit By Ohinata, Asako
  17. Offshoring, Extent of the Shadow Economy and Firm Performance. Evidence from Italy By Vito Amendolagine; Rosa Capolupo; Giovanni Ferri

  1. By: Menzie D. Chinn; Jeffrey A. Frankel
    Abstract: The euro has arisen as a credible eventual competitor to the dollar as leading international currency, much as the dollar rose to challenge the pound 70 years ago. This paper uses econometrically-estimated determinants of the shares of major currencies in the reserve holdings of the world’s central banks. Significant factors include: size of the home country, rate of return, and liquidity in the relevant home financial center (as measured by the turnover in its foreign exchange market). There is a tipping phenomenon, but changes are felt only with a long lag (we estimate a weight on the preceding year’s currency share around .9). The equation correctly predicts out-of-sample a (small) narrowing in the gap between the dollar and euro over the period 1999-2007. This paper updates calculations regarding possible scenarios for the future. We exclude the scenario where the United Kingdom joins euroland. But we do take into account of the fact that London has nonetheless become the de facto financial center of the euro, more so than Frankfurt. We also assume that the dollar continues in the future to depreciate at the trend rate that it has shown on average over the last 20 years. The conclusion is that the euro may surpass the dollar as leading international reserve currency as early as 2015.
    JEL: E42 F0 F02 F31
    Date: 2008–04
  2. By: Giuseppe Marotta
    Abstract: This paper investigates whether size and speed of the pass-through of market rates into short term business lending rates have increased in the wake of the introduction of the euro. Allowing for multiple unknown structural breaks we find two in four EMU countries, and in the UK as well, and a single one in five other countries. The pattern of dates fits national banking systems adjusting slowly to the new monetary regime and suggests caution in associating structural changes to the introduction of the euro. The estimated equilibrium pass-through in the last break-free period is on average more incomplete, hinting at a reduced effectiveness of the single monetary policy. This results runs against the economic intuition that a reduced volatility in money market rates is bound to mitigate uncertainty and to ease therefore the transfer of policy rate changes to retail rates; the run up to Basel 2 and a deterioration of competition in loan markets could be the motivations. Caution in extrapolating to more recent periods these findings is suggested by the differences between the unharmonized and the new harmonized retail rates.
    Keywords: Interest rates; Monetary policy; European Monetary Union (EMU); Cointegration analysis; Taylor principle
    JEL: E43 E52 E58 F36
    Date: 2008–03
  3. By: Ari Hyytinen; Petri Rouvinen
    Abstract: ABSTRACT : We examine how those re-entering paid-employment after a brief self-employment spell fare upon return using data from the European Community Household Panel. Unconditionally, those re-entering paid-employment appear to have considerably lower wages than those staying in the wage sector. This difference appears to be larger in Europe than in the US. Conditional analysis suggests, however, that the difference is more apparent than real : It seems that Europeans select negatively into (and possibly out-of) self-employment, i.e., the likelihood of entering (and exiting) entrepreneurship correlates negatively with unobserved ability and/or in-paid-employment productivity. Our analysis of non-wage outcomes indicates that the selection is mostly involuntary and that for highly educated men, the brief self-employment spells are unemployment in disguise.
    Keywords: self-employment, job mobility, earnings, wage differentials, selection
    JEL: J23 J24 J31
    Date: 2008–03–28
  4. By: Hipolito , Simon
    Abstract: Using unique international harmonized matched employer-employee microdata from the European Structure of Earnings Survey for nine representative European countries, this comparative study examines the origin of international differences in wage inequality. Our novel evidence uncovers that global wage inequality is highly correlated with the magnitude of inter-firm wage differentials and that workplace- and job-related factors generally have a more significant impact on within-country wage inequality than individual characteristics. On the whole, European countries exhibit considerably different wage structures: they differ significantly not only in the extent of wage inequality but also in the relative influence of factors shaping wage inequality. Comparative analyses reveal that although cross-country differences in labour force composition play a part in the explanation, differences in distribution and, very specially, in labour market prices of workplace and job characteristics are primary reasons contributing to international differences in wage inequality.
    Keywords: Wage inequality; matched employer-employee data.
    JEL: J31 J30
    Date: 2008
  5. By: Damiani, Mirella; Pompei, Fabrizio
    Abstract: Comparisons by countries and by sectors of mergers and acquisitions have usually been performed in separate fields of research. A first group of studies, focusing on international comparisons, has explored the role of corporate governance systems, investor protection laws and other countries’ regulatory institutions as the main determinants of takeovers around the world. A second group of contributions has attributed a central role to variations in industry composition, documenting that, in each country, mergers occur in waves and within each wave clustering by industry is observed. This paper aims to integrate both perspectives and to make comparisons by countries and by sectors, thus exploring the role of various driving forces on takeover activities. It also intends to consider the specific influence that technological regimes and their innovation patterns may exert in reallocating assets and moving capital among sectors. This will be done by examining the European experience of the last few years (2002-2005). We found that even in countries where transfer of control is a frequent phenomenon, mergers are less frequent in those sectors where innovation is a cumulative process and where takeovers may be a threat to the continuity of accumulation of innovative capabilities.
    Keywords: Mergers and Acquisitions; Corporate Governance; Technological Regimes
    JEL: O30 G34 L60
    Date: 2008–04–11
  6. By: Bruce Lyons (School of Economics and Centre for Competition Policy, University of East Anglia)
    Abstract: This paper provides an assessment of EC merger policy from three perspectives. First, it places the evolution of merger policy alongside the evolution of economic ideas in relation to competition and industrial organisation. Second, it highlights recent developments in the practical economic appraisal of competition in four areas: unilateral (non-coordinated) effects, particularly the appropriate use of simulation techniques and the efficiency defence; coordinated effects (collective dominance), particularly the role of the Community Courts; non-horizontal effects, particularly the need for the new guidelines; and remedies, particularly weaknesses in current practice. Third, it develops a simple bargaining approach to merger policy evaluation to draw conclusions about the trend in overall effectiveness of EC merger policy since 1989.
    Keywords: merger control, unilateral effects, collective dominance, remedies, merger policy
    JEL: C78 K21 L41
    Date: 2008–03
  7. By: Babecký, Jan (Czech National Bank ; CES, University of Paris-1 Sorbonne and CERGE-EI, Charles University); Komárek, Luboš (Czech National Bank ; Prague School of Economics); Komárková, Zlatuše (Czech National Bank)
    Abstract: The paper considers the empirical dimension of financial integration among stock markets in four new European Union member states (the Czech Republic, Hungary, Poland and Slovakia) in comparison with the euro area. The main objective is to test for the existence and determine the degree of the four states’ financial integration relative to the euro currency union. The analysis is performed at the country level (using national stock exchange indices) and at the sectoral level (considering banking, chemical, electricity and telecommunication indices). Our empirical evaluation consists of (1) an analysis of alignment (by means of standard and rolling correlation analysis) to outline the overall pattern of integration; (2) the application of the concept of beta convergence (through the use of time series, panel and state-space techniques) to identify the speed of integration; and (3) the application of so-called sigma convergence to measure the degree of integration. We find evidence of stock market integration on both the national and sectoral levels between the Czech Republic, Hungary, Poland and the euro area
    Date: 2008
  8. By: Kahanec, Martin (IZA); Zaiceva, Anzelika (IZA)
    Abstract: The starkly different histories and institutions in the eastern and western member states of the European Union (EU) suggest different roles of being non-native in these two regions. In this paper we study the roles of foreign origin and citizenship in the comparative East-West perspective. Our results indicate that while it is immigrant status that is of key importance in the western EU member states, both immigrant status and citizenship matter in the eastern EU member states, their roles depending on gender. We find some evidence that it is the Russian ethnic minority in Estonia and Latvia that drives the relationships between being non-citizen and labor market outcomes that we find in the eastern EU member states.
    Keywords: immigrant, citizenship, earnings, employment, labor market, Eastern Europe
    JEL: F22 J15 J61 J71
    Date: 2008–03
  9. By: Laura Resmini (University of Valle d’Aosta, Aosta, and ISLA, University “Luigi Bocconi”, Milan, Italy); Iulia Siedschlag (Economic and Social Research Institute (ESRI))
    Abstract: We estimate an augmented gravity model to analyse the effects of FDI into China originating in OECD countries on FDI into EU and other countries over the period 1990-2004. Our results suggest that on average, ceteris paribus, over the analysed period, FDI inflows into China have been complementary to FDI inflows into EU15 countries but they have substituted FDI into the new EU countries in Central and Eastern Europe. In particular, small economies such as Bulgaria and the Baltic countries have been affected negatively by the surge in the FDI into China. This FDI diversion appears in the case of efficiency-seeking FDI.
    Keywords: Foreign direct investment, China, European Union
    Date: 2008–03
  10. By: Peter Huber (WIFO)
    Abstract: We characterise regional labour market problems in the EU 27 using disaggregate data on regional employment, unemployment and participation rates, by gender and 10-year age groups at the NUTS-2 level. We ask whether accession changed disparities in regional labour market conditions and to what degree the structure of employment, unemployment and participation rates in the 12 new member countries differs from the EU 15. We find that aggregate labour market disparities are comparable between the two country groups but that there are important structural differences. Performing a principle components analysis we find that five principal components (four of which are associated with the structure of employment and participations rates) explain around 90 percent of the variance in the data. Cluster analysis suggests that new member countries regions are most similar in structural labour market characteristics to many German and French NUTS-2 regions. Regression analysis suggests that the correlates of aggregate regional employment and unemployment rates between the two groups do not differ dramatically but that there may be some differences with respect to employment rates of individual demographic groups.
    Keywords: Regional labour market disparities
    Date: 2008–02–20
  11. By: Filipa Figueira
    Abstract: The European Commission is currently drafting a proposal for a review of the EU budget, which could lead to its most significant reform to date. This paper proposes a method for restructuring the EU budget, based on a multidisciplinary approach. The insights of public sector economics, fiscal federalism, political science and the literature on the concept of "subsidiarity" are combined to assess which policies should be funded by the EU budget, and by how much. The resulting four complementary analyses are brought together into an eight-step chart, which is used to analyze in detail one area of policymaking - education policies - to assess whether it should be funded by the EU budget. Extending the analysis to the budget as a whole, the paper finds that the EU budget should be shared into five areas, each corresponding to an EU objective: economic growth, sustainable development, convergence of the EU economies, external security and internal security.
    Keywords: EU budget, European Union, fiscal federalism, subsidiarity, EU competences
    JEL: H50 H60 H77
    Date: 2008–03
  12. By: Ecobici, N
    Abstract: As from 1 January 2007 the European Directives are transposed into the national legislation and the European Regulations are truthfully applicable. In the VAT field, the European Directives, as well as the Jurisprudence of the European Court of Justice were transposed into the Fiscal Code, Title VI. Since the accession date, the legislation in the VAT field is repealed and replaced with the legislation harmonized with the Community acquis. The elimination of customs barriers between the 27 Member States of the European Union brings news as concerns the application of the "reverse charge" procedure that is applied in Romania as from the year 2005 for residue transactions and transactions with ferrous and non-ferrous metal waste, with grounds or buildings or building parts or living animals among VAT payers. Thus, starting with1 January 2007, the reverse charge is binding and applicable to all intra-Community acquisitions. At the same time the reverse charge was also applied for imports until 15 April 2007. In this paper I shall present aspects concerning the history of reverse charge in our country, accounting of operations and advantages and disadvantages of application of this procedure in the context of accession to the European Union.
    Keywords: Reverse charge; VAT; intra Community acquisitions; Fiscal Code; and imports
    JEL: M41
    Date: 2007–10–26
  13. By: Miren Lafourcade; Elisenda Paluzie
    Abstract: This paper uses an augmented gravity model to investigate whether the 1978-2000 process of European integration has changed the geography of trade within France, with a particular focus on the trends experienced by border regions. We support the conclusion that, once controlled for bilateral distance, origin- and destination-specific characteristics, French border regions trade on average 72% more with nearby countries than predicted by the gravity norm. They perform even better (114%) if they have good cross-border transport connections to the neighboring country. However, this outperformance eroded drastically for the French border regions located at the periphery of Europe throughout integration. We show that this trend is partly due to a decreasing propensity of foreign affliates to trade with their home country. This trade reorientation is less pronounced for the Belgian-Luxembourgian and German firms located in the regions which have better access to the EU core.
    Date: 2008
  14. By: Dekker, Ronald
    Abstract: This paper uses 11 years of data from household panel data sets for the Netherlands, Germany and Great-Britain to investigate part-time employment and the role of institutions and preferences on transitions from part-time into full-time employment or into other employment statuses. The behavioural choice model distinguishes four labour market states: short hours part-time employment, long hours part-time employment, full-time employment and nonparticipation. This dynamic model is estimated with a multinomial logit model. Results from the estimates are interpreted against the background of the institutional differences between the three countries. In particular we look at the role of stated preferences on the number of working hours on the transition patterns of individual workers. Results indicate that both the Netherlands and Great-Britain as welfare states are more capable of facilitating workers to end up in their preferred hours bracket than Germany is.
    Keywords: part-time employment; labour supply; stated preferences
    JEL: J62 C23 J22 C25
    Date: 2008–04–01
  15. By: Dekker, Ronald
    Abstract: Unemployment durations are determined by a number of factors. According to mainstream economics theory, unemployment durations are shorter in a more flexible labour market. In this paper, we hypothesize that workers who had a temporary contract before the spell of unemployment will experience shorter spells of unemployment than workers who had a permanent contract before. We adopt a flexible hazard rate model with a nonparametric baseline to analyse data on unemployment spells in Germany and Great Britain for the period 1991-2001. The two datasets allow for an international comparison of the institutional differences between the two countries. We find no evidence of shorter unemployment spells for previous temporary workers neither in Great-Britain nor in Germany. Results suggest that a labour market policy of promoting temporary work will not necessarily lead to lower unemployment since these policies increase the probability of becoming unemployed without being able to fulfil the promise of shorter unemployment spells.
    Keywords: unemployment duration; temporary employment; job search model; nonparametric hazard model; Great-Britain; Germany
    JEL: C41 J41 C14 J64
    Date: 2008–03–01
  16. By: Ohinata, Asako (Dept. of Economics, University of Warwick)
    Abstract: The introduction of the 1999 Working Families Tax Credit (WFTC) in the UK encouraged low income families with children to enter the labor market. The tax credit, however, may have had the unintended side effect of increasing the childbearing of these households. While many studies have looked at the importance of WFTC on the female labor supply, only few have estimated the impact it had on fertility decisions of British families. This paper employs the 1995 to 2003 British Household Panel Survey and identifies the policy impact of WFTC by observing the change in the probability of birth as well as the timing of birth using the difference in differences estimator. The main findings of this paper suggest that single women responded to the policy introduction by reducing the probability of birth and prolonging the birth intervals across all birth parity. For women with partners, on the other hand, the estimates indicate that financial incentives did not encourage them to enter motherhood but it rather induced women to have their second birth quicker.
    Keywords: Fertility ; Welfare policy ; Working Families Tax Credit ; Difference-in-Differences
    JEL: J13 J18
    Date: 2008
  17. By: Vito Amendolagine (University of Bari.); Rosa Capolupo (University of Bari.); Giovanni Ferri (University of Bari.)
    Abstract: Being the G-7 country with the largest shadow-economy share, we posit that Italy's manufacturing firms - to counter emerging economies' competition - could alternatively offshore or enter the shadow economy. Within this context, we investigate, in a sample of Italian firms, whether internationalised firms outperform purely domestic firms in terms of efficiency, innovativeness and skill composition. Using propensity-score-matching and difference-in-difference techniques we find evidence that: (i) offshoring impacts TFP negligibly but, (ii) labour cost relocation robustly causes offshoring; (iii) offshoring firms are more likely innovative and R&D-oriented; (iv) firms in high- shadow -economy provinces less likely offshore. It is also evidenced that the latter firms show lower TFP and R&D expenditure.
    Keywords: trade integration, offshoring, empirics of global sourcing, shadow economy
    JEL: F13 F21 O19 E26
    Date: 2008–03

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