nep-eec New Economics Papers
on European Economics
Issue of 2008‒11‒18
eighteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Is FDI into China Crowding Out FDI into the European Union? By Resmini, Laura; Siedschlag, Iulia
  2. Internationalization of European SMEs towards Emerging Markets By Jolanda Hessels; Madeleine Kemna
  3. Changing Patterns of InternationalIntegration: Germany and Italy in the Countries of EU Enlargement By Altomonte, Carlo; Rungi, Armando
  4. The Euro and Structural Reforms By Alberto Alesina; Silvia Ardagna; Vincenzo Galasso
  5. Do Benevolent Aspects Have Room Explaining EU Bydget Receipts? By Heikki Kauppi; Mika Widgrén
  6. What affects international migration of European science and engineering graduates? By Grip Andries de; Fouarge Didier; Sauermann Jan
  7. Why the European Securities Market is Not Fully Integrated By Alberto Giovannini
  8. The Euro Effects on the Firm and Product-Level Trade Margins: Evidence from France By Antoine Berthou; Lionel Fontagne
  9. Determinants of domestic and cross-border bank acquisitions in the European Union By Ignacio Hernando; María J. Nieto; Larry Wall
  10. Inequalities in Income and Education and Regional Economic Growth in Western Europe By Rodríguez-Pose, Andrés; Tselios, Vassilis
  11. Fiscal Policy and Monetary Integration in Europe: An Update By Candelon Bertrand; Muysken Joan; Vermeulen Robert
  12. Regional gazelles and lions as creative creatures : a meta-multicriteria analysis of innovation and growth potentials of European regions By Nijkamp, P.; Zwetsloot, F.; Wal, S. van der
  13. How Central Bankers See It: The First Decade of ECB Policy and Beyond By Stephen G. Cecchetti; Kermit L. Schoenholtz
  14. Measuring Eco-efficiency of Agricultural Activity in European Countries: A Malmquist Index Analyis By Serrao, Amilcar
  15. High-Growth SMEs: Evidence from the Netherlands By Gerrit de Wit; Niek Timmermans
  16. Immigration and Firm Growth: Evidence from Spanish cities By Mercedes Teruel-Carrizosa; Agustí Segarra-Blasco
  17. SHARE Ireland: First Results By Liam Delaney; Colm Harmon; Cecily Kelleher; Jean Kennedy
  18. The Sub-Prime Crisis and UK Monetary Policy By Christopher Martin; Costas Milas

  1. By: Resmini, Laura; Siedschlag, Iulia (Economic and Social Research Institute (ESRI))
    Abstract: We estimate an augmented gravity panel 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: DYNREG, Foreign direct investment, China, European Union
    JEL: F15 F36 F41
    Date: 2008
  2. By: Jolanda Hessels; Madeleine Kemna
    Abstract: Emerging markets used to be closed economies that have only recently begun opening up their markets to the world economy. In addition to multinational enterprises (MNEs) small and mediumsized enterprises (SMEs) from developed countries have also started to undertake international activities in emerging markets. This paper investigates whether SMEs from higher-income European countries that operate in emerging markets are different from SMEs that operate exclusively in other developed markets e.g. in terms of their firm characteristics, internationalization motives and perceived internationalization barriers. The empirical analysis uses firm-level data for 3,698 internationally active SMEs located in 19 European countries (i.e. EU-15, Iceland, Liechtenstein, Norway and Switzerland).
    Date: 2008–11–03
  3. By: Altomonte, Carlo; Rungi, Armando
    Abstract: offshoring undertaken in the new members of EU in the period 1998-2006. Recent empirical evidence (Danninger, Joutz 2007 – IMF) shows that dominant factors explaining the increase in German market shares are trade relationships with fast growing countries and regionalized production in the export sector. According to the empirical evidence available for Italy (Di Maio, Tamagni 2006), the productivity/income content of trade specialization has decreased in the last decade. After an in-depth analysis of bilateral trade flows by final goods and intermediate goods categories, trade data are linked to the firm-level productivity analysis of Italian and German presence in the new member states of European Union. The domestic value added content and the imported intermediates content of exports from both countries to new members are disentangled following Hummels, Ishii and Yi (2001), whereas a sample of 38270 firms, located in new member states but owned by residents in old members, allows not only to measure relative firm-level productivity, but also to control for pure ownership effect, vertical versus horizontal FDI strategy and corporate governance characteristics. Data come from different sources: Eurostat-ComExt for trade, national statistics offices for input output tables, AMADEUS for firm-level data.
    Keywords: DYNREG
    Date: 2008
  4. By: Alberto Alesina; Silvia Ardagna; Vincenzo Galasso
    Abstract: This paper investigates whether or not the adoption of the Euro has facilitated the introduction of structural reforms, defined as deregulation in the product markets and liberalization and deregulation in the labor markets. After reviewing the theoretical arguments that may link the adoption of the Euro and structural reforms, we investigate the empirical evidence. We find that the adoption of the Euro has been associated with an acceleration of the pace of structural reforms in the product market. The adoption of the Euro does not seem to have accelerated labor market reforms in the "primary labor market;" however, the run up to the Euro adoption seems to have been accompanied by wage moderation. We also investigate issues concerning the sequencing of goods and labor market reforms.
    JEL: H10
    Date: 2008–11
  5. By: Heikki Kauppi; Mika Widgrén
    Abstract: ABSTRACT : The member states have self-interested objectives and they use their voting power in the Council of Ministers (CM) to maximize their shares from the EU budget, whereas European Parliament (EP) uses its power to support benevolent objectives and equality between member states. Given the current decision procedures of the EU, EP has effective power on non-compulsory expenditure covering structural spending, but not on compulsory expenditure consisting mainly of agricultural spending. We use this fact to assess how the assumed benevolent objectives of EP turn into member states´ budget receipts in a power politics based model.
    JEL: C71 D70 D72
    Date: 2008–11–06
  6. By: Grip Andries de; Fouarge Didier; Sauermann Jan (ROA rm)
    Abstract: In public policy, international migration of scientists and engineers is often seen as achance of recruiting the most talented and productive workers. However, it can alsobe a risk in terms of loosing a country’s talented workers. In this paper, we analysemigration of graduates from science and engineering studies from nine Europeancountries. Using a dataset with information on personal characteristics, previousmigration experience, as well as study- and work-related variables, we analyse thedeterminants of migrating to the country of the first job and to the country of subsequentjobs after graduation. We find that not only wage gains are driving the migrationdecision. Differences in labour market opportunities related to R&D spending area strong predictor of future migration. Furthermore, past migration experiences arerelated to a higher probability of labour migration. Moreover, we find evidence ofselective migration: the best graduates are most likely to migrate. Contrary to ourexpectation, qualitative aspects of the job match such as the utilisation of skills in thejob and involvement in innovation hardly seem to matter in the decision whetheror not to migrate. Interestingly, the wage level affects migration towards countriesin continental Europe, whereas Anglo-Saxon countries seem to attract migrants duetheir larger R&D intensity.
    Keywords: education, training and the labour market;
    Date: 2008
  7. By: Alberto Giovannini
    Abstract: I describe the challenge of fully integrating securities markets in Europe by integrating the clearing and settlement functionalities. The initial condition is characterized by a multitude of standards, conventions, regulation and laws, which are inconsistent with a barrier-free post-trading environment. In addition, the current providers of post-trading services are mostly for-profit monopolies. The EU reform strategy is discussed in detail, and its performance so far is assessed. I argue that the special features of the post-trading industry may help understand the disappointing progress so far.
    JEL: F3 F36 F59 G15 G2
    Date: 2008–11
  8. By: Antoine Berthou; Lionel Fontagne
    Abstract: We investigate the effects of the euro on French exporters. We build three margins corresponding to the decision of exporting, the number of products exported to each destination, and the average value of exports by product, that compose the expected value of exports of each individual firm on a market. Estimation results that rely on the full sample of exporters suggest that the euro adoption had a positive effect on the number of products exported by each individual firm, and no effect on the decision to export and the average value of exports by product. Though, composition effects are in action: the effect on the decision of exporting, and on the average value of exports by products, is positive - but weakly significant - for firms with more than 20 employees. Finally, we find that euro had no effect on least productive firms.
    Keywords: Trade; export margins; euro
    JEL: F15
    Date: 2008–10
  9. By: Ignacio Hernando (Banco de España); María J. Nieto (Banco de España); Larry Wall (Federal Reserve Bank of Atlanta)
    Abstract: This paper analyzes the determinants of bank acquisitions both within and across countries in the EU-25 over the period 1997-2004. The findings of this paper are broadly in line with those of the academic literature on the subject, which are mainly based on the US experience. Our results suggest poorly managed EU-25 banks (high cost to income) are more likely to be acquired by other EU-25 banks, in the same country. Nevertheless, this underperformance of target banks does hold for cross border bank acquisitions only if compared to the median of the market. Larger banks are more likely to be acquired by other banks in the same country. The probability of being acquired by another bank in the same market is larger for banks that are quoted in the stock market, which is consistent with the disciplinary character of listing in the stock markets. Finally, banks operating in more concentrated markets are less likely to be acquired by other banks operating within the same country but are more likely to be acquired by banks in other EU-25 countries.
    Keywords: bank acquisitions, merger gains, probability of acquisition
    JEL: G21 G34
    Date: 2008–11
  10. By: Rodríguez-Pose, Andrés; Tselios, Vassilis
    Abstract: Does inequality matter for regional growth? This paper addresses this question by using microeconomic data for more than 100,000 individuals over a period of 5 years from the European Community Household Panel (ECHP) dataset, complemented with Eurostat's Regio data, in order to examine the impact of income and educational distribution on regional economic growth. Educational distribution is measured in terms of educational achievement as well as educational inequality, and income distribution in terms of income per capita and income inequality, not only for the whole of the population, but also for normally working people. Our results indicate that, given existing levels of inequality, an increase in a region's income and educational inequality has a significant positive relationship with subsequent economic growth. Nevertheless, the reverse does not seem to be the case, as we do not find a causal link between growth and changes in inequality levels. Despite the fact that educational achievement is positively correlated with economic growth, the results also suggest that inequalities in income and educational attainment levels matter more for economic performance than average income and educational attainment, respectively. Initial income levels, in contrast, are irrelevant for regional economic growth as they are very sensitive to the inclusion of control variables.
    Keywords: Income inequality,educational attainment,educational inequality,economic growth,regions,Europe/growth
    Date: 2008
  11. By: Candelon Bertrand; Muysken Joan; Vermeulen Robert (METEOR)
    Abstract: By distinguishing between discretionary and non-discretionary fiscal policy, this paper analyses the stability of fiscal rules for EMU countries before and after the Maastricht Treaty. Using both Instrumental Variables and GMM techniques, it turns out that discretionary fiscal policy has remained procyclical after 1992. This result contradicts the previous findings of Galí and Perotti (2003). It also appears that fiscal rules differ between large and small countries; large countries follow a procyclical discretionary policy. Furthermore, the paper shows that discretionary fiscal policy exhibits different behaviour when facing supply or demand constraints. A procyclical discretionary policy is followed mainly during upswings, when supply constraints are prevalent. Finally, there is no support for the presence of a ‘fatigue effect’ in fiscal discipline.
    Keywords: Economics (Jel: A)
    Date: 2008
  12. By: Nijkamp, P. (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Zwetsloot, F.; Wal, S. van der
    Abstract: Creative regions are nowadays seen as strategic areas for a fierce – and often global – competition. This paper aims to provide an operational assessment framework for judging the innovation potential of competing regions on the basis of indicators that mirror the indigenous regional creative resources. Various evaluation methods are proposed to assess this innovation potential, on the basis of a set of 9 regions in Europe. The robustness of the findings is tested by applying a meta-multicriteria analysis.
    Date: 2008
  13. By: Stephen G. Cecchetti; Kermit L. Schoenholtz
    Abstract: In this history of the first decade of ECB policy, we also discuss key challenges for the next decade. Beyond the ECB's track record and an array of published critiques, our analysis relies on unique source material: extensive interviews with current and former ECB leaders and with other policymakers and scholars who viewed the evolution of the ECB from privileged vantage points. We share the assessment of our interviewees that the ECB has enjoyed many more successes than disappointments. These successes reflect both the ECB's design and implementation. Looking forward, we highlight the unique challenges posed by enlargement and, especially, by the euro area's complex arrangements for guarding financial stability. In the latter case, the key issues are coordination in a crisis and harmonization of procedures. As several interviewees suggested, in the absence of a new organizational structure for securing financial stability, the current one will need to function as if it were a single entity.<br><br><i><b><font size="3">Note to readers: The final version of this paper was completed in June 2008. </i></b></font>
    JEL: E42 E58
    Date: 2008–11
  14. By: Serrao, Amilcar
    Abstract: This paper develops an environmental performance index by applying the benefit of the doubt weighting and the Malmquist index concepts using Kuosmanen and Kortelainen€ٳ approaches. The main difference between these approaches and other methods is that environmental performance is based on the definition of the eco-efficiency as the ratio of economic value added to the environmental damage index. The overall environmental performance index is also decomposed into two components representing changes due to technological progress (or regress) and due to changes in relative eco-efficiency. The dynamic environmental performance analysis is applied to 15 European agricultures from 1990 to 2004. Model results show that technical progress mostly explain overall environmental performance growth, while relative eco-efficiency changes have been minor for most European agricultures for the sample period.
    Keywords: Benefit of the doubt weighting, Data Envelopment Analysis, Eco-efficiency, Environmental performance analysis, Malmquist Index, Agricultural Activity, Environmental Economics and Policy, Research Methods/ Statistical Methods, Q57, C43, C61,
    Date: 2008
  15. By: Gerrit de Wit; Niek Timmermans
    Abstract: In this paper we investigate what aspects characterize these gazelles in the Dutch economy. As such, it fits in a larger project taken up by the OECD, in which such an exercise is done for many OECD countries. The structure of this paper is as follows. First, we present in section 2 how many gazelles are present in the Dutch economy and compare this with some benchmark countries. Subsequently, we state in section 2 the researchquestions posed by the OECD that are central in this paper. In section 4 we describe the data set on which our analyses are based. Section 4 and 5 contain analyses. Section 5 gives a simple comparison between gazellesand non-gazelles, in which characteristics are compared on a one by one basis. Section 6 contains a multivariate logit regression. Finally, we discuss the research questions of this paper in section 7 on the basis of our findings of sections 5 and 6.
    Date: 2008–11–10
  16. By: Mercedes Teruel-Carrizosa (GRIT, Universitat Rovira i Virgili); Agustí Segarra-Blasco (GRIT, Universitat Rovira i Virgili)
    Abstract: This article analyses the effect of immigration flows on the growth and efficiency of manufacturing firms in Spanish cities. To date, most studies have tended to focus on the effect immigrants have on labour markets at an aggregate level. Here, however, we undertake an exhaustive analysis at the firm level and report conclusive empirical findings. Ten years ago, Spain began to register massive immigration flows, concentrated above all on its most dynamic and advanced regions. Here, therefore, rather than focusing on the impact this has had on Spain’s labour market (changes to the skill structure of the workforce, increase in labour supply, the displacement of native workers, etc.), we examine the arrival of immigrants in terms of the changes this has meant to the structure of the country’s cities and their amenities. Thus, we argue that the impact of immigration on firm performance should not only be considered in terms of the labour market, but also in terms of how a city’s amenities can affect the performance of firms. Employing a panel data methodology, we show that the increasing pressure brought to bear by immigrants has a positive effect on the evolution of labour productivity and wages and a negative effect on the job evolution of these manufacturing firms. In addition, both small and new firms are more sensitive to the pressures of such immigrant inflows, while foreign market oriented firms report higher productivity levels and a less marked impact of immigration than their counterparts. In this paper, we also present a set of instruments to correct the endogeneity bias, which confirms the effect of local immigration flows on the performance of manufacturing firms.
    Keywords: firm growth, firm location, regional effects
    JEL: L25 R12
    Date: 2008–11
  17. By: Liam Delaney (School of Economics & Geary Institute, University College Dublin); Colm Harmon (UCD Geary Institute, University College Dublin); Cecily Kelleher (School of Population and Health, University College Dublin); Jean Kennedy (UCD Geary Institute, University College Dublin)
    Abstract: The study team gratefully acknowledges funding support from the Irish Research Council for Humanities and Social Sciences under the Thematic Research Programmes initiative. Mark McGovern from UCD and Dr. Berengere Davin from NUIG provided substantial and excellent assistance in the drafting of this document. Christianne Hellmanzik, Lorna Sweeney and Fearghal O.hAodha also provided excellent research assistance at various stages of this project. We would like to thank Dr. Dorothy Watson of the ESRI who co-ordinated the field-work and her team of interviewers. Dr. Marcel Das of CenTERdata in Tilburg University and Simon Holroyd of NATCEN provided substantial technical assistance. This study would not have been possible in Ireland without the support of Professor Axel Boersch-Supan of the Mannheim Institute of Aging (MEA) who leads the European SHARE study. We would also like to sincerely thank the many participants who gave their time for this important study.
    Keywords: share, ireland, results
    Date: 2008–11–10
  18. By: Christopher Martin (Brunel University, Uxbridge, UK); Costas Milas (Keele University, Staffordshire, UK and The Rimini Centre for Economic Analysis, Italy)
    Abstract: The “sub-prime” crisis, which led to major turbulence in global financial markets beginning in mid-2007, has posed major challenges for monetary policymakers. We analyse the impact on monetary policy of the widening differential between policy rates and the 3-month Libor rate, the benchmark for private sector interest rates. We show that the optimal monetary policy rule should include the determinants of this differential, adding an extra layer of complexity to the problems facing policymakers. Our estimates reveal significant effects of risk and liquidity measures, suggesting the widening differential between base rates and Libor was largely driven by a sharp increase in unsecured lending risk. We calculate that the crisis increased libor by up to 60 basis points; in response base rates fell further and quicker than would otherwise have happened as policymakers sought to offset some of the contractionary effects of the sub-prime crisis.
    Keywords: optimal monetary policy; sub-prime crisis
    JEL: C51 C52 E52 E58
    Date: 2008–01

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