nep-eec New Economics Papers
on European Economics
Issue of 2009‒02‒28
thirty-six papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Reforming Pensions in Europe: Economic Fundamentals and Political Factors By Ondřej Schneider
  2. Business Cycles in the Euro Area By Giannone, Domenico; Lenza, Michele; Reichlin, Lucrezia
  3. Scale, Diversity and Determinants of Labour Migration in Europe By Zaiceva, Anzelika; Zimmermann, Klaus F
  4. Financial Market Integration Under EMU By Jappelli, Tullio; Pagano, Marco
  5. Labor Mobility and the Integration of European Labor Markets By Zimmermann, Klaus F.
  6. Economic incongruities in the European patent system By Mejer, Malwina; van Pottelsberghe, Bruno
  7. A Monthly Indicator of the Euro Area GDP By Frale, Cecilia; Marcellino, Massimiliano; Mazzi, Gian Luigi; Proietti, Tommaso
  8. Labour Markets in EMU - What has Changed and What Needs to Change By Bertola, Giuseppe
  9. Temporary Jobs and Job Search Effort in Europe By Kahn, Lawrence M.
  10. Reforms Financial Market Stability in the European Union: Enhancing Regulation and Supervision By Jeremy Lawson; Sebastian Barnes; Marte Sollie
  11. The London Agreement and the Cost of Patenting in Europe By Mejer, Malwina; van Pottelsberghe, Bruno
  12. Earnings Dynamics and Inequality among Men across 14 EU Countries, 1994-2001: Evidence from ECHP By Sologon, Denisa Maria; O'Donoghue, Cathal
  13. The Benefits of Financial Markets: A Case Study of European Football Clubs By Dirk G. Baur and Conor McKeating
  14. The Skill Composition of Immigrants and the Generosity of the Welfare State: Free vs. Policy-Controlled Migration By Cohen, Alon; Razin, Assaf
  15. Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter? By Bortolotti, Bernardo; Cambini, Carlo; Rondi, Laura; Spiegel, Yossi
  16. Relaxed Dismissal Protection: Effects on the Hiring and Firing Behaviour of Small Firms By Stefan Bauernschuster
  17. Ten Years of EMU: convergence, divergence and new policy priorities By Nikos Christodoulakis
  18. Euro corporate bonds risk factors By Castagnetti, Carolina; Rossi, Eduardo
  19. Offshoring, Relocation and the Speed of Convergence in the Enlarged European Union By Alho, Kari; Kaitila, Ville; Widgrén, Mika
  20. Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe By Crabbé, Karen; Vandenbussche, Hylke
  21. Are the US outperforming Europe in university technology licensing? A new perspective on the European paradox By Annamaria Conti; Patrick Gaulé
  22. A Tale of Two Platforms: Dealer Intermediation in the European Sovereign Bond Market By Dunne, Peter; Hau, Harald; Moore, Michael
  23. Rules of Origin, Preferences and Diversification in Apparel: African Exports to the US and to the EU By de Melo, Jaime; Portugal-Pérez, Alberto
  24. Is Poland at Risk of a Boom-and-Bust Cycle in the Run-Up to Euro Adoption? By Eichengreen, Barry; Steiner, Katharina
  25. Immigrant Links, Diasporas and FDI. An Empirical Investigation on Five European Countrie By Marina Murat; Sara Flisi
  26. Are Horizontal Mergers and Vertical Integration a Problem? By Simon Pilsbury; Andrew Meaney
  27. Do Temprary Contracts Affect TFP? Evidence from Spanish Manufacturing Firms By Dolado, Juan J.; Stucchi, Rodolfo
  28. Comparing the Early Research Performance of PhD Graduates in Labour Economics in Europe and the USA By Cardoso, Ana Rute; Guimaraes, Paulo; Zimmermann, Klaus F
  29. Re-Evaluating Swedish Membership in EMU: Evidence from an Estimated Model By Söderström, Ulf
  30. International Transmission of Business Cycles Between Ireland and its Trading Partners By Goggin, Jean; Siedschlag, Iulia
  31. Dependency insurance in Belgium By Güngör Karakaya
  32. The Impact of Fiscal Shocks on the Irish Economy By Agustín S. Bénétrix and Philip R. Lane
  33. Public Support to Clusters: A Firm Level Study of French “Local Productive Systems” By Martin, Philippe; Mayer, Thierry; Mayneris, Florian
  34. SWEtaxben: A Swedish Tax/benefit Micro Simulation Model and an Evaluation of a Swedish Tax Reform. By Ericson, Peter; Flood, Lennart; Wahlberg, Roger
  35. The Rise and Fall of Spatial Inequalities in France: a Long-Run Perspective By Combes, Pierre-Philippe; Lafourcade, Miren; Thisse, Jacques-François; Toutain, Jean-Claude
  36. Naturalization and Employment of Immigrants in France (1968-1999) By Fougère, Denis; Safi, Mirna

  1. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; CESifo, Munich, Germany; Georgetown University)
    Abstract: This paper analyzes pension reforms in Europe and their determinants. As pension reforms are intrinsically difficult to define and pinpoint, we introduce an alternative measure of pension reforms by comparing long-term forecasts of pension expenditures for seventeen European countries. The larger the decrease in expected spending on public pensions in 2050 between two base years, the more successful a pension reform the country achieved (after controlling for other factors, such as demography). Our analysis shows that the reform effort varies widely across countries and over time. Indeed, only three countries in the EU managed to reduce their expected spending on pensions in both reference periods. In the second part of the paper, we analyze factors that may facilitate or hamper pension reform – quality of fiscal institutions, public debt, trade unions’ influence, and also demographic factors. Only the measure of trade union power proves to be significant in explaining pension reforms. Other factors, such as quality of fiscal institutions, size of the existing funded pillar, public debt or recent demographic developments, do not seem to play a significant role. However, specific pension system factors – most significantly the lagged change in pension expenditures – are significant and suggest that European governments do reform their pension systems when faced with the threat of escalating pension expenditures. In conclusion, we propose a hypothesis of “bounded” economic rationale of European governments, as they seem to react to expectations of an increase in pension spending, but they seem to be content with the current spending levels. The appendix gives detailed information on pension reforms in the ten Central and Eastern European countries that became EU members in 2004 and 2007 (EU-10).
    Keywords: pension system, European Union, pension reform, fiscal institutions
    JEL: D72 H55 P26
    Date: 2009–02
  2. By: Giannone, Domenico; Lenza, Michele; Reichlin, Lucrezia
    Abstract: This paper shows that the EMU has not affected historical characteristics of member countries’ business cycles and their cross-correlations. Member countries which had similar levels of GDP per-capita in the seventies have also experienced similar business cycles since then and no significant change associated with the EMU can be detected. For the other countries, volatility has been historically higher and this has not changed in the last ten years. We also find that the aggregate euro area per-capita GDP growth since 1999 has been lower than what could have been predicted on the basis of historical experience and US observed developments. The gap between US and euro area GDP per capita level has been 30% on average since 1970 and there is no sign of catching up or of further widening.
    Keywords: euro area; European integration; European monetary union; international business cycles
    JEL: C5 E32 F2 F43
    Date: 2009–01
  3. By: Zaiceva, Anzelika; Zimmermann, Klaus F
    Abstract: While global migration is increasing, internal EU migration flows have remained low. This paper contributes to a better understanding of the determinants and scale of European migration. It surveys previous historical experiences and empirical findings including the recent Eastern enlargements. The determinants of migration before and after the 2004 enlargement and in the EU15 and EU10 countries are analysed using individual data on migration intentions. In addition, perceptions about the size of migration after the enlargement are studied. The potential emigrant from both old and new EU member states tends to be young, better educated and to live in larger cities. People from the EU10 with children are less likely to move after enlargement in comparison to those without family. There exists a correlation between individual perceptions about the scale of migration and actual flows. Better educated and left-oriented individuals in the EU15 are less likely to perceive these flows as important.
    Keywords: determinants of labour migration; EU Eastern enlargement; migration; migration intentions
    JEL: F22 J15 J61
    Date: 2008–07
  4. By: Jappelli, Tullio; Pagano, Marco
    Abstract: The single most important policy-induced innovation in the international financial system since the collapse of the Bretton-Woods regime is the institution of the European Monetary Union. This paper provides an account of how the process of financial integration has promoted financial development in the euro area. It starts by defining financial integration and how to measure it, analyzes the barriers that can prevent it and the effects of their removal on financial markets, and assesses whether the euro area has actually become more integrated. It then explores to which extent these changes in financial markets have influenced the performance of the euro-area economy, that is, its growth and investment, as well as its ability to adjust to shocks and to allow risk-sharing. The paper concludes analyzing further steps that are required to consolidate financial integration and enhance the future stability of financial markets.
    Keywords: EMU; financial market integration
    JEL: G20
    Date: 2008–12
  5. By: Zimmermann, Klaus F. (IZA, DIW Berlin and Bonn University)
    Abstract: This paper outlines the importance of labor mobility for the improvement in allocating and distributing economic resources. We are faced with an increasing lack of skilled workers and a growing tendency of unemployment amongst the low-skilled. A central political objective for the future will not only be education policy but also the recruitment of high-skilled workers from international and European labor markets. Additional skilled labor increases well-being and reduces inequality. However, internal European barriers to mobility are difficult to break through. An improved transparency of the European labor market, a greater command of languages and a standardization of the social security system can strengthen mobility. The key to mobility is in promoting the integration of international workers in the European migration process, which can be strengthened through circular migration. The European “blue card” initiative and the opening of labor markets to foreign graduates who have been trained in Europe could set a new course.
    Keywords: migration, migration effects, EU Eastern enlargement, free movement of workers
    JEL: F22 J15 J61
    Date: 2009–02
  6. By: Mejer, Malwina; van Pottelsberghe, Bruno
    Abstract: This paper argues that the consequences of the ‘fragmentation’ of the European patent system are more dramatic than the mere prohibitive costs of maintaining a patent in force in many jurisdictions. First, detailed analysis of judicial systems in several European countries and four case studies provide evidence suggesting that heterogeneous national litigation costs, practices and outcome induce a high level of uncertainty. Second, a high degree of managerial complexity results from systemic incongruities due to easier ‘parallel imports’, possible ‘time paradoxes’ and the de facto paradox of having EU-level competition policy and granting authority ultimately facing national jurisdictional primacy on patent issues. These high degrees of uncertainty and complexity contribute to reduce the effectiveness of the European patent system and provide additional arguments in favour of the Community patent and a centralized litigation in Europe.
    Keywords: enforcement; European patent system; litigation process; patent cost; uncertainty
    JEL: K41 O34 P14
    Date: 2009–01
  7. By: Frale, Cecilia; Marcellino, Massimiliano; Mazzi, Gian Luigi; Proietti, Tommaso
    Abstract: A continuous monitoring of the evolution of the economy is fundamental for the decisions of public and private decision makers. This paper proposes a new monthly indicator of the euro area real Gross Domestic Product (GDP), with several original features. First, it considers both the output side (six branches of the NACE classification) and the expenditure side (the main GDP components) and combines the two estimates with optimal weights reflecting their relative precision. Second, the indicator is based on information at both the monthly and quarterly level, modelled with a dynamic factor specification cast in state-space form. Third, since estimation of the multivariate dynamic factor model can be numerically complex, computational efficiency is achieved by implementing univariate filtering and smoothing procedures. Finally, special attention is paid to chain-linking and its implications, via a multistep procedure that exploits the additivity of the volume measures expressed at the prices of the previous year.
    Keywords: Chain-linking; Dynamic factor Models; euro area GDP; Kalman filter and smoother; Multivariate State Space Models; Temporal Disaggregation
    JEL: C53 E32 E37
    Date: 2008–10
  8. By: Bertola, Giuseppe
    Abstract: This paper reviews theoretical and empirical aspects of the interaction between Europe’s Economic and Monetary Union and recent labour market developments. Policies meant to increase and stabilize labour incomes also tend to reduce employment and productivity: theory suggests that the latter effects should be sharper and more relevant within an integrated market area, making it harder for National policy makers to address the consequences of financial and other market imperfections. Empirical patterns of policy and outcome indicators in member and non-member countries of EMU are consistent with that theoretical mechanism. In the data, tighter economic integration is associated with better employment performance, substantial deregulation, sharper disemployment effects of remaining regulatory differences, and somewhat higher inequality and larger private financial market volume.
    Keywords: economic integration; labour market policies
    JEL: J5 J8
    Date: 2008–11
  9. By: Kahn, Lawrence M. (Cornell University)
    Abstract: Using longitudinal data on individuals from the European Community Household Panel (ECHP) for eight countries during 1995-2001, I investigate temporary job contract duration and job search effort. The countries are Belgium, Denmark, Finland, France, Italy, the Netherlands, Portugal and Spain. I construct a search model for workers in temporary jobs which predicts that shorter duration raises search intensity. Calibration of the model to the ECHP data implies that at least 59% of the increase in search intensity over the life a long term temporary job occurs in the last period. I then estimate regression models for search effort that control for human capital, pay, local unemployment, gender, and time and country fixed effects, I find that workers on temporary jobs indeed search harder than those on permanent jobs. Moreover, search intensity increases as temporary job duration falls, and at least 80% of this increase occurs on average in the shortest duration jobs. These results are robust to disaggregation by gender and country and to individual fixed effects. These empirical results are noteworthy, since it is not necessary to assume myopia or hyperbolic discounting in order to explain them, although the data clearly also do not rule out such explanations.
    Keywords: job search, temporary jobs
    JEL: J21 J23
    Date: 2009–02
  10. By: Jeremy Lawson; Sebastian Barnes; Marte Sollie
    Abstract: Financial innovation and integration have spurred financial development and enhanced consumer choice. Financial integration has also been associated with the emergence of large, complex, cross-border financial institutions (LCFIs). This has changed risk profiles and made cross-border contagion more likely. An important challenge for the EU is to manage systemic risks and cross-border contagion to ensure financial stability in an integrated financial market. The financial market turmoil has also highlighted some gaps in the regulatory and supervisory framework. Although the European authorities should be commended for the progress they have made in updating and improving frameworks and responding to the financial turmoil, more can be done. In particular, further steps are needed to remove the mismatch between integrating European financial markets on the one hand, and largely national supervision on the other. Attention should also be given to the question of which measures are adequate to dampen the procyclicality of the financial system. New regulations should not impose unnecessary costs on consumers, businesses and financial institutions, nor create obstacles to further market integration.<P>Stabilité des marchés de capitaux dans l'Union européenne : Améliorer la réglementation et le contrôle<BR>L’innovation et l’intégration financières ont favorisé le développement de la sphère financière et élargi les choix offerts aux consommateurs. L’intégration financière a aussi été de pair avec la formation de grandes institutions financières transnationales (GIFT) complexes. Ce phénomène a modifié les profils de risque et accru les risques de contagion transnationale. Pour l’UE, l’un des grands problèmes consiste à maîtriser le risque systémique et la contagion transnationale afin d’assurer la stabilité financière sur un marché des capitaux intégré. La tourmente financière a aussi mis en relief un certain nombre de failles du dispositif de réglementation et de contrôle. Bien que les autorités européennes méritent d’être félicitées pour leurs progrès dans le sens de la modernisation et de l’amélioration de leurs dispositifs et pour leur réaction à la tourmente financière, on peut faire davantage. En particulier, de nouvelles mesures sont nécessaires afin de remédier au décalage entre l’intégration des marchés européens de capitaux d’une part et des régimes de contrôle à caractère largement national de l’autre. Il convient en outre de se demander quelles mesures faut-il mettre en oeuvre pour atténuer le penchant procyclique du système financier. Les nouveaux règlements ne doivent pas faire peser des coûts inutiles sur les consommateurs, les entreprises et les institutions financières, ni entraver la poursuite de l’intégration des marchés.
    Keywords: European Union, Union européenne, surveillance prudentielle, financial regulation, réglementation financière, financial crisis, crise financière, financial supervision
    JEL: G1 G21 G28
    Date: 2009–02–20
  11. By: Mejer, Malwina; van Pottelsberghe, Bruno
    Abstract: This paper analyses the consequences for the European Patent System (EPS) of the recently ratified London Agreement (LA), which aims to reduce the translation requirements for patent validation procedures in 15 out of 34 national patent offices. The simulations suggest that the cost of patenting has been reduced by 20 to 30 percent since the enforcement of the LA. With an average translation cost saving of €3,600 per patent, the total savings for the business sector amount to about €220 millions. The fee elasticity of patents being about -0.4, one may expect an increase in patent filings of eight to 12 percent. Despite the translation cost savings, the relative cost of a European patent validated in six (thirteen) counties is still at least five (seven) times higher than in the United States.
    Keywords: European patent system; fee elasticity; London Agreement; patent fees; translation costs
    JEL: O34 P14 P51
    Date: 2008–11
  12. By: Sologon, Denisa Maria (Maastricht University); O'Donoghue, Cathal (Teagasc Rural Economy Research Centre)
    Abstract: This paper analyses the dynamic structure of individual earnings across 14 EU countries over the period 1994-2001 using ECHP. Understanding wage mobility and its link with the evolution of cross-sectional earnings inequality is important from a welfare perspective, particularly given the large variety in national cross-sectional wage inequality. This is highly relevant in the context of the changes that took place in the EU labour market policy framework after 1995 under the incidence of the 1994 OECD Jobs Strategy, which recommend policies to increase wage flexibility, lower non-wage labour costs and allow relative wages to better reflect individual differences in productivity and local labour market conditions. What is the source of earnings variation? Did the increase in cross-sectional wage inequality observed in some countries result from greater transitory fluctuations in earnings and individuals facing a higher degree of earnings mobility? Or is this rise reflecting increasing permanent differences between individuals with mobility remaining constant or even falling? Are there common trends in earnings inequality and mobility across countries? Equally weighted minimum distance methods are used to estimate the covariance structure of earnings, decompose earnings into a permanent and a transitory component and conclude about their evolution. As expected, a notable change was an increased country heterogeneity, which translated itself in the level and evolution of the cross-sectional earnings inequality components. The decrease in cross-sectional inequality was accompanied by an increase in mobility, and therefore a decrease in the importance of the permanent component relative to the transitory component in Denmark, Belgium and Spain, and by a decrease in earnings mobility in Germany, France, UK, Ireland and Austria. In Luxembourg, Italy, Greece, Portugal, and Finland, the increase in cross-sectional inequality was accompanied by a decrease in mobility, whereas in Netherlands by an increase.
    Keywords: panel data, wage distribution, inequality, mobility
    JEL: C23 D31 J31 J60
    Date: 2009–02
  13. By: Dirk G. Baur and Conor McKeating
    Abstract: This study analyses the performance of European football clubs which undergo an initial public offering (IPO). We use a unique time-series and cross-section dataset consisting of domestic and international performance data to develop an event study to investigate the effects of a football club’s on-field performance before and after the IPO. The study follows from the observation that, as financial markets are expected to exhibit a positive influence on the economy as a whole, football clubs who access these markets should benefit as well. However, the conclusions of our study are similar to those in the corporate finance literature, where firms who undertake an IPO find their stock price underperforming similar firms in the medium term. Using our metric, football clubs have a diminished domestic and international performance after the stock market listing.
    Date: 2009–02–16
  14. By: Cohen, Alon; Razin, Assaf
    Abstract: The paper analyzes the effect of the generosity of the welfare state on the skill composition of immigrants. We develop a parsimonious model in which the effect of an increase in the generosity (and taxes) of the welfare state on the skill composition of immigrants under free migration is negative. The reason is that welfare state benefits attract unskilled migrants because they contribute to tax revenues less than what they gain from benefits; and this generosity works to deter skilled immigrants, because they contribute in taxes more than in benefits. In sharp contrast, the effect of an increase in the generosity (and taxes) of the welfare state on the skill composition of migrants is positive if migration is controlled by policy. Being net contributors to the welfare state, skilled migrants can help finance a more generous welfare-state system; thus, they are preferred by the policy maker over unskilled migrants. We take the prediction of the model to cross-sectional data on source-host, OECD-EU country pairs in the year 2000. The identification strategy is to use the decomposition the source-host country pairs into two groups: one group, a "free migration" group, source-host country pairs within the EU, and another group, "policy-controlled migration" group, the pairs from non-EU countries into the EU. We find evidence in support of the predictions of the parsimonious model, that the generosity of the welfare state adversely affects the skill-composition of migrants under free migration; but it exerts a more positive effect under controlled migration, relative to the free migration regime.
    Keywords: EU and non-EU countries; free migration; policy-controlled migration
    JEL: F22 F4 H1
    Date: 2008–11
  15. By: Bortolotti, Bernardo; Cambini, Carlo; Rondi, Laura; Spiegel, Yossi
    Abstract: We construct a comprehensive panel data of 92 publicly traded European utilities over the period 1994-2005 in order to study the relationship between capital structure, regulated prices, and firm value, and examine if and how this interaction is affected by ownership structure and regulatory independence. We show that regulated firms in our sample tend to have a higher leverage if they are privately-controlled and if they are regulated by an independent regulatory agency. Moreover, we find that the leverage of these firms has a positive and significant effect on their regulated prices, but not vice versa, and it also has a positive and significant effect on their market values. Our results are consistent with the theory that privately-controlled firms use leverage strategically to shield themselves against regulatory opportunism.
    Keywords: capital structure; leverage; private and state ownership; Regulated utilities; regulatory agencies; regulatory independence
    JEL: G31 G32 L33
    Date: 2008–12
  16. By: Stefan Bauernschuster (University of Jena, Graduate College "The Economics of Innovative Change")
    Abstract: Small firms are seen as important drivers of dynamics and innovation. They need to be particularly flexible and be able to react quickly to new challenges. This paper uses the latest change in dismissal protection legislation in Germany as a natural experiment and tries to find causal effects on the hiring and firing behaviour of small firms. Using a difference-in-differences approach, I find only small but positive effects on the total number of hirings. However, there are substantial substitution effects from temporary contract hirings to permanent contract hirings. The results remain robust when using count data models and applying fixed effects specifications.
    Keywords: Employment Protection, Small Business, Worker Flows
    JEL: J38 K31 M21
    Date: 2009–02–20
  17. By: Nikos Christodoulakis
    Abstract: As the tenth anniversary of EMU is approaching, a debate is underway as to whether the single currency has promoted or hindered convergence among the countries of the Eurozone. On the one hand, there is wide agreement on the fact that asymmetric shocks have subsided after the creation of the single currency and that FDI has been substantially promoted both in and outside of EMU as a result of reduced exchange rate volatility, more integration and better institutional functioning. But if one moves to examine the catching-up process between the less and more-affluent countries of the Eurozone, the evidence in support for convergence is fading away after the EMU was initiated in 1999. A process of divergence in per capita GDP is underway, in contrast with the substantial progress that has taken place during the nineties. Regional convergence is also found to wane, though the evidence is not as conclusive. Moreover, post-EMU divergence in per capita GDP appears to be far more pronounced than that of per capita GNI, due to the risk-sharing strategies implemented after the EMU to face asymmetric shocks and the resulted relocation of capital. Another worrying development in the Eurozone is the emergence of unprecedented CA deficits in the Southern Eurozone countries, while the Northern Eurozone group enjoys substantial surpluses. Although both groups of countries have attracted increased FDI flows after EMU, there seems to be a sharp differentiation regarding size and composition. In the Southern countries, the housing sector has attracted relatively more investment than the production sector, while the reverse seems to be the case in the Northern group. Thus, investment in the Northern (Southern) Eurozone countries increased the traded (non-traded) output and caused an improvement (deterioration) in the trade balance. To face such imbalances, new policy priorities are required in the Eurozone that put more emphasis on convergence and competitiveness.
    Keywords: Eurozone; economic integration; convergence; business cycles.
    Date: 2009–01
  18. By: Castagnetti, Carolina; Rossi, Eduardo
    Abstract: This paper investigates the determinants of credit spread changes in Euro-denominated bonds. Because credit spread changes can be easily viewed as an excess return on corporate bonds over treasury bonds, we adopt a factor model framework, inspired by the credit risk structural approach. We try to assess the relative importance of market and idiosyncratic factors in explaining the movements in credit spreads. We adopt a heterogeneous panel with a multifactor error model and propose a two-step estimation procedure which yields consistent estimates of unobserved factors. The analysis is carried out with a panel of monthly redemption yields on a set of corporate bonds for a time span of three years. Our results suggest that the Euro corporate market is driven by observable and unobservable factors. Where the latter are identified through a consistent estimation of individual and common observable effects. We observe that the factors predicted by the structural model are not as relevant as in the case of the US market. The empirical results also suggest that an unobserved common factor has a significant role in explaining the systematic changes in credit spreads. However, contrary to the American evidence, it cannot be identified as a market factor.
    Keywords: Euro Corporate Bonds; Cross Section Dependence; Common Correlated Effects; Yield Curve
    JEL: G10
    Date: 2008–10–16
  19. By: Alho, Kari; Kaitila, Ville; Widgrén, Mika
    Abstract: Economic convergence of the new member states (NMS) of the EU towards the old EU countries (EU-15), not only in terms of real income, but also in nominal terms, is of paramount importance for the whole of the EU. We build a dynamic CGE model, starting from the Balassa-Samuelson two-sector framework, but modify and enlarge it with forward-looking investment, consumption, and labour mobility behaviour to address several other issues like welfare and sustainability in terms of foreign indebtedness. At the same time we evaluate the impact of convergence on the EU-15 countries also, by endogenising offshoring and the related FDI flows from them to the NMS. Thereby we identify various effects of relocation and globalisation on the EU-15 enlarging the standard set of effects of globalisation and demonstrate the key role of their dynamic nature in the process of convergence. We find that in a general equilibrium setting fears of large adverse effects of a relocation of EU-15 manufacturing to the NMS are not well founded. In contrast, offshoring appears to be a win-win case for both the EU-15 and the NMS in terms of real income. The convergence of the NMS is fairly rapid, but will involve a persistent rapid inflation rate.
    Keywords: Convergence; EU-15; new member states; relocation
    JEL: F15 F21 F43
    Date: 2008–10
  20. By: Crabbé, Karen; Vandenbussche, Hylke
    Abstract: Tax competition within the EU is fiercer than in the rest of the OECD with tax rates falling rapidly. This paper analyzes tax responses of EU-15 countries to corporate tax changes in the EU-10 new member states as a function of their proximity to these new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, allowing firms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries geographically closer to the new member states respond stronger to corporate tax changes in these new member states. We use a theoretical and a spatial regression framework to test the hypothesis that distance to a low tax region intensifies countries' tax reaction functions.
    Keywords: corporate taxes; fiscal reaction function; Spatial tax competition
    JEL: H25 H39 H77
    Date: 2009–02
  21. By: Annamaria Conti (Chaire en Economie et Management de l'Innovation, Collège du Management de la Technologie, Ecole Polytechnique Fédérale de Lausanne); Patrick Gaulé (Chaire en Economie et Management de l'Innovation, Collège du Management de la Technologie, Ecole Polytechnique Fédérale de Lausanne)
    Abstract: Europe is perceived to lag behind the US in converting its academic results into economic outcomes. Using new survey data and controlling for standard factors affecting the productivity of Technology Transfer Offices (TTOs), we find that European TTOs do not execute less licenses than US TTOs. However, they earn significantly less revenue from licenses. We relate the difference in licensing income to differences in the organization and staffing of TTOs. Specifically, US TTOs employ more staff with experience in industry and appear to have greater flexibility in managing their budget.
    Keywords: technology transfer office, technology licensing, European paradox
    JEL: L3 O31 O38
    Date: 2009–02
  22. By: Dunne, Peter; Hau, Harald; Moore, Michael
    Abstract: Interdealer trading in the European sovereign bond market is characterized by low spreads and high liquidity. This paper examines whether the dealer-customer segment of the market also benefits from low spreads. Customers are smaller banks and buy-side financial institutions who request quotes from primary dealers. They generally do not enjoy access to the interdealer trading platform. Surprisingly, we find that customer trades are on average competitively priced and often occur inside the interdealer spread. Moreover, higher market volatility increases interdealer spreads more than customer spreads. The theoretical part of the paper develops a new dynamic model of dealer intermediation which captures the segmented market structure of the European bond market. The model explains differences in the volatility dependence of interdealer and customer spreads. The predicted inventory dependence of customer trade quality is also confirmed in the data.
    Keywords: Adverse Selection; Dealer Intermediation; Market Segmentation; Spread Determination
    JEL: D4 G14 G2 G24
    Date: 2008–09
  23. By: de Melo, Jaime; Portugal-Pérez, Alberto
    Abstract: The EU and the US offer similar preferential market access for apparel exports to a group of African countries. These agreements differ in their product-specific rules of origin (PSRO). While EBA and Cotonou require yarn to be woven into fabric and then made-up into apparel in the same country or in a country qualifying for cumulation (double transformation), AGOA grants a special regime (SR) to “lesser developed countries” allowing them the use of fabric from any origin and still meet the criteria for preferences (single transformation). Using several estimation methods, this paper contrasts export performance to the US and EU markets and attributes an increase in export volume of about 300% for the top seven beneficiaries of AGOA’s SR to differences in respective PSRO and also an increase in the number of products exported.
    Keywords: AGOA; EBA; Regional Integration; Rules of Origin
    JEL: F12 F13 F15
    Date: 2008–12
  24. By: Eichengreen, Barry; Steiner, Katharina
    Abstract: We ask whether Poland is at risk of the boom-bust problem that has afflicted economies around the time of euro adoption. Our answer, inevitably, is mixed. On the one hand the fact that Poland is an outlier, credit-growth wise, accentuates the danger of a boom if one believes in mean reversion. Our econometrics indicate that the fall in interest rates that will flow from expectations of euro adoption will further feed that boom. On the other hand the fact that interest rates have already converged part way to euro-area levels (and more extensively than in earlier adopters that experienced a sharp fall in rates and a pronounced credit boom), especially in the case of lending to firms, suggests that this shock may be less intense in Poland. And it is certainly conceivable that the same policies and country characteristics (not always visible to the econometrician) that have restrained credit growth in the past may continue to do so in the future. The broader literature also points to two set of factors, the first of which makes the danger of an unsustainable credit boom more immediate, the second of which makes it more remote. In the first category are the continuing limitations of the supervisory framework and the weakness of the finance minister in the budget-making process. In the second are a record of rigorous prudential supervision and the existence of relatively competitive labor markets.
    Keywords: euro; Poland
    JEL: F0
    Date: 2008–10
  25. By: Marina Murat; Sara Flisi
    Abstract: This paper studies the effects of migration on the bilateral FDI of five European countries, Germany, Italy, France, UK and Spain. It is based on five datasets with time spans going from 1990 to 2006. It analyses the impacts of skilled and less-skilled immigrants, of skilled networks from developed and developing countries and, for Italy and Spain, of emigrants. Results are that skilled immigrants, originating from both developed and developing countries, have positive and robust effects on the bilateral FDI of UK, Germany and France. The FDI of Italy and Spain are influenced by their respective diasporas.
    Keywords: migration; networks; diasporas; FDI
    JEL: F21 F22 F23
    Date: 2009–02
  26. By: Simon Pilsbury; Andrew Meaney
    Abstract: This report examines market power in rail markets in Europe arising from horizontal and vertical mergers in the sector, and is intended to provide a high-level basis for discussion at the round table itself. It presents factual information on horizontal and vertical merger cases involving rail freight operators, highlighting the processes used by competition authorities to determine the circumstances in which such mergers should be approved. It also provides commentary on the economics of these markets and, hence, the likely prospects for their future shape. The topic of the report is timely. The first set of results are available from a preparatory study for the European Commission on whether policy objectives with respect to moving freight onto rail can best be achieved by giving freight more priority on the rail network.
    Date: 2009–02
  27. By: Dolado, Juan J.; Stucchi, Rodolfo
    Abstract: This paper evaluates the impact of the widespread use of fixed-term contracts in Spain on firms' TFP, via its effect on workers' effort. We propose a simple analytical framework showing that, under plausible conditions, workers' effort depends positively on their perception (for given level of effort) about firms' willingness to convert fixed-term contracts into permanent ones. We test this implication using manufacturing firm level data from 1991 to 2005 by means of nonparametric tests of stochastic dominance and parametric multivariate regression approaches. Our main findings are that high conversion rates increase firm's productivity while high shares of temporary contracts decrease it. Both effects are quantitatively relevant.
    Keywords: firms' TFP; temporary workers; workers' effort
    JEL: C14 C52 D24 J24
    Date: 2008–11
  28. By: Cardoso, Ana Rute; Guimaraes, Paulo; Zimmermann, Klaus F
    Abstract: This paper analyzes the early research performance of PhD graduates in labor economics, addressing the following questions: Are there major productivity differences between graduates from American and European institutions? If so, how relevant is the quality of the training received (i.e. ranking of institution and supervisor) and the research environment in the subsequent job placement institution? The population under study consists of labor economics PhD graduates who received their degree in the years 2000 to 2005 in Europe or the USA. Research productivity is evaluated alternatively as the number of publications or the quality-adjusted number of publications of an individual. When restricting the analysis to the number of publications, results suggest a higher productivity by graduates from European universities than from USA universities, but this difference vanishes when accounting for the quality of the publication. The results also indicate that graduates placed at American institutions, in particular top ones, are likely to publish more quality-adjusted articles than their European counterparts. This may be because, when hired, they already have several good acceptances or because of more focused research efforts and clearer career incentives.
    Keywords: graduate programs; research productivity
    JEL: A10 A11 A14 A23 J44
    Date: 2009–01
  29. By: Söderström, Ulf
    Abstract: I revisit the potential costs and benefits for Sweden of joining the Economic and Monetary Union (EMU) of the European Union. I first show that the Swedish business cycle since the mid-1990s has been closely correlated with the Euro area economies, suggesting that common shocks have been an important driving force of business cycles in Europe. However, evidence from an estimated model of the Swedish economy instead suggests that country-specific shocks have been important for fluctuations in the Swedish economy since 1993, implying that EMU membership could be costly. The model also indicates that the exchange rate has to a large extent acted to destabilize, rather than stabilize, the Swedish economy, pointing to the costs of independent monetary policy with a flexible exchange rate. Finally, counterfactual simulations of the model suggest that Swedish inflation and GDP growth might have been slightly higher if Sweden had been a member of EMU since the launch in 1999, but also that GDP growth might have been more volatile. The evidence is therefore not conclusive about whether or not participation in the monetary union would be advantageous for Sweden.
    Keywords: DSGE model; Monetary union; Open economy; Optimum Currency Area
    JEL: E42 E58 F41
    Date: 2008–12
  30. By: Goggin, Jean (ESRI); Siedschlag, Iulia (ESRI)
    Abstract: This paper examines patterns and factors underlying the international transmission of business cycles between Ireland and its trading partners over the period 1980-2007. We estimate a model of simultaneous equations using a panel of cross–country annual data where trade integration, sectoral specialisation and financial integration are considered endogenous. Our results suggest that deeper trade and financial integration had strong direct positive effects on the synchronisation of Irish business cycles with its trading partners. Sectoral specialisation and national competitiveness differentials were sources of cyclical divergence. Sectoral specialisation had however an indirect positive effect on business cycle synchronisation via its positive effect on trade and financial integration. The adoption of the euro has led to more synchronised business cycles between Ireland and its euro area trading partners.
    JEL: E32 F41 F42
    Date: 2009–02
  31. By: Güngör Karakaya (Université Libre de Bruxelles, Dulbéa)
    Abstract: In this paper we analyze the system of long-term care insurance currently in place in Belgium or rather in Flanders (the Dutch-speaking part of the country), since the French and Germanspeaking parts have not yet such insurance. More precisely, we review the scope, benefits,financing and functioning of the Flemish dependency insurance (called the Vlaamse Zorgverzekering) and present some statistics regarding the number of persons affiliated to the Vlaamse Zorgverzekering, the number and percentage of approved applications, the grants awarded by the Government of Flanders and the revenue and expenditure/costs relating to the Flemish dependency insurance system in order to comprehend the key factors explaining some evolution related to the dependency in Belgium. Analyses show that the adjustments and successive changes that the dependency insurance has undergone are explained by its success in terms of claims for benefits. We also find that the problem of equity and adverse selection favorable to the inhabitants of Brussels at the expense of the Flemish people is reduced owing to the different treatments for the two regions.
    Keywords: Long-term care, Old age assistance, Subsidies, Revenue and Expenditures for health
    JEL: I12 I18 H71 H75
    Date: 2009–02
  32. By: Agustín S. Bénétrix and Philip R. Lane
    Abstract: We study the short-run effects of shocks to government spending on Ireland’s output and its real exchange rate. We show that the impact of government spending shocks critically depend on the nature of the fiscal innovation. Our main finding is that there are important differences between shocks to public investment and shocks to government consumption. Moreover, within the latter category, shocks to the wage and non-wage components also have dissimilar effects.
    Date: 2009–02–15
  33. By: Martin, Philippe; Mayer, Thierry; Mayneris, Florian
    Abstract: This paper analyzes empirically a public policy promoting industrial clusters in France. Cluster policies have become popular in many countries but have not been extensively evaluated empirically. We use data on production and employment for firms that benefited from the policy and on firms that did not, both before and after the policy started. We first show that the policy selected firms in relative decline. Furthermore, our results suggest that the policy had no major effect on their productivity but may have helped them in terms of employment.
    Keywords: clusters; localization economies; public policies
    JEL: C23 R10 R11 R12
    Date: 2008–12
  34. By: Ericson, Peter (Sim Solution); Flood, Lennart (Department of Economics, School of Business, Economics and Law, Göteborg University); Wahlberg, Roger (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The purpose of SWEtaxben is to evaluate the impact of changes in the tax/benefit systems on households as well as the central governmental budget. Relating to the micro simulation literature this model can be labeled a static micro simulation model with behavioral changes. This behavioral change takes two different forms and use two different types of models; first binary models that describe mobility in/out from non-work states such as old age pension, disability, unemployment, long term sickness and second models that describe change in working hours and welfare participation. Thus, apart from the choice to work or not to work, working hours conditional on working as well as welfare participation are treated as endogenous variables. As an application the model is used to evaluate the recent Swedish “make work pay” reform, effective from 2007 and further reinforced in 2008 and 2009. The key characteristic of this reform is an in-work tax credit and decreased state tax rate. Simulations performed by SWEtaxben show increased working hours at both the intensive as well as extensive margin. The tax decrease together with dynamic changes results in a strong increase in household’s incomes but also a reduction in income inequality. However, even considering the increase in hours of work, the reform is far from being self-financed.<p>
    Keywords: Micro simulation; tax-benefit system; reform
    JEL: D31 H24
    Date: 2009–02–24
  35. By: Combes, Pierre-Philippe; Lafourcade, Miren; Thisse, Jacques-François; Toutain, Jean-Claude
    Abstract: This paper uses a unique database that provides value-added, employment, and population levels for the entire set of French departments for the years 1860, 1930, and 2000. These data cover three sectors: agriculture, manufacturing, and services. This allows us to study the evolution of spatial inequalities within France and to test the empirical relevance of economic geography predictions over the long run. The evidence confirms the existence of a bell-shaped evolution of the spatial concentration of manufacturing and services. In contrast, labor productivity has been converging across departments. Last, our study also confirms the presence of strong agglomeration economies during the full time-period. Market potential during the first sub-period (1860-1930), and higher education during the second (1930-2000), together with sectoral diversity, account for the spatial distribution of these gains.
    Keywords: agglomeration economies; economic geography; economic history; human capital
    JEL: N93 N94 O18 R12
    Date: 2008–10
  36. By: Fougère, Denis; Safi, Mirna
    Abstract: Our study examines the empirical link between the naturalization of immigrants and their subsequent employment status in France from 1968 to 1999. For that purpose, we use longitudinal data coming from a panel dataset which follows almost 1% of the French population from 1968 to 1999 through information contained in the 1968, 1975, 1982, 1990 and 1999 French censuses. The dataset we use is especially valuable for studying social integration of immigrants since it allows us to deal with significant samples of immigrants, according to their origin country, these groups being generally too small in other surveys. We control for the potential endogeneity of the naturalization process through a bivariate probit model. We find that naturalization has a significant positive relationship with immigrants’ subsequent employability. This is particularly true for groups of immigrants who have a low probability of employment in the host country.
    Keywords: citizenship; employment; immigration; naturalization
    JEL: F22 J15 J61
    Date: 2008–12

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