nep-eec New Economics Papers
on European Economics
Issue of 2009‒08‒16
nineteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Does ERASMUS Student Mobility promote a European Identity? By Emmanuel Sigalas
  2. Bank risk and monetary policy By Yener Altunbas; Leonardo Gambacorta; David Marques-Ibanez
  3. Common and Spatial Drivers in Regional Business Cycles By Michael Artis; Christian Dreger; Konstantin Kholodilin
  4. Unemployment and common smooth transition trends in Central and Eastern European Countries By Juan Carlos Cuestas; Javier Ordóñez
  5. Have European Unemployment Rates Converged? By Ramírez Carrera, Dionisio; Rodríguez, Gabriel
  6. EU Funds Provided to the New Member States: Relevance for ODA and Achieving the Monterrey Consensus By Jaroslaw Pietras
  7. What Determines the Attractiveness of the European Union to the Location of R&D Multinational Firms? By Siedschlag, Iulia; Smith, Donal; Turcu, Camelia; Zhang, Xiaoheng
  8. Projecting Pension Expenditures in Spain: On Uncertainty, Communication and Transparency By Rafael Doménech; Angel Melguizo
  9. Farm performance and support in Central and Western Europe: a comparison of Hungary and France By Fogarasi, Jozsef; Latruffe, Laure
  10. On the Real Effects of Private Equity Investment: Evidence from New Business Creation. By Alexander Popov; Peter Roosenboom
  11. Institutions and the Management of Human Resources: Incentive Pay Systems in France and Great Britain By Richard Belfield; David Marsden
  12. Provision for Old Age. National and International Survey Data to Support Research and Policy on Aging By Hendrik Jürges
  13. The Housing Boom and Bust in Spain: Impact of the Securitisation Model and Dynamic Provisioning By Alicia García-Herrero; Santiago Fernández de Lis
  14. Firm heterogeneity and comparative advantage: the response of French firms to Turkey's entry in the European Customs Union By Ines Buono
  15. The Americanization of European Higher Education and Research By Lex Borghans; Frank Cörvers
  16. Changes in the Structure of Employment in the EU and Their Implications for Job Quality By Robert Stehrer; Terry Ward; Enrique F. Macias
  17. An assessment of financial sector rescue programmes By Fabio Panetta; Thomas Faeh; Giuseppe Grande; Corrinne Ho; Michael King; Aviram Levy; Federico M. Signoretti; Marco Taboga; Andrea Zaghini
  18. Regulation and Investment in Network Industries: Evidence from European Telecoms By Michal Grajek; Lars-Hendrik Röller
  19. The Trade Creation Effect of Immigrants: Testing the Theory on the Remarkable case of Spain By Giovanni Peri; Francisco Requena

  1. By: Emmanuel Sigalas
    Abstract: The potential of European student mobility to promote a European identity and, consequently, European integration has long been stressed by transactionalists such as Karl Deutsch but was never tested empirically. The EU-funded exchange programme ERASMUS moves more than 150,000 university students annually, and it is still widely assumed it plays a pivotal role in the promotion of a European identity. Based on the results of a longitudinal survey among ERASMUS and nonmobile students I show that reality meets only partly these expectations. Whilst ERASMUS enables students to improve their foreign language skills and learn more about other European countries, it does not foster a European self-identity or a sense of European pride. However, the ERASMUS experience does help British students to feel more attached to Europe and to acknowledge they have things in common with continental Europeans.
    Keywords: European identity
    Date: 2009–06–01
  2. By: Yener Altunbas (University of Wales, Bangor, Gwynedd LL57 2DG, Wales, United Kingdom.); Leonardo Gambacorta (Bank for International Settlements, Monetary and Economics Department, Centralbahnplatz 2, CH-4002 Basel, Switzerland.); David Marques-Ibanez (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: We find evidence of a bank lending channel for the euro area operating via bank risk. Financial innovation and the new ways to transfer credit risk have tended to diminish the informational content of standard bank balance-sheet indicators. We show that bank risk conditions, as perceived by financial market investors, need to be considered, together with the other indicators (i.e. size, liquidity and capitalization), traditionally used in the bank lending channel literature to assess a bank’s ability and willingness to supply new loans. Using a large sample of European banks, we find that banks characterized by lower expected default frequency are able to offer a larger amount of credit and to better insulate their loan supply from monetary policy changes. JEL Classification: E44, E55.
    Keywords: bank, risk, bank lending channel, monetary policy.
    Date: 2009–07
  3. By: Michael Artis; Christian Dreger; Konstantin Kholodilin
    Abstract: We examine real business cycle convergence for 41 euro area regions and 48 US states.Results obtained by a panel model with spatial correlation indicate that the relevance ofcommon business cycle factors is rather stable over the past two decades in the euro area andthe US. Ongoing business cycle convergence often detected in cross-country data is notconfirmed at the regional level. The degree of synchronization across the euro area is similarto that to be found for the US states. Thus, the lack of convergence does not seem to be animpediment to a common monetary policy.
    Keywords: Business cycle convergence, spatial correlation, spatial panel model
    JEL: E32 C51 E37
    Date: 2009–04
  4. By: Juan Carlos Cuestas; Javier Ordóñez
    Abstract: In the present paper we analyse the existence of common nonlinear trends in several of Central and Eastern European Countries in order to gain some insight about the degree of labour market integration within the area. In order to do so, we test for the order of integration of the unemployment rates, by applying the Leybourne et al. (1998) and Kapetanios et al. (2003) nonlinear unit root tests. Our results pinpoint the fact that five up to eight unemployment rates are stationary around a nonlinear trend and, by means of Anderson and Vahid (1998) approach, we also find that there is a common trend that drives the long run behaviour of that variable in these countries.
    Keywords: Unemployment, Central and Eastern Europe, unit roots, smooth transition, nonlinearities.
    JEL: C32 E24
    Date: 2009–07
  5. By: Ramírez Carrera, Dionisio (Universidad de Castilla-La Mancha); Rodríguez, Gabriel (Central Reserve Bank of Peru and Pontificia Universidad Católica del Perú)
    Abstract: Using di¤erent unit root statistics and the approach of Tomljanovich and Vogelsang (2002), we test for the existence of stochastic and beta-convergence in the unemployment rates of a set of thirteen European countries. Using quarterly data for the period 1984:1-2005:4, we observe that there has taken place a convergence process in the majority of European unemployment rates. This process has become more intense since 1993.
    Keywords: Unemployment Rate, European Union, Stochastic Convergence and beta-convergence.
    JEL: C22 C52 E24 J60
    Date: 2009–03
  6. By: Jaroslaw Pietras
    Abstract: The EU transfers provided to the New Member States and candidate countries are generally viewed as having been efficiently used in promoting development in these economies. This paper examines the conditionality and institutional arrangements used to manage these transfers, and asks if there are lessons to be learned that could be applied to improve the absorptive capacity of assistance provided to developing countries.
    Keywords: New Member States, Cohesion Funds, Economic Assistance, Official development Assistance, Conditionality, Economic integration, European Union Enlargement
    JEL: F35 H54 H57 H87 O19 O52 P33
    Date: 2009–01
  7. By: Siedschlag, Iulia (ESRI); Smith, Donal (ESRI); Turcu, Camelia (CRIEF, University of Poitiers); Zhang, Xiaoheng (ESRI)
    Abstract: We analyse 446 location decisions of foreign affiliates in the R&D sector incorporated in the European Union over 1999-2006. Our results suggest that on average, the location probability increases with the size of demand, agglomeration economies, low production cost, R&D intensity, flexibility of labour markets, access to skilled labour and information technology infrastructure. Our evidence suggests that after controlling for the R&D intensity of regions, European Union?s regional policy and country level tax differences have had no significant effects in fostering the attractiveness of regions to R&D foreign investment. We find evidence of geographical structures relevant for the location choice of R&D multinational firms across the European Union. Further, we find that European investors have responded differently to location characteristics in comparison to North American investors.
    Date: 2009–07
  8. By: Rafael Doménech; Angel Melguizo
    Abstract: In this paper we suggest a set of indicators about the future performance of the Spanish public pension system and a suitable method of representing their uncertainty, in order to improve the communication to the public opinion about its main future challenges. Spain seems a particularly interesting case in Europe to illustrate our proposals, since the social security system has been in surplus for nine consecutive years, in sharp contrast to the projections made just a decade ago, but, at the same time, most projections foresee for Spain one of the highest increases in public expenditure among EU countries due to ageing. We argue that simple, transparent, credible, public and periodic indicators, which take explicitly into account the uncertainty about future demographic, economic and institutional developments, may contribute to improve the debate on the policies needed to strengthen the pension system.
    Keywords: Pensions, projections, communication, uncertainty.
    JEL: E17 H55
    Date: 2009–06
  9. By: Fogarasi, Jozsef; Latruffe, Laure
    Abstract: The paper investigates the difference in technical efficiency and in productivity change, and the technology gaps, between French and Hungarian farms in the dairy and cereal, oilseeds and proteinseeds (COP) sectors during the period 2001-2004. The analyses are performed with national FADN data and the Data Envelopment Analysis (DEA) approach under each countryâs respective frontier and under a metafrontier. Results revealed that in both the dairy and the COP sectors, Hungarian farmsâ technology was the more productive, despite a technological deterioration. This suggests technological advantages for large-scale (Hungarian) over small-scale (French) farming in these two sectors. These findings may also be explained by the higher policy support in France. Subsidies received by farms have indeed a stronger negative impact on technical efficiency for French farms than for Hungarian farms, and a negative impact on the ability to lead the technology only for French farms.
    Keywords: technology gap, technical efficiency, Malmquist indices, subsidies, farms, Production Economics, P51, D24, Q12,
    Date: 2009–04–01
  10. By: Alexander Popov (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Peter Roosenboom (Department of Finance, Rotterdam School of Management (RSM), Erasmus University Rotterdam, Burgemeester Oudlaan 50, NL 3062PA Rotterdam, The Netherlands.)
    Abstract: Using a comprehensive database of European firms, we study how private equity affects the rate of firm entry. We find that private equity investment benefits new business incorporation, especially in industries with naturally higher entry rates and R&D intensity. A two standard deviation increase in private equity investment explains as much as 5.5% of the variation in entry between high-entry and low-entry industries. We address endogeneity by exploiting data on laws that regulate private equity investments by pension funds. Our results hold when we correct for barriers to entry, general access to credit, protection of intellectual property, and labor regulations. JEL Classification: G24, L26, M13.
    Keywords: private equity, venture capital, firm entry.
    Date: 2009–08
  11. By: Richard Belfield; David Marsden
    Abstract: Using data from large-scale establishment surveys in Britain and France, we show thatincentive pay for non-managers is more widespread in France than in Britain. We explain thisfinding in terms of the 'beneficial constraint' arising from stronger employment protection inFrance, which provides an impulse to develop incentive pay; employer networking activitiesin France, which facilitate joint learning about its development and operation; andgovernment fiscal incentives for profit-sharing, which reduces the cost of its operation.
    Keywords: incentive systems, merit pay, profit-sharing, employer networks
    JEL: J3 J5 M5 M52
    Date: 2009–07
  12. By: Hendrik Jürges
    Abstract: This report reviews recent trends in the collection of multidisciplinary and longitudinal data in the area of aging research, both in Germany and internationally. It also discusses important developments such as linkage with administrative records, the inclusion of health measurements and biomarkers, and the inclusion of populations in institutions, particularly nursing homes.
    Date: 2009
  13. By: Alicia García-Herrero; Santiago Fernández de Lis
    Abstract: In this paper we explore some lessons from the Spanish housing boom and the incipient bust from the point of view of the usefulness of the regulatory approach, with particular regard to dynamic provisions and the regulatory treatment of securitisation. First, we describe the main features of the recent housing cycle. Secund, we summarize the Spanish securitisation model. Third, we deal with dynamic provisions and in the last section, we present some conclusions.
    Date: 2008–09
  14. By: Ines Buono (Bank of Italy, Economics and International Relations)
    Abstract: I analyse the effects of a reduction in the tariffs of a trading partner on the exports of domestic firms. More precisely, I focus on how cross-industry differences in factor intensities and within-industry differences in firm productivities shape the response of the extensive (decision to export) and the intensive (exported volumes per firm) margins of exports. I examine the response of French firms to the reduction of Turkish import tariffs that followed the entry of Turkey into the European Customs Union in 1996. A reduction in tariffs increases the probability to export and, surprisingly, the effect is stronger in comparatively disadvantaged sectors. I provide a possible explanation using a partial equilibrium model which includes firm-level heterogeneity and sector-level comparative advantage. In this model, as trade partner tariffs fall, the productivity threshold separating exporters from non-exporters decreases more in comparatively disadvantaged sectors. This occurs because, even if the productivity threshold to enter the export market falls in the same proportion as tariffs in all sectors, its level was initially higher in comparatively disadvantaged ones.
    Keywords: heterogeneous firms, Custom Union, intensive and extensive margins
    JEL: F12 F13 F15
    Date: 2009–06
  15. By: Lex Borghans; Frank Cörvers
    Abstract: Over the past two decades there has been a substantial increase in the mobility of students in Europe, while also research has become much more internationally oriented. In this paper we document changes in the structure of research and higher education in Europe and investigate potential explanations for the strong increase in its international orientation. While higher education started to grow substantially around 1960, only a few decades later, research and higher education transformed gradually to the American standard. Decreased communication costs are likely causes for this trend. This transformation is most clearly revealed in the change of language used in research from the national language, Latin, German and French to English. Smaller language areas made this transformation earlier while there are also clear timing differences between research fields. Sciences and medicine tend to switch to English first, followed by economics and social sciences, while for law and arts only the first signs of such a transformation are currently observed. This suggests that returns to scale and the transferability of research results are important influences in the decision to adopt the international standard.
    JEL: I23
    Date: 2009–08
  16. By: Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Terry Ward; Enrique F. Macias
    Abstract: This study considers the overall implications of changes in employment patterns for the nature of the jobs in which people are employed and for job quality, in particular for the EU member states over the period 1995-2005. Jobs, defined as a particular occupation in a particular industry, are ranked according to their relative wage or their relative skill intensity. Given that these job rankings are relatively stable over time, we examine whether job expansion mainly took place for jobs in the lower or upper part of the ranking. Overall, the results suggest an increase in job quality in most of the countries included; in particular, the hypothesis of 'job polarization' could not be supported. The study further includes an analysis of differences with respect to job quality and changes in job quality for a number of other dimensions, such as gender, age, part-time working, fix-term contracts, etc.
    Keywords: job quality, employment structures, gender, age, migrants
    JEL: J23 J24 J31
    Date: 2009–05
  17. By: Fabio Panetta (Banca d'Italia); Thomas Faeh (Bank for International Settlements); Giuseppe Grande (Banca d'Italia); Corrinne Ho (Bank for International Settlements); Michael King (Bank for International Settlements); Aviram Levy (Banca d'Italia); Federico M. Signoretti (Banca d'Italia); Marco Taboga (Banca d'Italia); Andrea Zaghini (Banca d'Italia)
    Abstract: We analyse the wide array of rescue programmes adopted in several countries, following Lehman Brothers’ default in September 2008, in order to support banks and other financial institutions. We first provide an overview of the programmes, comparing their characteristics, magnitudes and participation rates across countries. We then consider the effects of the programmes on banks’ risk and valuation, looking at the behaviour of CDS premia and stock prices. We then proceed to analyse the issuance of government guaranteed bonds by banks, examining their impact on banks’ funding and highlighting undesired effects and distortions. Finally, we briefly review the recent evolution of bank lending to the private sector. We draw policy implications, in particular as regards the way of mitigating the distortions implied by such programmes and the need for an exit strategy.
    Keywords: bank asset guarantees, capital injection, banks, financial sector, financial crisis, bank consolidation, bank mergers and acquisitions, event studies, government guaranteed bonds, credit crunch, exit strategy
    JEL: E58 E65 G14 G18 G21 G28 G32 G34
    Date: 2009–07
  18. By: Michal Grajek (ESMT European School of Management and Technology); Lars-Hendrik Röller (ESMT European School of Management and Technology)
    Abstract: We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering 70+ fixed-line operators in 20 countries over 10 years. Our econometric model accommodates: different investment incentives for incumbents and entrants; a strategic interaction of entrants’ and incumbents’ investments; and endogenous regulation. We find access regulation to negatively affect both total industry and individual carrier investment. Thus promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher incumbents’ investments encourage provision of regulated access.
    Keywords: telecommunications, access regulation, unbundling, investment
    JEL: C51 L59 L96
    Date: 2009–06–15
  19. By: Giovanni Peri (UC Davis, NBER and Centro Studi Luca d’Agliano); Francisco Requena (University of Valencia)
    Abstract: There is abundant evidence that immigrants’ networks are associated with larger trade flows between countries of origin and the country (or province) where they settle. The causality of such relation and its magnitude, however, have not been proven beyond reasonable doubt. We use the simple predictions of the model by Chaney (2008) and treat networks of migrants as a device that reduces fixed bilateral trade costs. In so doing we have strong predictions on the effect of immigrants on total exports, exports by category of goods, and on the extensive and intensive margin of trade. We test these predictions using the remarkable and uneven increase of immigration to Spanish provinces between 1993 and 2008. The richness of our data, a panel of import and export by sector between 50 Spanish provinces and 77 countries over fifteen years, allows us to control for a very large set of covariates and fixed effects and to use an instrumental variable strategy so that we can isolate the trade-creation effect of new immigrants. We are also able to qualify the effect of immigration on bilateral trade of homogeneous and differentiated goods, and its impact on the intensive and extensive margin of trade. Our findings support all the implications of the Chaney model showing that migration network indeed seems to decrease the fixed costs of trade. Finally by decomposing the effect across provinces and over time we find evidence that the elasticity of trade creation to new immigrant is larger once a critical mass has been reached.
    Keywords: Immigration, International Trade, Intensive and Extensive margin, Differentiated Goods
    JEL: F10 F14 R12
    Date: 2009–07–31

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