nep-tra New Economics Papers
on Transition Economics
Issue of 2005‒11‒19
twenty-six papers chosen by
Tono Sanchez
Universitat de Valencia

  1. Employment in China: Recent trends and future challenges By Ajit Ghose
  2. Economic Effects of Free Trade between the EU and Russia By Pekka Sulamaa; Mika Widgrén
  3. The Transition Process in China: a Theoretical and Empirical Study By C. Hsiao; P. Chen
  4. China's capital account convertibility and financial stability By James Laurenceson; Kam Ki Tang
  5. Effects of Macroeconomic Shocks to the Quality of the Aggregate Loan Portfolio By Ivan Baboucek; Martin Jancar
  6. Globalization and Regional Income Inequality--Evidence from within China By Guanghua Wan; Ming Lu; Zhao Chen
  7. Structural and Cyclical Unemployment: What Can We Derive from the Matching Function? By Kamil Galuscak; Daniel Muenich
  9. Ownership Concentration and Restructuring in Czech Manufacturing Sector By Ondrej Vychodil
  10. Economic Opening and Industrial agglomeration in China By Zhao Chen; Yu Jin; Ming Lu
  11. Has Trade any Importance in the Transmission of Currency Shocks? By Roberta De Santis
  12. The Effects of EU Shocks on the Macrovariables of the Newly Acceded Countries -A Sign Restriction Approach By Alina Barnett
  14. Can Labour Market Institutions Explain Unemployment Rates in New EU Member States? By Sjef Ederveen; Laura Thissen
  15. Eigenvalue filtering in VAR models with application to the Czech business cycle By Jaromír Beneš; David Vávra
  16. Firm Heterogeneity and Endogenous Regional Disparities By Carlo Altomonte; Italo Colantone
  17. The end of the Multi-Fibre Agreement and its implication for trade and employment By Christoph Ernst, Alfonso Hernández Ferrer and Daan Zult
  18. European Union enlargement and equity markets in accession countries By Tomas Dvorak; Richard Podpiera
  19. Hub-and-Spoke or Else? Free Trade Agreements in the Enlarged EU - A Gravity Model Estimate By Luca De Benedictis; Roberta De Santis; Claudio Vicarelli
  20. Health Effects of Child Work: Evidence from Rural Vietnam By Owen A O'Donnell; Furio C. Rosati
  21. Emerging Hubs in Central-Eastern Europe, Trade Blocs and Financial Co-operation. By Giuseppe Tattara
  22. European regional policy: new bases, new borders? (In French) By Claude LACOUR (IERSO, IFReDE-GRES); Stéphane VIROL (IERSO, IFReDE-GRES)
  23. A Tale of Parallel Integration Processes. A Gravity Analysis of EU Trade with Mediterranean and Central and Eastern European Countries By Anna Ferragina; Giorgia Giovannetti; Francesco Pastore
  24. Interbank market under the currency board: Case of Lithuania By Marius Jurgilas
  25. Strategic Aspects of the 1995 and 2004 EU Enlargements By Kóczy,László Á.
  26. Speed of Convergence and Relocation - New EU Member Countries Catching up with the Old By Kari E.O.Alho; Ville Kaitila; Mika Widgrén

  1. By: Ajit Ghose
    Date: 2005–10
  2. By: Pekka Sulamaa (ETLA, the Research Institute of the Finnish Economy); Mika Widgrén (ETLA, the Research Institute of the Finnish Economy)
    Abstract: This study simulates the economic effects of eastern enlargement of the EU and an EU-Russian free trade area. The main emphasis of the paper is on the effect this would have on the Russian economy. The simulations were carried out with a GTAP computable general equilibrium model, using the most recent GTAP database 6.0 beta, which takes the former Europe agreements between the EU-15 and the eight new Central and Eastern European member states into account. The results confirm the earlier findings that a free trade agreement with the EU is beneficial for Russia in terms of total output but not necessarily in terms of economic welfare when measured by equivalent variation. The main reason behind this is the deterioration that would occur in Russia’s terms of trade. Improved productivity in Russia would, however, make the free trade agreement with the EU advantageous.
    Keywords: EU, Russia, free trade, integration
    JEL: F15 F17
    Date: 2005–05
  3. By: C. Hsiao; P. Chen
    Abstract: In this paper we model the transition process in China. First we review the economic reform policies since 1978. Based on the review, a two-segment-model is constructed. The model can be viewed as a general equilibrium model, with a planned segment that produces some distortion in the model, and a market segment that tries to correct this distortion and keeps the whole economy in equilibrium. Then we examine diverse reform policies such as the price reform, the financial market reform, and the labour market reform. In the last section, the main conclusions of this study will be summarised and commented from a viewpoint of further development of the study.
    Keywords: Transition Economy, Economic Reconstruction, Industrialization
    JEL: O14 P10 P20
    Date: 2005–11–11
  4. By: James Laurenceson; Kam Ki Tang (EAERG - School of Economics, The University of Queensland)
    Abstract: Capital account convertibility in China is on the rise. Some see the process as a means of circumventing domestic financial sector inefficiency while others view it as potentially exposing China to financial crises. In considering these different viewpoints, this paper attempts to quantify the impact that opening the capital account will have on the volume of China’s international capital flows. It is found that were China to fully open its capital account, gross non-FDI capital flows are predicted to rise by around 4.6 percent of GDP. While an increase of this magnitude would present a prudential challenge for China’s monetary authorities, it does not appear to be large enough to seriously call into question financial sector stability, either in China or abroad.
  5. By: Ivan Baboucek; Martin Jancar
    Abstract: The paper concerns macro-prudential analysis. It uses an unrestricted VAR model to empirically investigate transmission involving a set of macroeconomic variables describing the development of the Czech economy and the functioning of its credit channel in the past eleven years. Its novelty lies in the fact that it provides the first systematic assessment of the links between loan quality and macroeconomic shocks in the Czech context. The VAR methodology is applied to monthly data transformed into percentage change. The out-of-sample forecast indicates that the most likely outlook for the quality of the banking sector’s loan portfolio is that up to the end of 2006 the share of non-performing loans in it will follow a slightly downward trend below double-digit rates. The impulse response is augmented by stress testing exercises that enable us to determine a macroeconomic early warning signal of any worsening in the quality of banks’ loans. The paper suggests that the Czech banking sector has attained a considerable ability to withstand a credit risk shock and that the banking sector’s stability is compatible both with price stability and with economic growth. Despite being devoted to empirical investigation, the paper pays great attention to methodological issues. At the same time it tries to present both the VAR model and its results transparently and to openly discuss their weak points, which to a large degree can be attributed to data constraints or to the evolutionary nature of an economy in transition.
    Keywords: Czech Republic, Macro-prudential analysis, Non-performing loans, VAR model.
    JEL: G18 G21 C51
  6. By: Guanghua Wan (UNU-WIDER, Helsinki, Finland); Ming Lu (Employment & Social Security Research Center, & China Center for Economic Studies, Fudan University); Zhao Chen (China Center for Economic Studies, Fudan University)
    Abstract: China¡¯s recent accession to the WTO is expected to accelerate its integration into the world economy, which aggravates concerns over the impact of globalization on the already rising inter-region income inequality in China. This paper discusses China¡¯s globalization process and estimates an income generating function, incorporating trade and FDI variables. It then applies the newly developed Shapley value decomposition technique to quantify the contributions of globalization, along with other variables, to regional inequality. It is found that (a) globalization constitutes a positive and substantial share to regional inequality and the share rises over time; (b) capital is one of the largest and increasingly important contributor to regional inequality; (c) economic reform characterized by privatization exerts a significant impact on regional inequality; and (d) the relative contributions of education, location, urbanization and dependency ratio to regional inequality have been declining.
    JEL: C1 C2 C3 C4 C5 C8
    Date: 2005–11–16
  7. By: Kamil Galuscak; Daniel Muenich
    Abstract: We explain movements in the UV space, i.e. the relationship between stocks of unemployment and vacancies known as the Beveridge curve, in the Czech Republic during 1995-2004. While the Beveridge curve is described by labour market stocks, we explain shifts in the Beveridge curve using gross labour market flows by estimating the matching function. We interpret parameter changes in the matching function during the business cycle, distinguishing cyclical and structural changes in the unemployment rate. We find that labour market flows are very good coincidence predictors of turning points in the business cycle. We show that the Czech economy already suffers from the labour market hysteresis common in many other developed market economies in the EU.
    Keywords: Beveridge curve, Czech Republic, matching function, panel data, structural unemployment.
    JEL: E24 E32 J41 J64 C23
  8. By: Emma Xiaoqin Fan; Jesus Felipe
    Abstract: This paper documents the diverging patterns of capital accumulation, profit rates, investment rates, capital productivity and technological progress of China and India since 1980. It is concluded that the two Asian economies have followed very different growth patterns, and as a consequence, they face different challenges for the future. India's problem is how to accelerate growth, while China's is how to sustain it. India must address impediments to investment so as to increase its investment rate. China must deal with the question of whether investment can continue being the main source of growth given that profit rates and capital productivity are decreasing and that the economy has created substantial excess capacity.
    JEL: O10 O30 O40 O53 O57
    Date: 2005–11
  9. By: Ondrej Vychodil (Central European University)
    Abstract: The paper examines the dependence of firm restructuring on private outside ownership concentration in Czech manufacturing sector after privatization. It starts with the argumentation that the most important actors in the post-privatization ownership structure in the Czech Republic were investment privatization funds, followed by the state, and that the ‘rules of the game’ opened a large space for moral hazard. Based on the realization of these Czech specialties and on the logic of the break-through article by Morck, Shleifer and Vishny’s from 1988, the paper operationalizes the benefits and the costs of ownership concentration by four effects – incentive, manager-entrenchment, outsider-entrenchment and tunneling effects. This leads to the hypothesis that the concentration-restructuring function in the post- privatization Czech environment is increasing for sufficiently low as well as for sufficiently high values of concentration, while its slope in the inner band of concentration is attenuated or even negative due to the entrenchment and tunneling costs of concentration. This hypothesis is tested on an unbalanced panel data on 90 Czech companies for the years 1991-1998. OLS, FE and RE regressions with labor productivity on the left-hand sides partly confirm the hypothesis, especially the expected shape of the function for high and moderate concentration. However, no significant specification is found when instrumental variables are used to remove possible selection bias. Neither OLS, FE and RE, nor IV estimations showed a significant systematic relationship between private outside ownership concentration and the layoff and turnover ratios. The results in general report a negative effect of the state’s shareholding and a positive effect of insiders’ shareholding on restructuring.
    Keywords: privatization, ownership concentration, corporate governance
    JEL: G
    Date: 2005–11–11
  10. By: Zhao Chen (China Center for Economic Studies, Fudan University,); Yu Jin (China Center for Economic Studies, Fudan University,); Ming Lu (Dep. of Economics, Employment & Social Security Research Center, & China Center for Economic Studies, Fudan University,)
    Abstract: This paper explores the causes of industrial agglomeration in China using the provincial panel data during 1987-2001, focusing on the effects of economic opening. The determinants of industrial agglomeration are tested by controlling three types of factors, those of economic policies, economic geography and new economic geography, respectively. In summary, we find: (1) Economic opening, which is also related with geography and history encourages industrial agglomeration; (2) Large market size, effects of forward and backward linkage, high level of urbanization, better infrastructure and less involvement of local government tend to facilitate industrial concentration; (3) Costal regions have geographical advantage in attracting firms. These findings not only support the new economic geography theory from evidence within China, but also emphasize the important role that policies like economic opening might directly play in industrial agglomeration. The most important policy implication of this paper is that by quickening up the step of integrating into world economy and deregulating, even those less developed regions might accelerate industrial agglomeration and thus decrease regional disparity.
    JEL: L
    Date: 2005–11–16
  11. By: Roberta De Santis (ISAE, Instituto di Studi e Analisi Economica)
    Abstract: The object of this study is to assess the role of trade in the transmission of currency shocks across geographically close countries. The analysis will focus on identifying and comparing the degree of vulnerability of new EU member states from the Central and Eastern European countries (CEECs) to currency shocks. We interpret the interactions that a centre-periphery model identifies for periphery countries as a possible description of existing interdependencies among CEECs. According to the centre periphery model discussed by Corsetti et al. (1998b), “if there is no pass-through, then direct bilateral trade links may play a more important role than competition in the third market in determining the transmission of exchange rate shocks in the periphery. If there is full pass-through, a high share of bilateral trade within a region can actually limit the extent of beggar-thy-neighbour effects.” These effects are emphasised by a high degree of export similarity among the countries in the periphery. As a result of the heterogeneity in pass-through and trade structures, it is very difficult to derive a unitary policy implication on the potential sustainability of the exchange rate mechanism (ERM) II. Yet it is possible to single out the country pairs in which the likelihood of transmitting currency shocks is higher. Preliminary results point out that (other things being equal and given the contained intra-periphery trade) the transmission of currency disturbances is lower if the disturbance originates in countries with low a pass-through rate (the Slovak and Czech Republics, Estonia and Latvia) and higher if it originates in countries with a high pass-through rate (Poland, Hungary and Slovenia).
    Keywords: currency crises, trade and contagion
    JEL: F31 F32 F41
    Date: 2004–07
  12. By: Alina Barnett
    Abstract: This paper analyses the response of seven of the newly acceded countries (NACs)to EU supply and monetary shocks. A typical NAC perceives an EU technology disturbance as a positive supply shock and an EU monetary expansion as a negative demand shock. When we split the seven countries into two groups, results for group one which includes the Czech Republic, Hungary, Poland and Slovakia suggest that an EU supply shock feeds through as a demand shock, increasing both prices and output. This hints that trade acts as a strong channel of EU shock propagation. For both groups, monetary disturbances explain a large proportion of NAC’s output fluctuation while technology disturbances account for a significant part of export variations. EU shocks are identified as in Canova and De Nicol´o (2002) using sign restrictions of the cross-correlation function of the variables’ responses to orthogonal disturbances. These restrictions are derived from an SDGE model
    Keywords: structural VAR, sign restrictions, European Integration, business cycles
    JEL: C2 F42 E32
    Date: 2005–11–11
  13. By: Hrabrin Bachev (Institute of Agricultural Economics, Sofia, Bulgaria)
    Abstract: This is the second paper from a series of articles on governing of different types of transactions in Bulgarian farming applying the framework of New Institutional and Transaction Cost Economics. It is based on a large scale microeconomic data from 194 typical commercial farms of different sizes and types from all regions of the country. This study concentrates on factors and modes for organization of labor supply in Bulgarian farms. Structure of kind of labor (permanent, seasonal, irregular, others), and type of labor use (in production, in administration, in management, for protection, others), and labor source (own labor, family labor, hired labor, cooperative members, others) in farms of different types and sizes has been determined. Microeconomic factors responsible for various organizational and contract choices for labor supply (own cultivation, using of family labor, hiring of workers, cooperation etc.) have been specified. Dominant governing modes have been explained by comparative advantages for saving on transacting costs (for finding partners, contracting, monitoring of hired labor, conflict resolutions, renewal of contracts etc). Limits of farm extension (optimization) through effective alternative (to outside labor supply) modes for “internal” service, and inputs, and land supply have been determined. Transaction costs economizing framework has been used through analysis of: types of wage formation (time based, output based, mixed) for different categories of labor; reasons for hiring labor (extension of business, support of own labor, support of family labor, replace of family labor, others); ways of application of hired labor (in production, in administration, in management, in protection, others); personality of different types of hired labor (relatives; close friends; known before hiring; unknown before first hiring; same persons every time; from universities, agricultural schools etc; others); frequency of experiencing problems leading to suspension of labor contracts; main reasons for conflicts with hired labor (lack of qualification; lack of desire for hard work; lack of entrepreneurial spirit; cheating, stealing etc); kind of contracts with different types of labor (informal, written) and extend of specifications of contract obligations; ways of income formation (fixed monthly wages, daily based, output based, based on final year results, others) of different categories of labor in crop, livestock, services and management. Relative level of farms transaction costs associated with labor supply (for finding needed labor, negotiation and contracting, for directing and monitoring of hired labor, for contract enforcement and disputing etc.) has been determined. Besides high governing costs associated with labor contracts other factors restricting farm enlargement of Bulgarian farms as present stage are: high enforcement costs of contracts in general, and enormous credit supply and marketing costs. According to estimate of farm managers most important factors for future development of farms relate to improvement of institutional environment (guaranteed marketing, enforcement of Laws and private contracts, macro-economic stability, legislation framework, access to free markets) and own and family experience in farm management.
    Keywords: type of labor and service contract, organization of labor, governing of labor and service supply, farm organization, transaction costs, transitional farming structure
    JEL: D1 D2 D3 D4
    Date: 2005–11–12
  14. By: Sjef Ederveen (CPB Netherlands Bureau for Economic Policy Analysis); Laura Thissen (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This study poses the question about whether labour market institutions can explain unemployment rates in the ten new European Union member states. In five out of the ten new member states, unemployment rates lie above the average in the 15 member states of the European Union (EU-15) that comprised the EU prior to May 2004. The study finds that labour market institutions in the acceding countries are less rigid than in the EU-15. Moreover, labour market institutions explain only a minor part of unemployment in the new EU member states. This does not mean that these countries have no labour market problems. Just as in the EU-15, a great deal of heterogeneity exists among the acceding countries. In some of them, labour market reforms could prove a key issue in improving employment performance. The main worry is the poor labour market performance in Poland and the Slovak Republic, where unemployment has risen to almost 20%. The main reasons for this growth are i) postponed restructuring in combination with tight monetary policy; ii) poor governance; and iii) an increasing labour force.
    Keywords: labour market institutions, social security, wage bargaining, unemployment, transition economies, EU accession countries
    Date: 2004–06
  15. By: Jaromír Beneš (Czech National Bank, Monetary and Statistics Department, Prague, Czech Republic); David Vávra (Czech National Bank, Monetary and Statistics Department, Prague, Czech Republic)
    Abstract: We propose the method of eigenvalue filtering as a new tool to extract time series subcomponents (such as business-cycle or irregular) defined by properties of the underlying eigenvalues. We logically extend the Beveridge-Nelson decomposition of the VAR time-series models focusing on the transient component. We introduce the canonical state-space representation of the VAR models to facilitate this type of analysis. We illustrate the eigenvalue filtering by examining a stylized model of inflation determination estimated on the Czech data. We characterize the estimated components of CPI, WPI and import inflations, together with the real production wage and real output, survey their basic properties, and impose an identification scheme to calculate the structural innovations. We test the results in a simple bootstrap simulation experiment. We find two major areas for further research - first, verifying and improving the robustness of the method, and second, exploring the method’s potential for empirical validation of structural economic models.
    Keywords: Business cycle; inflation; eigenvalues; filtering; Beveridge-Nelson decomposition; time series analysis.
    JEL: C32 E32
    Date: 2005–11
  16. By: Carlo Altomonte; Italo Colantone
    Abstract: We exploit the census of Romanian firms to provide a microfounded analysis of the sources of regional disparities in the country. To this extent, we adapt to the regional case a decomposition of firm-level output dynamics based on semi-parametric productivity estimates. The methodology, robust to different techniques of TFP estimation, allows us to analyze the sources of regional disparities controlling for the heterogeneity in firms’ characteristics. In particular, we measure various compositional effects of multinational enterprises (MNEs)on regional growth, finding that regional disparities are to a large extent endogenous to the interaction between firm-level dynamics and initial market conditions.
    Keywords: regional convergence, multinational firms, productivity, transition economies.
    JEL: F12 F23 L10 P20
  17. By: Christoph Ernst, Alfonso Hernández Ferrer and Daan Zult
    Abstract: This paper illustrates the global evolution and performance of trade and employment in the textiles and clothing industry until 2005 and tries to forecast, with the help of a gravity model, its evolution after the end of the Agreement on Textiles and Clothing. The phasing out of the quota regime will mean a sharp reduction of distortions to trade in textiles and clothing and more transparency, but it also implies employment shifts. The study shows the already leading and increasing export position of China, including Hong Kong, SAR, and Macao, SAR, in particular in clothing, Pakistan’s dominant position in textiles, and the generally good trade performance of South and South East Asia. Other countries in both regions, smaller and less competitive, could potentially benefit from the new situation applying the right policies. The T&C industry of a number of other countries will suffer from increased competition, but they may have the capacity to survive in niche markets, mainly countries close to the US and EU market. Nevertheless, some countries will have great difficulties to maintain their T&C industry and will have to diversify their industrial production. This is a major concern for small and less developed countries previously benefiting from privileged access to the US and EU market, for example, sub-Saharan African countries. A fast adjustment of production to the new situation should be combined with active and passive labour market policies for workers during the transition period, to reduce the social cost of adjustment. It will be vital to coordinate, macro, trade and industrial policies with labour market policies.
    Date: 2005–10
  18. By: Tomas Dvorak (Union College, Schenectady, NY 12308, USA); Richard Podpiera (International Monetary Fund,Washington, D.C. 20431, USA)
    Abstract: The announcement of European Union enlargement coincided with a dramatic rise in stock prices in accession countries. This paper investigates the hypothesis that the rise in stock prices was a result of the repricing of systematic risk due to the integration of accession countries into the world market. We find that firm-level stock price changes are positively related to the difference between a firm’s local and world market betas. This result is robust to controlling for changes in expected earnings, country effects and other controls, although the magnitude of the effect is not very large. The differences between local and world betas explain nearly 22% of the stock price increase.
    Keywords: Asset pricing; international financial integration; EU enlargement.
    JEL: F36 G15 G12
    Date: 2005–11
  19. By: Luca De Benedictis (University of Macerata, Italy); Roberta De Santis (ISAE, Instituto di Studi e Analisi Economica); Claudio Vicarelli (ISAE, Instituto di Studi e Analisi Economica)
    Abstract: The aim of this paper is to estimate the effect of the EU’s eastern enlargement on the trade patterns of the Central and Eastern European countries (CEECs) that joined the Union in May 2004. In particular, the paper investigates whether and how the EU’s free trade agreements (FTAs) with the CEECs have affected centre-periphery and intra-periphery trade flows. It also evaluates whether the EU-membership factor has had the added positive effects on exports from the CEECs as anticipated. The analysis focuses on bilateral trade flows between eight CEECs and the EU-23, for which a gravity equation is estimated using a system GMM dynamic panel data approach. The results support the assumptions that gravity forces and ‘persistence effects’ do indeed matter. With respect to the effect of FTAs, evidence is found that FTAs between EU countries and CEECs matter. Yet there is also evidence that the presence of intra-periphery agreements have helped to expand intra-periphery trade and limit the emergence of a hub-and-spoke relationship between the EU and the CEECs. These results have important policy implications for the trade strategy of EU candidate countries in south-eastern Europe as well as in the southern Mediterranean. According to the empirical results, these countries should move towards a regional free trade area as exemplified by the Central European Free Trade Agreement and the Baltic Free Trade Agreement to avoid hub-and-spoke effects.
    Keywords: trade flows, regional integration, EU enlargement, gravity model, dynamic panel data
    JEL: F13 F15 C13 C23
    Date: 2005–06
  20. By: Owen A O'Donnell (University of Macedonia); Furio C. Rosati (UCW Project; Erasmus University Rotterdam - Department of Health Policy and Management)
    Abstract: We test whether work in childhood impacts on health. We focus on agricultural work, the dominant form of child work worldwide. Data are from the Vietnam Living Standards Survey, 1992-93 and 1997-98. We correct for both unobservable heterogeneity and simultaneity biases. Instruments include small area labour market and education conditions obtained from community level surveys. We use three indicators of health: body mass index; reported illness; and, height growth. There is clear evidence of a healthy worker selection effect. We find little evidence of a contemporaneous impact of child work on health but work undertaken during childhood raises the risk of illness up to five years later and the risk is increasing with the duration of work. There is no evidence that work impedes the growth of the child.
    Keywords: Child labour, health, Vietnam
    JEL: I12 J13 J22 J28 J43
    Date: 2004–04–07
  21. By: Giuseppe Tattara
    Abstract: Many European countries have faced the erosion of the competitive advantage in the international market with a mixed strategy of productivity increase at home and labour cost reduction abroad, through the international fragmentation of production and subcontracting in low wage countries. Italy in particular, has delocalized segments of its industrial production in Eastern Europe. The advantage of delocalization abroad – with particular reference to East European countries – is due to the low cost of labour, depends from the capability to transmit information efficiently and the availability of a complete supply-type blueprint in the receiving country. The paper discusses the prospects open to Italia apparel firms and presents a case study dealing with the development of outsourcing by the Benetton group in the last decades.
    Keywords: Vertical Integration, Global Organization of Production, Macroeconomics
    JEL: F23 L16 L22 L23
    Date: 2005–11–17
    Abstract: With the paddle of a new period of programming, the European regional policy must face the challenge of widening in the East like with that of the insertion of Europe in universalization. In this European space where exists a demographic, economic and policy concentration, in an omnipotent center, the regions become capital parts of the reorganization of the economic, social and space bond : the European regional policy is and will remain thus a central stake for the development of this space. This article tries to put forward the bases of this policy and to determine new spaces concerned.
    Keywords: Research, European integration, co-operation-coordination, polycentric concentration, structuring of space, regional integration of spaces
    JEL: R12 R14 R58
    Date: 2005
  23. By: Anna Ferragina (ISSM-CNR); Giorgia Giovannetti (University of Florence and Italian Foreign Trade Commission); Francesco Pastore (Seconda Università di Napoli and IZA Bonn)
    Abstract: Despite the EU emphasis on the 1995 Barcelona process, trade integration with the Mediterranean (MED) countries is still underdeveloped. To contrast the success of EU integration with MED countries and that with the new EU members, we compute the trade potential of these EU partners from 1995 to 2002 using an “out-of-sample” methodology. The coefficients are taken from different panel estimators of the gravity equation relative to intra- EU trade. Our analysis suggests the existence of sizeable, unexploited trade potential with both groups of partners, although the ratio of potential to actual trade with the MED countries is much larger (from 1.7 to 2.5 times), more dispersed and stable compared to that with the CEECs. Moreover, the potential tends to converge to actual trade in a much longer time in the case of MED countries.
    Keywords: MED agreements, EU eastward enlargement, gravity equation, trade potential
    JEL: C23 F15 F17 P45 P52
    Date: 2005–11
  24. By: Marius Jurgilas (Economics University of Connecticut)
    Abstract: This paper studies the liquidity effect in the environment of a currency board. Under such an environment, the endogeneity issue common to other monetary regimes does not arise, thereby allowing for a straightforward analysis. Using daily data from the interbank market in Lithuania, we estimate the liquidity effect and show that, contrarily to the existent literature, overnight interest rates tend to fall at the end of reserve holding period while being higher at the beginning. Thus the martingale hypothesis of the interest rates is rejected. It is also shown that banks do not utilize aggregate liquidity information provided by the Central Bank of Lithuania due to the structural impediments of the market
    Keywords: interbank market, liquidity effect, currency board, Lithuania
    JEL: E52 E58
    Date: 2005–11–11
  25. By: Kóczy,László Á. (METEOR)
    Abstract: We discuss the two latest enlargements of the EU. While the 1995 entrants are by now fully integrated, the 2004 entrants will ``enjoy'''' a secondary status for a number of years. We attribute this difference to the fact that unlike the former EFTA members joining in 1995, the 2004 entrants formed a group with heterogenous interests, one that lacked the same strong internal economic ties. Not being able to act as a unified block they had a considerably weaker bargaining position. We support our arguments by qualitative results from a simple model, a dynamic partition function game based on Yi (1997) and Morelli and Penelle (1997).
    Keywords: Strategy;
    Date: 2005
  26. By: Kari E.O.Alho (ETLA (the Research Institute of the Finnish Economy) and the University of Helsinki); Ville Kaitila (ETLA, the Research Institute of the Finnish Economy); Mika Widgrén (ETLA (the Research Institute of the Finnish Economy), Turku School of Economics, CEPR and CESifo)
    Abstract: Economic convergence of the EU’s new member countries (NMCs) towards the incumbent EU countries (EU-15) is of paramount importance for both partners, not only in terms of real income but also in nominal terms. In this study we build a dynamic, computable general equilibrium model, starting from the Balassa-Samuelson two-sector framework, then modify and enlarge it (with, among other things, endogenous capital formation, consumption behaviour and labour mobility) to address several other issues such as uncertainty, welfare and sustainability in terms of foreign indebtedness. At the same time we make flows of foreign direct investment (FDI) endogenous in order to evaluate the impact convergence has on the EU-15 and the interaction between the two regions through FDI. We find that in a general equilibrium setting, fears of adverse effects resulting from a relocation of EU-15 manufacturing to the NMCs are not well founded.
    Keywords: convergence, new member countries, EU-15
    JEL: F15 F21 F43
    Date: 2005–04

This nep-tra issue is ©2005 by Tono Sanchez. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.