The impact of European integration and enlargement

1
The Impact of European Integration and
Enlargement on Regional Structural Change and
Cohesion

• The impact of European integration and
  enlargement
• on regional structural change and cohesion
• in the EU new member-states.

Final Conference Presentation of the
Findings Brussels, 26th October 2005
WP3 Coordinator University of Thessaly Scientist
Responsible Prof. George Petrakos
2
STRUCTURE OF THE PRESENTATION

• EURECO WP3.
• Literature Review.
• Descriptive Analysis.
• Answers to Research Questions.
• Conclusions.

3
EURECO WP3 OBJECTIVES

• Area of analysis
• EU new member-states and accession countries (EU
  NMS)
• Objectives of analysis
• Identification of the spatial and structural
  change in the EU NMS regions.
• Evaluation of the impact of the EU economic
  integration on regional structural change and
  cohesion.
• Prediction of winning and losing regions.
• Regional policy recommendations (? WP5).

4
EURECO WP3 RESEARCH QUESTIONS

• What is the spatial pattern of development in the
  EU NMS? Have regional disparities increased or
  decreased?
• What is the impact of economic integration on
  regional economic performance?
• Have EU NMS regions developed similar or
  different types of sectoral and industrial
  specialization, compared to EU15?
• Have advanced and lagging-behind EU NMS regions
  developed similar or different type of economic
  activities?
• What is the evolution of regional specialization
  in the EU NMS?
• What is the relation between the level of
  regional specialization and regional economic
  performance in the EU NMS area?
• What is the impact of economic integration on
  regional specialization in the EU NMS area?
• Are there particular types of structural change
  more closely related to strong growth
  performance?

5
EURECO WP3 RESEARCH PARAMETERS DELIVERABLES

• Research Parameters
• Analysis of spatial-structural patterns in the EU
  NMS.
• NUTS III regions and NACE 2 industrial branches.
• Lack of regional-structural data in several EU
  NMS.
• Analysis for the countries of Slovenia, Hungary,
  Estonia, Bulgaria and Romania.
• Representative country sample in economic,
  demographic and geographic terms.
• Research Deliverables
• Country studies (reports).
• Conference presentations.
• Book chapters.
• Journal articles.

6
EURECO WP3 DELIVERABLES

• Country chapters for
• Bulgaria (S. Totev - BAS)
• Romania (A. Iara - ZEI)
• Hungary (T. Szemlèr - IWE)
• Czech Rep. (E. Kippenberg ZEI)
• Poland (A. Wisniewski IWE)
• Included in Krieger-Boden C., Morgenroth E.
  and Petrakos G. The impact of European
  Integration on Regional Structural Change and
  Cohesion, Routledge Publishers, forthcoming

7
THE IMPACT OF ECONOMIC INTEGRATION ON REGIONAL
STRUCTURAL CHANGE AND COHESIONSTATE OF THE ART
(LITERATURE REVIEW) - 1

• Location of economic activities in space
• ? Neoclassical Trade Theory, New Trade Theories,
  New Economic Geography
• Structural Impact of Economic Integration
• ? EU space Externalities despite the process of
  economic integration (Ciccone 2002, Head Mayer
  2003) Uneven allocation of production factors
  and economic activities (Massey 1995, Ottaviano
  Puga 1998).
• ? Comparative advantages and increasing returns
  coexist in trade activity (Krugman 1994, Davies
  Weinstein 1999) Increasing returns seem to
  interpret the case of the EU core (Brülhart 1998)
  and comparative advantages (H-O) the case of the
  EU periphery (Petrakos Christodoulakis 1997).
• ? Neoclassical theory relates increasing
  integration with increasing specialization (Oniki
  Uzawa 1965, Venables 2003).
• ? New trade theories and new economic geography
  foresee a non-linear relation between integration
  and concentration of activities in IRS sectors
  (Forslid et al 2002, Krieger-Boden 2002).
• ? Empirical evidence are in favor of new trade
  theories and new economic geography changes,
  however, are taking place with a slow pace
  (Brülhart Torstensson 1996, Amiti 1998,
  Brülhart 1998, Midelfart-Knarvik et al 2002).

8
THE IMPACT OF ECONOMIC INTEGRATION ON REGIONAL
STRUCTURAL CHANGE AND COHESIONSTATE OF THE ART
(LITERATURE REVIEW) - 2

• Spatial Impact of Economic Integration
• ? Empirical research finds a positive relation
  between economic integration and growth (Balassa
  1961, Frankel Romer 1999, Redding Venables
  1999, Wacziarg Welch 2003) Reservations
  regarding the ability of less developed countries
  to be equally benefited (Grossman Helpman 1991,
  Young 1991).
• ? Theoretical controversy about the impact of
  economic integration on regional inequalities
  (Krugman Livas 1996, Paluzie 2001) Mixed
  empirical findings (Barro Sala-i-Martin 1995,
  De La Fuente 2000, Esteban 2000, Puga 2001,
  Petrakos et al 2005a).
• Interaction of Spatial and Structural Impact of
  Economic Integration
• ? Ambiguous relationship between regional
  specialization and economic growth (Bode et al
  2004) - Increasing regional specialization has a
  positive impact on productivity due to the
  exploitation of scale economies (Quah and Rauch
  1990, Weinhold and Rauch 1999) - Increasing
  regional specialization exposes regions on
  asymmetric shocks (Amin 1994, Feldman 2000).
• Focus on the EU NMS area
• ? Limited empirical research (Petrakos 2000,
  Landesmann 2001, Traistaru Wolff 2002, Resmini
  2003, Traistaru et al 2003, Fidrmuc 2005,
  Petrakos et al 2005b)

9
ECONOMIC INTEGRATION OF THE EU NMS

• Remarkable increase (6 times) in the trade flows
  between the EU NMS and the EU15 in the 90s.
• The share of intra-industry trade started to
  increase at the second half of the 90s.
• Uneven level of economic integration for the EU
  NMS and their regions.
• High or increasing level of economic integration
  for the EU NMS and their regions, in many cases.
• Index of Integration
• IOINAT_D TRADEEU15_D / TRADEWORLD_D (Petrakos
  et al 2005a)
• IOINAT_DADN TRADEEU15_DADN / TRADEWORLD_DADN
  ?
• IOIREG_D IOINAT_DALQREG_DA
  IOINAT_DBLQREG_DB IOINAT_DNLQREG_DN
  (Petrakos et al 2005c)
• Lack of trade data at the regional-sectoral
  level.
• For the estimation of the regional IOI we
  calculate the national-sectoral IOI and then we
  weight by the LQ of the sector at the region. The
  regional IOI is sum of the products among
  national-sectoral IOIs and regional-sectoral LQs.
  

10
REGIONAL INEQUALITIES IN THE EU NMS -1

• s-convergence, max/min, ?-density, ß-convergence
  (Petrakos et al 2005b).
• Statistically significant increase of regional
  disparities in all EU NMS.
• The core-periphery divide of the EU15 area seems
  to be reproduced in the EU NMS area, in a short
  period of time.
• Critical test for the EU regional policy to
  maintain cohesion as its highest priority.

11
REGIONAL INEQUALITIES IN THE EU NMS -2
12
REGIONAL INEQUALITIES IN THE EU NMS -3
13
REGIONAL INEQUALITIES IN THE EU NMS - 4
Macroscopic level dynamism of Central European
countries
Microscopic level dynamism of capital and
western border regions
14
ECONOMIC STRUCTURE AND CHANGE IN THE EU NMS

• Declining shares of the primary and secondary
  sectors of production.
• Increasing shares of the tertiary sector of
  production.
• High unemployment shares in many EU NMS related
  to the contraction of the secondary sector.
• Patterns of change in the EU NMS are strongly
  affected by the respective national patterns.
• Dissimilar structural patterns with the EU15.

15
INDUSTRIAL ACTIVITY IN THE EU NMS

• Manufacturing is the most severely hit economic
  sector during the period of transition.
• Significant employment loses.
• Dominance of the labor-intensive sectors in terms
  of employment.

16
REGIONAL-INDUSTRIAL STRUCTURAL CHANGES IN THE EU
NMS

• Dominance of the labor-intensive sectors in terms
  of industrial employment.
• Important structural changes in many EU NMS
  regions
• Coefficient of Structural Change
• CSC Cor (Xi,t, Xi,tk) (Havlik 1995, Jackson
  Petrakos 2001)
• Significant differences in the evolution of the
  EU NMS regional-industrial patterns.
• Structural change is more serious in Bulgaria and
  Romania

17
REGIONAL-INDUSTRIAL STRUCTURAL CHANGE IN THE EU
NMSASSESSMENT

• Ex post assessment of the direction of structural
  change through the comparison of industrial
  structural structures among the EU NMS regions
  and the EU15 average (Jackson Petrakos 2001).
• Index of dissimilarity
• IDIS (Ai,t-Bi,t)2
• A is the share of sector i in period t
• for the EU NMS region A
• B is the share of sector i in period t
• for the EU15
• Higher (lower) dissimilarity with the EU15 is an
  indication of defensive (offensive) structural
  change (Aiginger 1999, Suhrcke 2001).
• Offensive structural change took place mostly in
  the majority of Slovenian regions and in many
  Hungarian regions whereas defensive structural
  change took place mostly in the majority of
  Bulgarian and Romanian regions.

18
REGIONAL-INDUSTRIAL DIVERSIFICATION DISPERSION
PATTERNS

• The structural changes recorded in the EU NMS
  regions have led to a variety of
  regional-industrial specialization and
  concentration patterns.
• Theil index of absolute regional diversification
  (Theil 1967)
• Theil index of absolute sectoral dispersion
  (Theil 1967)
• Important changes in specialization or
  concentration are recorded over time, in many
  regions and sectors.
• Capital regions, their satellites and the western
  border regions are the less specialized.
• IRS sectors are the most concentrated, mainly in
  the capital and the western border regions.

19
REGIONAL-INDUSTRIAL DIVERSIFICATION PATTERNS
Core regions are more diversified less
specialized. Specialization in CAP regions
increases over time.
20
REGIONAL-INDUSTRIAL DISPERSION PATTERNS
LINT sectors are the most dispersed. IINT
sectors are the most concentrated.
21
RESEARCH QUESTIONIS THERE A CORE-PERIPHERY
PATTEN OF INDUSTRIAL DEVELOPMENT IN THE EU NMS
AREA?
pearson 63.7 p-value (0.000)
pearson 71.2 p-value (0.000)
Central regions have a higher industrial GDP per
capita.
22
RESEARCH QUESTIONWHAT IS THE IMPACT OF ECONOMIC
INTEGRATION ON INDUSTRIAL PERFORMANCE IN THE EU
NMS REGIONS?
pearson 22.3 p-value (0.019)
pearson 12.3 p-value (0.209)
Mixed national patterns. Overall picture favors a
positive relationship between integration and
industrial GDP per capita.
23
RESEARCH QUESTIONDOES SIMILARITY OF
DISSIMILARITY WITH EU15 INDUSTRIAL STRUCTURE
AFFECTS INDUSTRIAL PERFORMANCE IN THE EU NMS
REGIONS?
pearson -30.4 p-value (0.002)
pearson -3.1 p-value (0.751)
Higher levels of dissimilarity are associated
with lower levels of industrial GDP per capita.
24
RESEARCH QUESTIONHAVE ADVANCED AND
LAGGING-BEHIND EU NMS REGIONS DEVELOPED SIMILAR
OR DIFFERENT TYPE OF INDUSTRIAL ACTIVITIES?
pearson 26.9 p-value (0.006)
pearson 31.9 p-value (0.001)
Regions with higher employment shares in
capital-intensive industrial sectors, have higher
industrial GDP per capita.
25
RESEARCH QUESTIONWHAT IS THE RELATION BETWEEN
INDUSTRIAL SPECIALIZATION AND INDUSTRIAL
PERFORMANCE AT THE EU NMS REGIONS?
pearson 9.9 p-value (0.316)
pearson 50.9 p-value (0.000)
The more diversified regions are associated with
higher industrial GDP per capita.
26
RESEARCH QUESTIONWHAT IS THE IMPACT OF
INTEGRATION ON SPECIALIZATION IN THE EU NMS
REGIONS?
pearson 21.6 p-value (0.028)
pearson 1.3 p-value (0.814)
The impact of integration on regional
specialization was negative and significant at
the early stages of transition.
27
RESEARCH QUESTIONARE THERE PARTICULAR TYPES OF
STRUCTURAL CHANGE MORE CLOSELY RELATED TO
STRONGER INDUSTRIAL PERFORMANCE?
pearson 13.3 p-value (0.204)
pearson 8.7 p-value (0.376)
There is no strong evidence available.
28
ECONOMETRIC ANALYSIS
29
CONCLUSIONS

• Core-Periphery and East-West spatial patterns of
  economic performance.
• Increasing regions inequalities in the EU NMS.
• EU NMS regions have developed different types of
  sectoral and industrial specialization and have
  experienced different types of structural change.
  
• Uneven levels of economic integration among EU
  NMS regions.
• Advanced regions have developed more diversified
  types of industrial activities, attracting the
  capital-intensive regions.
• Higher levels of dissimilarity with EU15 are
  associated with lower industrial performance.
• Differences in national patterns indicate that an
  expansion of databases and analysis in the future
  may be required in order to obtain solid results.
  

30
The Impact of European Integration and
Enlargement on Regional Structural Change and
Cohesion

• The impact of European integration and
  enlargement
• on regional structural change and cohesion
• in the EU new member-states.

Final Conference Presentation of the
Findings Brussels, 26th October 2005
WP3 Coordinator University of Thessaly Scientist
Responsible Prof. George Petrakos