Focus on European Economic Integration Q3/10

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• Focus on European Economic Integration Q3/10 (PDF, 2.7 MB) September 2010.

Studies and Analyses

• Regional Convergence in Europe and the Role of Urban Agglomerations (PDF, 591 kB) Cuaresma, Feldkircher. Cuaresma, Feldkircher, Mayerhofer – Focus on European Economic Integration Q3/10 Using data for EU-27 NUTS 2 regions and major cities, we evaluate empirically the role of urban growth spillovers as a determinant of income dynamics at the regional level. We go beyond the empirically well documented static relationship between national income and productivity in urban agglomerations. We use spatial regression models to quantify the effect of city growth spillovers on neighboring regions and assess the interrelationship between urban and regional growth. Our results indicate that urban growth spillovers play an important role in explaining differences in per capita income growth across European regions: Strong income growth in urban agglomerations provides an additional growth bonus for neighboring regions. This effect is very homogeneous across regions in Western and Eastern Europe. Our results indicate that the industrial composition of the agglomeration also matters for regional growth: Regions hosting urban agglomerations with a relatively high specialization in the primary sector as well as in fuels and chemicals tend to experience lower rates of economic growth. Our study is particularly relevant for policymakers since it indicates a trade-off between fostering income convergence at the regional level on the one hand and spurring national growth on the other hand. en Determinants of economic growth, European regions, urban growth, spatial error C21, R11, O18, O52 Sep 30, 2010, 12:00:00 AM

• Measuring Competition in CESEE: Stylized Facts and Determinants across Countries and Sectors (PDF, 690 kB) Feldkircher, Martin, Wörz. Feldkircher, Martin, Wörz – Focus on European Economic Integration Q3/10 Using the Amadeus firm-level database, this paper examines sector-specific indicators of competition in a number of Central, Eastern and Southeastern European (CESEE) countries. More specifically, it provides an overview of two key indicators of the level of competition, namely profit margins and the concentration of sales, across 27 industries in 13 CESEE countries. We discuss the advantages and disadvantages of various indicators of competition that are commonly used in the literature and explain why we use the aforementioned proxy variables for the intensity2 of competition. The paper then provides a cross-country and cross-sector overview of the differences in these competition indicators for the period from 1999 to 2007 before empirically identifying the main determinants of these differences. We find large differences between individual sectors, while differences between countries are considerably smaller. Profit margins and concentration ratios are notably high in communications, finance, housing, and miscellaneous goods and services. Manufacturing achieves, on average, lower profit margins and concentration ratios than other sectors. Over time, profit margins have increased in most sectors as a result of the rapid catching-up process in the CESEE region, while concentration ratios have declined, suggesting that the region is still in a phase of rapid market expansion. We observe some indication of an increase in competition in only a handful of sectors, e.g. housing and utilities, passenger transport, and information services. At the same time, in many retail trade sectors and in financial services, both profit margins and concentration ratios displayed disproportionately high growth in our sample period. All remaining sectors show diverging trends for both indicators. en Competition, Central, Eastern and Southeastern Europe, profit margins, firm-level data C23, D40, L11, L52 Sep 30, 2010, 12:00:00 AM

• Macrofinancial Stability in Croatia in the Wake of the Global Crisis: Risks and Policy Responses (PDF, 722 kB) Gardó. After a long-lasting boom period, the global crisis put the resilience of Croatia’s economic and financial system to a severe test. The country has mastered this test so far. To some extent, the crisis also altered the country’s macrofinancial risk profile, although – against the backdrop of a high (and increasing) degree of currency substitution – credit risk continues to represent the main challenge to financial stability, in particular as bank clients’ rising debt-servicing problems started to translate into deteriorating credit quality. However, the banking sector’s shock-absorbing capacity – as indicated by still relatively high profitability and capitalization levels – the strategically-oriented presence of foreign banks and vigilant central bank measures were key in cushioning the spillovers of the global crisis and in alleviating vulnerabilities. en Financial stability, banking sector, financial crisis F36, G2, O52, P2 Sep 30, 2010, 12:00:00 AM

• Trade-Enhancing EU Enlargement and the Resurgence of East-East Trade (PDF, 624 kB) Hornok. Hornok – Focus on European Economic Integration Q3/10 This article uses the episode of EU enlargement in 2004 as a natural experiment to identify the trade effect of declining border barriers across otherwise well integrated markets. Despite the fact that traditional trade policy measures (tariffs, quantitative restrictions) were already eliminated for most industrial goods in trade between the pre-enlargement EU-15 countries and eight of the countries that entered the EU in 2004 (EU-8)2 as well as among the EU-8 themselves, EU enlargement is shown to have caused a significant trade creation. The effect was most pronounced for trade among EU-8 countries, with a magnitude of 4% to 9% in ad valorem tariff-equivalent terms. Technology-intensive industries benefitted most strongly from enlargement, and a significant anticipatory effect can also be detected for 2003. These findings highlight the importance of non-policy related border barriers to trade and may also prove useful in assessing the potential for trade integration in the current EU candidate countries. en Trade costs, border effect, gravity estimation, European integration F13, F15 Sep 30, 2010, 12:00:00 AM

• Selected Abstracts (PDF, 100 kB) Barisitz, Lahnsteiner – Focus on European Economic Integration Q3/10 en Sep 30, 2010, 12:00:00 AM

• Results of the OeNB Workshop ”Macrofinancial Stability in CESEE: Have We Learned All the Lessons?“ (PDF, 175 kB) Focus on European Economic Integration Q3/10 en Sep 30, 2010, 12:00:00 AM

• IMF Regional Economic Outlook for Europe: Fostering Sustainability (PDF, 295 kB) Focus on European Economic Integration Q3/10 en Sep 30, 2010, 12:00:00 AM