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NEW EU MEMBERS OF CENTRAL AND EASTERN EUROPE Level of Integratedness Tibor Palánkai

NEW EU MEMBERS OF CENTRAL AND EASTERN EUROPE Level of Integratedness Tibor Palánkai Emeritus Professor Corvinus University of Budapest Master Course 2014. Prof. Palánkai Tibor. Main Focus of Integration Theories. Emergence of integration theories from 1950s . Their main focus :

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NEW EU MEMBERS OF CENTRAL AND EASTERN EUROPE Level of Integratedness Tibor Palánkai

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  1. NEW EU MEMBERS OF CENTRAL AND EASTERN EUROPE Level of Integratedness Tibor Palánkai Emeritus Professor Corvinus University of Budapest Master Course 2014 Prof. Palánkai Tibor

  2. Main Focus of Integration Theories Emergence of integration theories from 1950s. Their main focus: • The content (or essence) of integration processes; • The institutions, regulation (policies) and governance of integration; • The advantages and disadvantages of integration (cost-benefit analysis); and • The problems of integration maturity (capacities or capabilities for integration).

  3. Analysis of Content of Integration Three questions analysed about integratedness: • Theoretical bases of analysis of content of integration, • Methods and indices of analysis, • Fact about development of global and regional integration.

  4. Main Schools of Theories on Content of Integration We examine two main schools of integration theories: • International division of labour theories, • Theories on interdependence and integration.

  5. Division of labour theories Separation of the simple transactions or “cooperation” and contrasted them with “integration”, and interpreted the latter as a new quality. Integration defined as: • Certain intensity of the international division of labour. • Complexity of cooperation extending to the whole re-production process, • “Lasting” and “durable” cooperation, • Institutionalised cooperation.

  6. Division of labour theories Increase of efficiency and welfare based on international division of labour, through specialization and cooperation, The “fair distribution” of gains or the “just retour” was from the outset an accepted basic principle in the EC, and in certain cases decisively influenced the formation of public opinion (e.g. in connection with decisions to join). Later „cohesion” and „solidarity” formally endorsed.

  7. Interdependence and integration Interdependence follows from intensity and complexity of cooperation. The interdependence as a new quality of international relations, when at a certain point the position of countries changes significantly toward each other, and their policies and actions become mutually dependent.(R.O. Keohane, J. S. Nye.) It might help us if we set a minimum dependency threshold (10%).

  8. Interdependence and integration Cooperation with cost consequences, and are balanced with benefits. Recently dramatically increased. Mutual (reciprocal) impacts assuming certain equality. The process is highly asymmetric in reality. If unilateral then one-sided („imperialistic”) dependence. Interdependence and integration - close concepts.

  9. Attempts for Measuring Integration KOF Swiss Economic Institute, the 2012 index: 187 countries and 24 parameters; MGI (Maastricht Globalization index: 117 countries, similar to KOF.) (2002 and 2008). A.T.Kearney/Foreign Policy: 62 countries and 4 key spheres; Earnst & Young 2012: 60 countries with 20 parameters. Global Connectedness Index – UNIDO. 2011.

  10. Globalization Indices Main parameters: Intensity of economic ties (flows and stocks), Migration, international communication, Internet, Conditions (liberalization, deregulation etc.) International organizations and treaties, Number of embassies, UN Missions, treaties. Cultural: number of McDonalds or IKEA, Environmental deficits (footprints) (MGI).

  11. Globalization Indices KOF: Globalization index (2012): • First ten: BE, IR, NL, AT, SG, SE, DK, HU, PT, SW. • Central E: CZ (13.) SK (19.), PL (25.) SL (29.) • Large EU: UK (14.), FR (18.), GE (22.) IT (22.) • Southern EU: ES (16.), GR (23.) • Large non-EU: US (35.), RU (47.) NI (53.), CH (73.), BR (74.) IN (110.) • HU: KOF: 9., MGI: 10., E-Y: 9., Kearney: 20:

  12. Integration Profiles „Integration Profile”: New proposal. Composition of a „picture” based on mosaics. Extension of analysis to qualitative and efficiency aspects: Structure, performance, dependence, balancedness, or convergence. Going beyond real integration + participation in institutions and policies. Avoiding traps of ranking.

  13. Integration Profiles Main parameters: 1. Real-economic integration (integratedness): 2. Institutional and regulatory integration: 3. Comparative performances : 4. Convergence and divergence:

  14. Integration Profiles Main parameters of real integration: • Trade integration: flows, stocks, intensities; • Structure of trade relations; • Sub-regional concentration and interconnectedness; • Factor integration: flows, stocks, intensities; • State and characteristics of financial integration; • Transnationalisation of company sectors.

  15. Integration Profiles Main parameters of regulatory integration: • Participation in global institutional and policy structures, and regulatory processes; • Compliance with EU institutions and policies (acqui communautaire);

  16. Integration Profiles Main parameters of comparative performances: • External economic performances , balancedness of integration (trade balances, relation of capital export and import); • Macro-economic performances; • Consequences of capital market integration (gains and losses); • Main characteristics of socio-economic development (based among others on the Lisbon Score Board);

  17. Integration Profiles Convergence and divergence: • Convergence of levels of development and structures; • Structure of dependences, interdependence; • Regional and social divergences, polarisation; • Problem of the Centre/Core and the Periphery.

  18. Indices measuring of trade intensity 1. Share of export/import to GDP: • Txt/Y × 100, or Tmt/Y × 100. • (Txt and Tmt – total export and total import) • Txi/Y × 100, or Tmi/Y × 100. • (Txi and Tmi – intra-regional export or import). 2. Share of regional trade to total: • Txi/Txt × 100, or Tmi/Tmt × 100. 3. Comparison of per capita trade: Txt/P and Txi/P, or Tmt/P and Tmi/P (P – pop.)

  19. Development of integration processes Global integration: Global export/global GDP: 1950: 3-5%, 2000s: around 20%. „The trade is now an integral part of the structure of national production in all modern states.” (Held, 2005: 149). • X/GDP in developed states: 1913: 11%, 1950: 8%, 1973: 18% and 1985: 23% • Same data according Maddison: 1870: 4,6%, 1998: 17,2%.

  20. Development of European integration EU integration: Share of intra EU export to GDP: 1960: 7,7%; 1970: 10%; 1980: 13%; 1990: 14%; 2000: 22%; 2008: 22%. Share of intra-export in total exportin EC/EU: EC6-EC10 1960: 30%; 1972: 50%; 1985: 55%, EU15: 1992: 62%, 2004: 65%, 2008: 60%. EU 27: 1999: 68%; 2004: 66%; 2008: 67.5%.

  21. Integration of New Members Share of EU15 in the new members export: 1990: 25-30%; 1999: 68.6%; 2004: 65.4%; 2008: 59.7%. Share of NMS of in NMS total export: 1990: 10%, 1999: 13.2%; 2004: 15.35, 2007: 19.5%. Shareof RoW in NMS export: 1999: 18.3%; 2004: 19.4%; 2007: 20,9%.

  22. Measuring Trade Intensity In % of GDP: trade of goods or services, intra-trade: Bellow 10%: Marginal (no) intensity; Between 10-30%: Low intensity; Between: 30-50% Medium intensity; Between: 50-70% High intensity; Above 70% Very (extremely) high intensity.

  23. Trade Intensities Total export of goods in GDP: • Very high: BE and SK. • High intensity: HU (3. 68.3%), CZ, NL, SL, EE. • Medium: GE, IR, AT, DK, FL, SE, MT, LT, PL, BG. • Low: FR, IT, UK, ES, PT, LV, RO. • Marginal intensity: EL (8.8%) and CY (7.7%).

  24. Trade Intensities Internal export of goods -services in GDP: • Very high: LU (147%) and SK (70.4%). • High intensity: BE (69.1%),CZ (64.7%) HU (5. 63.5%), NL (57.3%), EE (53.3%), IR (50%). • Medium: GE, AT, CY, MT,LT, BG, PL. • Low: FR, IT, UK, DK, FL, SE, ES, PT, LV, RO, EL.

  25. Trade Intensities Per capita total export in €: • Belgium 25.014 • Germany 9.811 • Czech Republic 7.823 • Hungary 5.893 • France 5.651 • Spain 3.520 • Portugal 2.932 • Greece 1.530

  26. Trade Intensities Summary conclusions: 1.HU among the 5 most intensively integrated. 2.Benelux and C.E. + EE, IR are highly integrated. 3.Large countries (FR, IT, UK)+ ES, PT, RO, LV are lowly integrated. 4. Marginally integrated (total goods): EL and CY. 5. Others either medium or low (South EU-low).

  27. Trade Structures (Internal export) (%) Country Agr. R.M. Ener. Manuf. Other EU27 9.7 3.6 6.8 51.3 28.6 Germany 6.9 2.7 2.8 49.0 28.6 Sweden 5.9 7.9 8.3 44.5 33.3 Hungary 7.3 2.8 2.5 67.6 19.9 Czech R. 4.0 3.4 4.3 59.7 38.6 Slovakia 4.2 3.2 5.6 55.9 31.1 Portugal 10.4 5.9 3.8 36.4 43.5 Greece 25.6 5.2 7.1 27.3 34.8

  28. Trade Structures (Internal export) (%) Pattern of structural changes: • C. E. converged with developed EU. • Food, energy and r. m. around 11-13% (DE – 12%) in CE. (EU27 20%) • High industrialisation of C.E. • Differences arise in terms of „others”. • Southern EU – high agriculture and lower industrialisation (even in case of ES).

  29. Trade balances of EU 2009: Trade deficit of EU27 – €105 bn. • Deficit with China €133bn, Japan €13bn. • Surplus with USA: €45bn.) It was €32bn in 2000 and tripled to €94bn. by 2006. Contradicting the exchange rate assumptions: With China the Euro undervalued, while to the dollar overvalued (1€ equals with 1.2$ in PPP. Euro market rates were around 1.3$

  30. Trade Balances Countries Int. trade Ext. trade. Trade with GE BE. NL. IR, + + + HU. CZ, SK, + + + PL, + - - SL, - + + FR, UK, IT, - - - AT, PT, ES, - - - EE, LT,LV, - - - BG, RO. - - -

  31. Trade Balances (Internal trade) High surplus (above 3% of GDP): NL (21%), IR (13.2%), HU (9.6%), SK (7.6%), CZ (7.0%), BE (6.4%), GE (3.0%). Low surplus (0 and +3%): LU, DK, PL. Low deficit (0 and -3%): UK, IT, FL, SE, ES, LT, SL High deficit countries (above -3%): FR (3.3%), EL, PT, LV, BG, RO, MT, CY (20.8%).

  32. Structural imbalances Proportions of high-tech products (HU: with 28% is first). H: in foods: X was nearly 7 times over M in 1988, gradually melting away. Now, X of HU is only 25% above import. Energy dependence of EU27 in 2007 was 53%. (HU: 61%) • Dependence between 80-90%: IT, ES, PT, BE, MT, CY. • Between 20-30%: UK., CZ., RO, PL, EE.

  33. Production Factors • Capital and labour - flow and stock: • Capital export and import in GDP: Cx/Y × 100 and Cm/Y × 100. • Capital export in proportion to capital import: Cx/Cm × 100. • Labour flows and share of foreign labour force. Incoming and outgoing.

  34. Labour flows in EC/EU • After 2004, from NMCs – (PL. RO. BG. LT and LV) main supplier, • UK, IR. IT, ES, PT, DE. and FR.) main receivers (DE – recently net emigration). • HU – net immigration with about 10-30 thousand peoples (CZ. Similar). In recent years, after 2010, substantial outflow from HU. The proportion of EU and non-EU workers: 1/3:2/3.

  35. Flow of Capital till 1970s Between 1958 and 1973 limited internal movement of capital, no fusions, limited cooperation. • Strong American inflow, and control of many European sectors (cars, electronics etc.), induced by common market. From 1970s, accelerating capital export (UK already before), and Germany rapidly became net capital exporter.

  36. Factors of Flow of Capital after 1970 • Process supported by crisis, pressure for reconstruction. • Technological reconstructions and innovation, new management methods. • That created pressures for integration.

  37. Flow of Capital in 1980-1990s By 1980s, due to slowing down of American inflow into Europe, and acceleration of European capital inflow to USA, by the end of 1980s Europe has become net capital exporter to USA. • Growth of Japanese capital inflow and control of some sectors (car and electronics). • Creation of the Single Market played important role.

  38. Flow of Capital in 2000s By 2000s, strong global EU positions, but dominance of Atlantic relations. • In 2000, the American capital is about 62% of all capital invested in EU. • More than 50% of EU investments are in USA. • Japanese expansion looses momentum after 2000 and remains one-sided. • Other inflows (Arabic or Russian) remain limited.

  39. Flows of Capital - EU Integration (2009) Country Cm/GDP (%) Cx/GDP (%) Cx/Cm (%) USA 17 29 166 Japan 4 15 380 China 26 5 20 Brazil 25 10 40 EU27 47 55 118 Germany 29 41 141 UK. 51 73 124 France 38 57 150

  40. Flows of Capital - EU Integration(2009) Country Cm/GDP (%) Cx/GDP (%) Cx/Cm (%) Belgium 200 188 94 Ireland 111 130 116 Netherlands 81 120 149 Sweden 82 87 106 Finland 36 54 150 Denmark 50 64 128

  41. Flows of Capital - EU Integration (2009) Country Cm/GDP (%)Cx/GDP (%) Cx/Cm (%) Spain 4343 100 Portugal 4929 59 Austria 45 43 95 Italy 17 23 135 Greece 13 1293

  42. Flows of Capital – EU Integration(2009) Country Cm/GDP (%) Cx/GDP (%) Cx/Cm (%) Hungary 78 16 21 Czech R. 64 8 12 Slovakia 60 4 7 Poland 43 7 16 Estonia 84 33 40 Slovenia 3119 60 Romania 35 12 Bulgaria 63 1 1.5

  43. Summary of Capital Integration • High proportion of FDIs in GDP (50-70%) – indication of intensity of global integration. • Developed countries are characterised by net capital exporter position (Cx is about 40-50% over Cm). • This is an important parameter of level and balancedness of integration. • NMCs gradually capital exporters, but only beginning (Cx is only about 10-40% of Cm)

  44. Characteristics of Real-Integration • Extremely highly integrated countries, • Highly integrated countries, • Medium integrated countries, • Low integrated countries, • No integration. Five groups have been formally created, but the countries can be placed into three. In some cases, the performance can be low or marginal (the trade integration of Cyprus or Greece), but the minimum medium level of integration is achieved by every single country.

  45. Characteristics of Real-Integration Extremely highly integrated countries: BE, NL, IE, AT, LU, DK, HU, CZ, SK and PL. In this group we can find the small developed core countries and East-Central Europe (except Sweden, Finland and Slovenia.

  46. Characteristics of Real-Integration Highly integrated countries: DE, FR, UK, IT, FL, PT, SE, ES, EE and SL. In this group we have listed the large developed countries and Finland, Sweden, Portugal and Slovenia.

  47. Characteristics of Real-Integration Medium level integrated countries: GR, CY, ML, LT, LV, BG and RO. In this group we have placed the Southern EU (except Spain), the Baltic countries (except Estonia), and the two Eastern Balkan countries. Their listing is influenced mainly by their lower capital intensity, which counter-balances their trade relations.

  48. Characteristics of Institutional Integration When attempting to measure institutional integration we do not venture for quantified evaluation. We put the performance of the member countries into three boxes. • Very highly integrated countries; • Highly integrated countries; and • Medium integrated countries.

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