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2.5 Conclusions – Some Stylized Facts for EEUE

Academic Research paper and Study of the Economy of Romania and Romanian Business

This chapter provided a short insight into the economic theory of regional integration and the special case of European integration. Beside its politically desired effects of promoting peace and stability among Europe, integration is believed to yield economical benefits for all participants. Among the more or less equally developed economies the creation of the SEM shall reduce the costs of trade, foster competition and efficiency through economies of scale and specialization. Prices for consumers are expected to converge on a decreased level, likewise the costs for producers. Competitiveness and innovation is believed to increase. Integration of less developed but well prepared economies (i.e. the fulfillment of the accession criteria) into the Union ought to result in a real convergence towards higher standards of living and income levels via a catch-up effect. However, Robson calls to attention, that regional integration does not grant economic prosperity by itself. “Regional integration is plainly no substitute for sound domestic economic policies, and is unlikely to succeed in their absence” (Robson 2000: 7).

Empirical assessments have proven the SEM as a story of success but also as unfinished, yet. First evidence from the 2004 round of enlargement supported the beneficial expectations legated to EEUE while the concerns enjoyed this far less empirical support. Despite a slower than expected decrease of unemployment in the CEECs migration seems to be moderate, at least in relative terms. Nonetheless, the migration issue is not answered yet definitely. Main targets for migration so far have been Germany, Sweden, the UK and Ireland. FDI-flows towards the NMS started to grow considerable in the mid-nineties and have been a key factor for their modernization (cf. EC 2006: 69). Nevertheless, the EU-15 remained by far the unchallenged main destination for FDI and augmented its capital stock considerable. Furthermore, the overwhelming part of FDI-activities in the NMS does not seem to be accompanied by sizable job destruction in the EU-15. An important discovery was that the effects of EEUE started already several years before EU-accession actually took place. This result might be explained through rational expectations and the high degree of credibility which agents ascribe the EU on the one hand, but on the other hand, integration (in terms of a removal of many barriers to trade) started already with the signing of the Association Agreements during the nineties.

Stylized Facts for Eastern European Enlargement

Hence, coming now to the actual concern of this paper, some stylized facts and expectations may be derived against which the Romanian case can be assessed henceforth.

First, some convergence should show up in the data (in terms of σ-convergence or β-convergence or both). All CEECs grow faster than the EU-15 countries, though at a different pace.

Second, FDI-inflows should increase notably since the mid-nineties and accelerate before accession. On the other hand, not all CEECs succeeded in the same extent to attract FDI. Neither in absolute or relative (per capita) terms (cf. Figure 2‑5) nor with regard to the qualitative nature of the FDI attracted. While Hungary and Czechia enjoyed an FDI-driven shift towards a more technology intensive production profile, countries like Latvia and Lithuania attracted more investments in labor-intensive industries (such as the textile or timber industry; cf. EC 2006 b: 72).

Third, especially with increased FDI-activities, labor-productivity should increase. On the other hand, the extent will depend also on the sort of FDI attracted.

Fourth, despite a dynamic growth in the last years, CEEC labor markets seem to recover at a slower pace than GDP evolution would suggest. Most CEECs feature notably low activity rates, which are accompanied by high unemployment. However, unemployment rates were subject to sharp disparities among the CEECs. Front-runner was Poland, better off were the Czechs and the Hungarians. Paradoxically, high rates of unemployment and shortages on certain sectors of the labor market may show up at the same time.

Fifth, according to their labor market situation, the CEECs feature a high but hard to track migration potential. These might explain a part of the paradox of labor market shortages despite high rates of unemployment on domestic labor markets as it often are more requested workers which migrate successful.

Overall, EEUE yielded several benefits for both the CEECs and the EU-15, too.  It facilitated real convergence and increased standards of living, whereas the EU-15 opened up new markets for their exporting industries. The positive experiences with the 2004 enlargement might facilitate this process for Romania. On the other hand, the formal act of joining the Union does not grant success by itself. The 2004 joiners performed very different and not all succeeded in attracting equally FDI-inflows or in achieving comparable levels of real convergence. Joining the club might grant better access to foreign markets but cannot endow with competitiveness and an attractive business environment.

Image 2.5: FDI per Capita in the Eastern European EU from 1998 – 2006
FDI flows per capita in Eastern Europe before and after EU Enlargement

Source: IMF Statistics Online (BOP, IFS); own graphic, own calculations[1]


[1] Slovakia was removed from the figure as data was missing for the year 2001 and from 2004 to 2006.