Dis-embedded Openness: Inequalities in European Economic Integration at the Sectoral Level

📝 Abstract

The process of European integration resulted in a marked increase in transnational economic flows, yet regional inequalities along many developmental indicators remain. We analyze the unevenness of European economies with respect to the embedding of export sectors in upstream domestic flows, and their dependency on dominant export partners. We use the WIOD data set of sectoral flows for the period of 1995-2011 for 24 European countries. We found that East European economies were significantly more likely to experience increasing unevenness and dependency with increasing openness, while core countries of Europe managed to decrease their unevenness while increasing their openness. Nevertheless, by analyzing the trajectories of changes for each country, we see that East European countries are also experiencing a turning point, either switching to a path similar to the core, or to a retrograde path with decreasing openness. We analyze our data using pooled time series models and case studies of country trajectories.

💡 Analysis

The process of European integration resulted in a marked increase in transnational economic flows, yet regional inequalities along many developmental indicators remain. We analyze the unevenness of European economies with respect to the embedding of export sectors in upstream domestic flows, and their dependency on dominant export partners. We use the WIOD data set of sectoral flows for the period of 1995-2011 for 24 European countries. We found that East European economies were significantly more likely to experience increasing unevenness and dependency with increasing openness, while core countries of Europe managed to decrease their unevenness while increasing their openness. Nevertheless, by analyzing the trajectories of changes for each country, we see that East European countries are also experiencing a turning point, either switching to a path similar to the core, or to a retrograde path with decreasing openness. We analyze our data using pooled time series models and case studies of country trajectories.

📄 Content

1

Dis-embedded Openness: Inequalities in European Economic Integration at the Sectoral Level

Balazs Vedres Central European University Carl Nordlund Central European University; Lund University

The process of European integration resulted in a marked increase in transnational economic flows, yet regional inequalities along many developmental indicators remain. We analyze the unevenness of European economies with respect to the embedding of export sectors in upstream domestic flows, and their dependency on dominant export partners. We use the WIOD data set of sectoral flows for the period of 1995-2011 for 24 European countries. We found that East European economies were significantly more likely to experience increasing unevenness and dependency with increasing openness, while core countries of Europe managed to decrease their unevenness while increasing their openness. Nevertheless, by analyzing the trajectories of changes for each country, we see that East European countries are also experiencing a turning point, either switching to a path similar to the core, or to a retrograde path with decreasing openness. We analyze our data using pooled time series models and case studies of country trajectories.

Introduction The economic integration of EU member states is a central element of the European project, where the standardization of regulations, a customs union, the removal of institutional barriers were designed to facilitate the emergence of a larger coherent European economic unit (Balassa 1962). According to these expectations, a high-degree of economic integration eventually erases the preferentiality of economic exchange (along lines of nationality, language, tradition). Flows will reflect, it is assumed, only the rationalities of space, quality, and cost.
The European process of economic integration did result in an increase of flows, according to analyses of bilateral trade data and other aggregate indicators at the national and regional levels (Hoen 2002; Bergstrand 2008) 1. This is particularly evident for the new Eastern countries: with the removal of tariff and non-tariff barriers liberating the movement of goods, capital and services, coupled with the prescribed institutional and regulatory harmonization, flows increased greatly between the economies

1 Although there is an overall agreement of the trade-creating effects of economic integration, particularly with respect to the European case (e.g. Bergstrand 2008), conceptualizing and measuring such an effect is not a trivial exercise. Whether comparing intra- and extra-area trade or extrapolated pre-integration data with actual post- integration observations, such ex-post assessments, similar to pre-integration assessments of would-be effects, are inherently (Balassa 1967). 2

of the older European core and the new East European member states. East-European economies were not only connected to Core markets, but sectors from the East became integrated into European-wide production structures as well. However, the European project is not only about the economic benefits of increasing flows – better economies of scale, employment, higher profits. From the perspective of broader developmental concerns, increased economic transnationalism might preserve or even amplify deeper inequalities.
While European economies are becoming increasingly integrated with increased transnational flows, gaps in welfare, wages, factor costs and value-added productivity that separate the East from the West seem to persist.
One interpretation takes the lack of convergence to be a transient phenomenon, akin to a Kuznets-curve of economic integration where “close integration is good, but a limited move towards integration might hurt” (Krugman 1991:89). A second interpretation for gaps in developmental indicators is that these stem from durable core-periphery relations. According to this view, economic integration is not a source of increasing equality, but rather the cause of structural and sectorial imbalances. As integration increases, economies on the periphery are locked into vertical trade, foreign-dominated consumer markets, and low value-added positions in the global chains of production (e.g. Oman and Wignaraja 1991; So 1990). According to the more recent version of this argument, adjusted to the growing centrality of global value chains (GVC) in the new Eastern member states, a new type of dependent market economy (DME) has emerged in these countries with the headquarters of the multinational firms capitalizing on the Eastern cheap and highly skilled labor and, keeping the positions of firms from these countries at the low value added ends of the production chains. Finally, according to a third interpretation, exposed also in the introduction to the special issue, the new member states dramatically differ from each othe

This content is AI-processed based on ArXiv data.