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on European Economics |
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Issue of 2025–01–13
forty-one papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Maybrit Wachter; Christian R. Proano; Juan Carlos Pena |
| Abstract: | This paper revisits the “one-size-fits-all†challenge posed by the European Central Bank’s (ECB) monetary policy within the heterogeneous economic landscape of the euro area. Using a dataset spanning from 1999Q1 to 2019Q4 for the ECB interest rate and from 2004Q4 onwards for the Wu-Xia shadow rate, we compute country-specific hypothetical Taylor rates across EU-11 countries and examine the dynamic effects of the difference between these rates and the actual ECB policy rate, the so-called Taylor Rate Gaps (TRGAPs), on GDP growth, inflation, unemployment, and government debt. Employing panel and country-specific local projections, our findings reveal that positive TRGAPs negatively impact economic growth, with this effect being more pronounced in periphery countries compared to core countries. The analysis highlights the limitations of a uniform monetary policy in addressing the diverse economic conditions within the euro area, suggesting the need for a more tailored approach to foster balanced and sustainable growth across the region. |
| Keywords: | monetary policy, Taylor Rule, euro area, economic growth, interest rate gap |
| JEL: | E52 E5 C23 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-77 |
| By: | Beck, Roland; Schmitz, Martin; Coppola, Antonio; Lewis, Angus; Maggiori, Matteo; Schreger, Jesse |
| Abstract: | We assess Euro Area financial integration correcting for the role of “onshore offshore financial centers” (OOFCs) within the Euro Area. The OOFCs of Luxembourg, Ireland, and the Netherlands serve dual roles as both hubs of investment fund intermediation and centers of securities issuance by foreign firms. We provide new estimates of Euro Area countries’ bilateral portfolio investments which look through both roles, attributing the wealth held via investment funds to the underlying holders and linking securities issuance to the ultimate parent firms. Our new estimates show that the Euro Area is less financially integrated than it appears, both within the currency union and vis-à-vis the rest of the world. While official data suggests a sharp decline in portfolio home bias for Euro Area countries relative to other developed economies following the introduction of the euro, we demonstrate that this pattern only remains true for bond portfolios, while it is artificially generated by OOFC activities for equity portfolios. Further, using new administrative evidence on the identity of non-Euro Area investors in OOFC funds, we document that the bulk of the positions constituting missing wealth in international financial accounts are now accounted for by United Kingdom counterparts. JEL Classification: F3, F4, G2, G3, H26 |
| Keywords: | Capital Markets Union, financial integration, home bias |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243007 |
| By: | Matteo Barigozzi; Claudio Lissona; Matteo Luciani |
| Abstract: | We measure the Euro Area (EA) output gap and potential output using a non-stationary dynamic factor model estimated on a large dataset of macroeconomic and financial variables. From 2012 to 2023, we estimate that the EA economy was tighter than the European Commission and the International Monetary Fund estimate, suggesting that the slow EA growth is the result of a potential output issue, not a business cycle issue. Moreover, we find that credit indicators are crucial for pinning down the output gap, as excluding them leads to estimating a lower output gap in periods of debt build-up and a higher gap in periods of deleveraging. |
| Keywords: | Non-stationary Approximate Dynamic Factor Model; Output gap; Potential output; Trend-Cycle Decomposition |
| JEL: | C55 C38 C32 E32 E37 |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-99 |
| By: | Stephen Millard |
| Abstract: | In this paper, we evaluate the macroeconomic effects of the EU Recovery and Resilience Facility (RRF) within the context of a macroeconometric model, specifically the National Institute of Economic and Social Research's global macroeconometric model, NiGEM. I examine the effects both on individual EU member states as well as the European Union as a whole, given the presence of potential spillovers between EU countries. I consider three key channels through which the RRF can impact the macroeconomy: the risk premium channel, the public investment channel, and the structural reforms channel. I find that the announcement of a recovery fund led to a sizeable reduction in spreads for many EU countries, increasing their fiscal headroom, though having only a negligible effect on GDP. I find that the increased public investment resulting from the RRF raises demand in the short run and supply in the long run with an implied multiplier of a little over two. Finally, although I cannot explicitly quantify the impacts of the planned structural reforms, I use NiGEM to consider the macroeconomic channels through which a subset of these reforms have effects on GDP and productivity in both the reforming Member States and the European Union as a whole. |
| Keywords: | Recovery and Resilience Facility, Next Generation EU, Public investment, Structural reforms, Sovereign risk premia |
| JEL: | E2 E6 H54 H63 O52 |
| URL: | https://d.repec.org/n?u=RePEc:nsr:niesrd:564 |
| By: | Allayioti, Anastasia; Gόrnicka, Lucyna; Holton, Sarah; Martínez Hernández, Catalina |
| Abstract: | We document that about 33% of the core inflation basket in the euro area is sensitive to monetary policy shocks. We assess potential theoretical mechanisms driving the sensitivity. Our results suggest that items of a discretionary nature, as reflected in a higher share in the consumption baskets of richer households, and those with larger role of credit in financing their purchase, tend to be more sensitive.Non-sensitive items are more frequently subject to administered prices and include non-discretionary items such as rents and medical services. Energy intensity does not seem to drive our results and the sensitive items are not dominated by durable goods, but are relatively evenly split between goods and services. Estimations over different samples show that the impact of monetary policy shocks on sensitive core inflation has become larger recently. JEL Classification: E30, E50, C32 |
| Keywords: | BVAR, euro area, inflation, monetary policy |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243003 |
| By: | Francois de Soyres; Ece Fisgin; Joaquin Garcia-Cabo; Mitch Lott; Chris Machol; Keith Richards |
| Abstract: | Euro-area economic performance has been subdued since around 2018, and especially so in more recent years. As discussed in both Enrico Letta's and Mario Draghi's reports, the euro area economy faces notable structural challenges that were exacerbated by the pandemic and the disruption to energy markets that ensued from the Russian invasion of Ukraine. |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-12-20-1 |
| By: | Milutin Jesic (University of Belgrade, Serbia); Hans Manner (University of Graz, Austria) |
| Abstract: | The European Central Bank (ECB) adopted a new monetary policy strategy in July 2021 to replace the previous one that had been in place since 2003. This study implicitly analyzes the performance of the previous strategy in achieving price stability by identifying the key macroeconomic determinants that influence inflation dynamics. Methodologically, we apply the nonstationary ordered probit model, which allows the estimation of marginal effects of covariates on the probability of the inflation rate being below, in, or above the assumed targeted range. The results indicate that the crucial determinants of deviation in the inflation rate from the targeted range are fundamental macroeconomic variables, of which some are indirectly under control of the ECB. While the inflation rate has occasionally deviated from the targeted range, the overall conclusion is that the performance of the ECB in fulfilling the primary goal defined in the monetary policy strategy is still manageable to the extent that it can influence some of the factors that are identified as drivers of inflation dynamics. |
| Keywords: | ECB, monetary policy, monetary policy strategy, nonstationary ordered probit model, inflation. |
| JEL: | C25 C54 E31 E52 E58 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2024-17 |
| By: | Giang Nghiem; Lena Drager; Ami Dalloul |
| Abstract: | This paper explores communication strategies for anchoring households’ medium-term inflation expectations in a high inflation environment. We conducted a survey experiment with a representative sample of 4, 000 German households at the height of the recent inflation surge in early 2023, with information treatments including a qualitative statement by the ECB president and quantitative information about the ECB’s inflation target or projected inflation. Inflation projections are most effective, but combining information about the target with a qualitative statement also significantly improves anchoring. The treatment effects are particularly pronounced among respondents with high financial literacy and high trust in the central bank. |
| Keywords: | anchoring of inflation expectations, central bank communication, survey experiment, randomized controlled trial (RCT) |
| JEL: | E52 E31 D84 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-70 |
| By: | Diessner, Sebastian |
| Abstract: | Post-crisis accounts of economic governance in Europe have often analysed the monetary policy decisions of the supranational European Central Bank and the fiscal policy coordination of the intergovernmental Council and Eurogroup separately. This is unfortunate since both policy fields are closely linked and increasingly interdependent. We put forward a theory of monetary-fiscal interactions in the Economic and Monetary Union based on the notion of de-commitment and re-commitment. In juxtaposition to the grand theories of neo-functionalism and liberal intergovernmentalism, we argue that EU institutions serve not only to tie the member states to policy commitments but also to untie them from previous policy commitments that have become outdated and harmful. The European Central Bank’s main contribution to safeguarding the Eurozone in 2012 and 2020 has not been to enforce but to relax the monetary financing prohibition of the Treaty, and the Council’s main contribution in 2020 was not to double down on the no bail-out clause but to re-commit to risk-sharing and burden-sharing through the NextGenerationEU programme. We argue and show that economic governance in Europe has progressed through three stages of commitment. Whereas monetary-fiscal interactions followed a commitment logic during the first decade of the Economic and Monetary Union (the “old normal”), the defining feature of the second decade has been de-commitment (the “new normal”). In the Covid-19 crisis, economic governance finally entered a phase of re-commitment (taking the Economic and Monetary Union “back to the future”). The analysis has implications for our understanding of the purpose and power of supranational institutions in overcoming the problem of outdated commitments post-crisis. |
| Date: | 2024–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:vwrgs |
| By: | RUEDA CANTUCHE Jose Manuel (European Commission - JRC); LOPEZ ALVAREZ Jorge (European Commission - JRC); PEDAUGA Luis (European Commission - JRC); CATALAN PIERA Alba (European Commission - JRC) |
| Abstract: | The EU automotive industry has important upstream linkages that affect EU regions in a different way, depending on their position into the global value chain of the automotive industry. Therefore, policy measures addressing the EU automotive industry need to take into consideration upstream regions and upstream industries that may not be characterised by a strong automotive industry but instead supply other regions with components or innovative designs for automotive production. By using the EU Automotive Regions Alliance as a cluster of strong automotive regions in the EU, this policy brief shows the relevance of upstream interregional linkages with other regions and industries across EU Member States. On average, one third of the value added generated in the automotive industry of the Alliance regions (e.g. in Eastern European regions) is due to upstream linkages of other regions outside the Alliance. Upstream linkages of the automotive industry in the Alliance regions generate, on average, 20% of the total value added of the automotive industry of other regions outside the Alliance (e.g. Central Slovakia, Madrid and Cantabria). The uniqueness of this analysis is that it provides policymakers a deeper look into the EU territorial interdependencies of a specific industry (i.e. automotive) beyond the standard geographical country-wise definition. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139405 |
| By: | Monica Barahona-Varon; Toker Doganoglu (University of Wuerzburg); Lukasz Grzybowski (University of Warsaw, Faculty of Economic Sciences) |
| Abstract: | This paper examines Eurobarometer survey data from 27, 438 individuals across 28 EU Member States in 2019 to evaluate the awareness and impact of EU Energy Labels. Specifically, we analyze the role of socioeconomic characteristics such as age, gender, education, financial stability, and political engagement. Our results suggest that individual characteristics have a greater effect on the influence of labels on purchase decisions than on label awareness. However, significant heterogeneity across countries persists even after controlling for individual characteristics. Using our model, we conduct three exercises in which we assume a policymaker can either increase label awareness among all unaware individuals or target those with specific characteristics, and we demonstrate the resulting impact on the share of people whose purchases are influenced by the label. The findings reveal that even when label awareness is at its highest level, it does not necessarily translate into substantially higher influence on purchasing decisions in some countries. Additionally, at the country level, certain socioeconomic and political variables are positively correlated with label awareness. |
| Keywords: | European Green Deal, Ecodesign Directive, Energy-efficiency |
| JEL: | D12 Q41 Q48 C83 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:war:wpaper:2024-23 |
| By: | Andrade, Philippe (Federal Reserve Bank of Boston); Ferroni, Filippo (Federal Reserve Bank of Chicago); Melosi, Leonardo (University of Warwick, EUI, DNB & CEPR) |
| Abstract: | We introduce a method that exploits some non-gaussian features of structural shocks to identify structural vector autoregressive models. More specifically, we propose to combine inequality restrictions on the higher-order moments of the structural shocks of interest with other set-identifying constraints, typically sign restrictions. We illustrate how, both in large or small sample settings, higher-moment restrictions considerably narrows the identification of monetary policy shocks compared to what is obtained with minimal sign restrictions typically used in the SVAR literature. The proposed methodology also delivers new insights on the macroeconomic effects of sovereign risk in the Euro Area, and on the transmission of geopolitical risk to the US economy. |
| Keywords: | Shock identification ; skewness ; kurtosis ; sign restrictions ; monetary policy ; sovereign risk ; geopolitical risk. JEL Codes: C32 ; E27 ; E32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1537 |
| By: | Fernandez, Guzman Gonzalez-Torres; Parker, Miles; Usman, Sehrish |
| Abstract: | The projected increase in extreme climate events in the coming decades is likely to exacerbate the existing productivity and demographic challenges facing Europe. We study the dynamic, medium-run macroeconomic effects of heatwaves, droughts and floods in 1160 EU regions through the lens of a local projections, difference in difference framework. Summer heatwaves and droughts lower medium-term output, but the impact from floods depends on regional income levels. High-income regions witness reconstruction activity, less wealthy regions do not. We find evidence of population decline in affected regions as well as adaptation spending post-event, which lowers regional productivity. JEL Classification: D24, E24, J22, R11, Q54 |
| Keywords: | difference in difference, extreme climate, labour market, local projections, potential output, productivity, weather |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243002 |
| By: | Klaas Mulier; Marten Ovaere; Leo Stimpfle |
| Abstract: | We collect data on 24, 000 state aid cases within the European Union to create granular measures of national environmental support and study their interactions with the European Union Emissions Trading System (EU ETS). Exploiting variation in regulated installations’ exposure to carbon prices and an unexpected regulatory tightening of the EU ETS, we show that high exposed installations strongly reduced emissions relative to less exposed installations in the same industry with significant heterogeneity across countries and industries. In the power sector, emission reductions are significantly stronger in countries with more generous renewable energy support policies. In contrast, emission reductions in the manufacturing sector are significantly weaker in country-industries with more generous cost compensation for energy-intensive activities. |
| Keywords: | cap-and-trade, climate policy, Overlapping policies, EU ETS |
| JEL: | D22 H23 L52 L98 Q48 Q54 Q58 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202410-461 |
| By: | Bauer, Michael D.; Offner, Eric A.; Rudebusch, Glenn D. |
| Abstract: | Policymakers and researchers worry that the low-carbon transition may be inadvertently delayed by higher global interest rates. To examine whether green investment is especially sensitive to interest rate increases, we consider the effect of unanticipated monetary policy changes on the equity prices of green and brown European firms. We find that brown firms, measured in terms of carbon emission levels or intensities, are more negatively affected than green firms by tighter monetary policy. This heterogeneity is robust to different monetary policy surprises, emission measures, econometric methods, and sample periods, and it is not explained by other firm characteristics. This evidence suggests that higher interest rates may not skew investment away from a sustainable transition. |
| Keywords: | monetary transmission, carbon premium, ESG, climate finance |
| JEL: | E52 G14 Q54 Q58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:308032 |
| By: | Spenger, Christoph; Saldivia Gonzatti, Ignacio; Kröger, Lennard; Fleet, Christopher Robin; Voss, Rudi; Rickels, Wilfried |
| Abstract: | One of the European Union’s environmental and sustainable development objectives is to achieve sustainable marine development, combining the objectives of ocean health and the blue economy. Developing, implementing, and monitoring marine policies requires information on the status and evolution of marine development at the country level, including the extent to which strong sustainable development (i.e., balanced development across socio-economic and environmental dimensions) is being achieved. Here, we provide a comprehensive assessment of progress towards marine development for 15 European Union coastal countries in the Baltic, North, and Atlantic Seas, covering the period 2012–2022 and using information from Sustainable Development Goal 14 to derive our indicator framework. We show that the EU is achieving sustainable marine development, but not comprehensively in all countries. While seven countries achieved sustainable development under both weak and strong sustainability, seven countries developed only under weak sustainability, and one country made no progress under either concept. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkie:307004 |
| By: | Javier Flórez Mendoza; Robert Stehrer |
| Abstract: | Abstract:Africa’s trade relationship with Europe is shaped by historical ties and by emerging economic opportunities. This policy brief examines Africa’s trade with Europe, showing selected trends, the current status and future potential, with a special focus on the European Union (EU) and Austria. It also considers Africa’s economic interactions with major global players such as China and the United States, providing comparisons with Africa-EU trade flows, total trade volumes and key industries. In addition, it highlights how the EU could strengthen its supply chains and reduce dependency risks by fostering co-operation with Africa in sectors aligned with its green and digital goals. It examines how the African Continental Free Trade Area (AfCFTA) could be a catalyst to reshape trade dynamics by serving as an intercontinental economic bridge. Finally, the brief draws policy conclusions, offering insights into how the EU can enhance its trade strategies with Africa to foster mutual economic growth and resilience. |
| Keywords: | EU, AfCFTA |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:wsr:pbrief:y:2025:m:01:i:65 |
| By: | Mr. Serhan Cevik; Sadhna Naik; Keyra Primus |
| Abstract: | European countries are lagging behind in productivity growth, with significant productivity gaps across industries. In this study, we use comparable industry-level data to explore the patterns and sources of total factor productivity (TFP) growth across 28 countries in Europe over the period 1995–2020. Our empirical results highlight four main points: (i) TFP growth is driven largely by the extent to which countries are involved in scientific and technological innovation as the leader country or benefiting from stronger knowledge spillovers; (ii) the technological gap is associated with TFP growth as countries move towards the technological frontier by adopting new innovations and technologies; (iii) increased investment in information and communications technology (ICT) capital and research and development (R&D) contributes significantly to higher TFP growth; and (iv)the impact of human capital tends to be stronger when a country is closer to the technological frontier. The core findings of this study call for policy measures and structural reforms to promote innovation and facilitate the diffusion of new and existing technologies across Europe. |
| Keywords: | Total factor productivity; technology; R&D; innovation; human capital; Europe |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/258 |
| By: | LAURENT Eloi; BOSKOVIC Ana (European Commission - JRC); BENCZUR Peter (European Commission - JRC) |
| Abstract: | Wellbeing is a core objective enshrined in the Treaty on European Union and there is a wide range of related activities across EU institutions reflecting the political attention given to wellbeing and the wellbeing economy . As the new European mandate begins, it seems useful to advance the wellbeing agenda on two complementary fronts: first, by detailing the institutional pathways through which wellbeing indicators can inform European policies (“beyond GDP”); second, by proposing new visions of European wellbeing in the Union able to shape the European project and identity (“beyond growth”). This short note aims at developing those two facets of the emerging European wellbeing economy. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139511 |
| By: | Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw); Alireza Sabouniha (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This paper analyses the effect on employment of two megatrends offshoring (the international outsourcing of production stages) and technological change, in general and by type of employment in terms of typical and atypical employment in a group of ‘old’ and ‘new’ EU member states between 2009 and 2018, and also examines the moderating role of labour market institutions and regulation in the EU, specifically employment protection legislation (EPL). The results show that offshoring had a negative effect on employment in the manufacturing sector, but a positive effect on employment in the service sector. The former was due to a reduction in typical employment and the latter to an increase in atypical employment, making offshoring an important driver of the expansion of atypical employment in the service sector. Information and communications technology, especially communications technology, has increased total employment, mainly through an increase in the demand for atypical employment, for which it is another important driver. Robotisation had a labour displacement effect, mainly at the expense of typical employment, which was more pronounced in the ‘old’ EU member states than in the less automated ‘new’ EU member states. EPL played an important mediating role it dampened employment adjustments due to offshoring of the more protected type of employment and encouraged stronger adjustments of the less protected type of employment. Conversely, strict EPL acted as an amplifier of the negative effect of robotisation on employment. |
| Keywords: | Offshoring, robotisation, information and communications technology, labour demand, typical and atypical employment |
| JEL: | F16 F22 F66 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:wii:wpaper:259 |
| By: | Rochet, Jean-Charles; Collard, Fabrice; Habib, Michel; Panizza, Ugo |
| Abstract: | We study the sustainability of sovereign debt under the assumption of involuntary and costly default: governments do their utmost to avoid default, which reduces the resources available for debt service. We show that costly default tightens Blanchard’s g > r condition. We derive a formula for a government’s maximum sustainable debt (MSD), which depends on the mean and the volatility of the country’s growth rate, the government’s maximum primary surplus, the risk-free rate, and the fraction of resources available to the government in default. We compute MSD for 12 Eurozone countries and examine the role of the European Stability Mechanism in increasing MSD. |
| Keywords: | Sovereign Debt; Default; Maximum Sustainable Debt |
| JEL: | E62 F34 H63 |
| Date: | 2024–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129958 |
| By: | Michał Brzeziński (University of Warsaw, Faculty of Economic Sciences); Monika Kaczan (University of Warsaw) |
| Abstract: | This study investigates the distributional impacts of carbon taxes, traditionally examined through simulation studies on the regressivity of hypothetical tax scenarios. However, the dy-namic influence of actually implemented carbon taxes on consumption/income poverty and inequality in a cross-country setting has been less scrutinised. This paper assesses the effect of carbon taxes introduced in the past three decades in 15 European countries on consumption shares of the lowest decile groups, poverty rates and inequality indices. The analysis shows that a $40/ton CO2 tax covering 30% of emissions leads to a consumption share increase of up to 4% for the bottom 20% and 40% of the population, a trend that persisted for five years post-implementation, particularly in nations that efficiently redistribute carbon tax revenues. This resulted in a modest reduction in consumption inequality over three years. In contrast, the impact of carbon taxes on income poverty and inequality is not statistically significant. These findings suggest that concerns about poverty and inequality due to carbon taxes can be miti-gated by implementing a moderate tax combined with a strategically efficient revenue redis-tribution mechanism. |
| Keywords: | climate policy, carbon tax, poverty, inequality, consumption/income distribution, revenue re-cycling |
| JEL: | Q54 Q58 Q48 H23 D31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:war:wpaper:2024-26 |
| By: | Mr. Luis Brandão-Marques; Hasan H Toprak |
| Abstract: | Industrial policy is once again at the forefront of the policy debate around the world. However, state aid is a contentious issue in the European Union given the need to maintain a level playing in its single market. This paper estimates the effects of state aid between 2016 and 2023 on listed nonfinancial firms in Belgium, France, Germany, the Netherlands, Spain, and the United Kingdom (until 2020) using a high-frequency identification approach to address endogeneity. It finds that firms that receive state aid increase employment and revenue, but not investment or labor productivity. Moreover, it finds that there are adverse spillover effects to competing firms that significantly undo any positive own effects. These findings suggest that, should there be a case for providing state aid to firms in the European Union, this should be done at the European level instead of the member state level to mitigate adverse spillovers. Pooling resources and competitively allocating aid across the Union could preserve market competition, encourage firm entry, and ensure a more efficient distribution of funds. |
| Keywords: | Industrial policy; firm performance; state aid; spillovers |
| Date: | 2024–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/250 |
| By: | Andrew Hodge; Mr. Roberto Piazza; Fuad Hasanov; Xun Li; Maryam Vaziri; Mr. Atticus Weller; Yu Ching Wong |
| Abstract: | European countries are increasingly turning to industrial policy to address the challenge of geopolitical fragmentation, enhance productivity, and accelerate the green transition. Well-targeted industrial policy has the potential to correct market failures and support production efficiency by exploiting scale effects and internalizing knowledge externalities. But even the most carefully designed unilateral industrial policies risk generating negative production externalities in other countries, and, under certain conditions, may not even be welfare-enhancing for the implementing country. The reason is that negative externalities of unilateral industrial policy can drive European and international production patterns away from underlying comparative advantages, create regional or global over-supply, and result in changes in terms of trade that reduce domestic welfare. This suggests significant benefits from coordination. Structural modeling and case studies show that a coordinated approach within the European Union and with international trading partners on a narrowly defined and carefully designed set of industrial policies could unlock untapped benefits. Closer European integration would facilitate the adjustment of firms and workers to coordinated and well-targeted industrial policies and amplify their benefits. |
| Keywords: | Industrial policy; European Single Market; State Aid |
| Date: | 2024–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/249 |
| By: | GOLEBIOWSKA-TATAJ Daria |
| Abstract: | This policy paper assesses the means to enhance European competitiveness in alignment with core European values of fairness, sustainability, and strategic autonomy. It critically examines Ursula von der Leyen's Political Guidelines for the 2024–2029 European Commission and Mario Draghi's report, "The Future of European Competitiveness, " focusing on re-industrialisation, education, AI, and regional growth. The paper underscores the imperative of radical transformation to maintain Europe's socio-economic model in light of geopolitical shifts, advocating for sustainable industrial policies, transformational education systems, generative AI integration, and regional growth strategies. It proposes policy recommendations that include re-industrialisation with a focus on decarbonisation and sustainable jobs, fostering a resilient education system with lifelong learning, leveraging AI for innovation, and closing the innovation gap through strengthened regional ecosystems. The paper concludes that Europe must adapt to ensure competitiveness and influence in the future, guided by an ethos of change to preserve its values and prosperity. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139560 |
| By: | Giorgio Di Pietro (European Commission - JRC) |
| Abstract: | Reliance on workers from outside the EU to address skills and labour shortages is found to increase with firm size. This suggests that small firm size may be a significant barrier to the recruitment of these workers. Increasing the possibility for micro enterprises and small firms to hire non-EU people is therefore an important challenge for the EU. Our results suggest that compared to older SMEs, younger SMEs are more likely to consider the recruitment of third-country nationals as a solution to labour and skills shortages. Further research is however needed to confirm these findings. SMEs are more likely to rely on third-country nationals to fill low to medium-skilled positions than highly skilled positions. Given the existence of skill shortages in high level occupations in Europe, it is important to investigate what factors make SMEs less likely to consider filling high skilled vacancies with third-country nationals. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139979 |
| By: | d'Artis Kancs |
| Abstract: | We stress-test the European Defence Readiness in a Cold War 2.0 scenario analysis. Leveraging a general equilibrium multi-sector approach to the global economy, we simulate an abrupt decoupling from CRINK and evaluate impacts on defence readiness under changed future boundary conditions. Our results suggest that the defence industrial mobilisation, force mobility and sustained resilience readiness are largely off-track in view of the European Defence Readiness - defined as a steady state of preparedness. By quantifying the cost of unpreparedness, our results provide a measurable rationale for European allies to embark on a gradual de-risking trajectory rather than waiting for a much more costly abrupt shock trigger dictated by geopolitical events. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.00058 |
| By: | Rebecca Freeman; Marco Garofalo; Enrico Longoni; Kalina Manova; Rebecca Mari; Thomas Prayer; Thomas Sampson |
| Abstract: | How does dismantling deep integration affect international trade? This paper provides new evidence on the consequences of disintegration by estimating the impact of Brexit on goods trade by UK firms. The UK’s exit from the EU’s single market and customs union in January 2021 led to an immediate, sharp drop in both exports and imports with the EU for the average firm. In addition, many exporters and importers stopped trading with the EU entirely. However, heterogeneous firm-level responses to the implementation of trade barriers mitigated Brexit’s impact on aggregate trade. The decline in exports was concentrated among smaller firms, but insignificant for the largest firms. Our estimates imply that, in the short run, leaving the EU reduced worldwide UK exports by 6.4% and worldwide imports by 3.1%. The fall in imports was driven by lower imports from the EU, which importers offset by sourcing more from the rest of the world. |
| Date: | 2024–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1062 |
| By: | GROS Daniel |
| Abstract: | Electronic circuitry has always be considered strategic. 40 years ago it was the dominant position of Japan that seemed to represent a threat to vital national security interests of the US. But, despite its perceived strategic importance, the global semiconductor market is rather small, only about 0.5% of world GDP – and is not a growth industry as this percentage has not increased over the last 20 years. There are many different types of chips that fulfill very different functions (memory, logic and discrete). It is the most advanced logic chips with the smallest nodes that have captured the attention of policy makers. However, this type is little needed in Europe. The security of supply argument for subsidizing fabs to produce these chips is thus weak. This contribution first analyses the key factors driving changes in the supply chain for chips over the last decades, which were mainly the migration of fabs to capital abundant countries in Asia and the increasing importance of software and design, that now account for over one half of the value of a finished chip. The global division of labor that has emerged is that the software comes from the US, the fabs are in Asia and Europe has a strong position in the machines to produce the most advanced (logic) chips. Semiconductors is one of the few industries in which China plays only a secondary role. Strengthening the EU presence in the chip ‘ecosystem’ requires addressing the fundamental weakness in support for software development and R&D. Support for the precision manufacturing needed for the advanced chip manufacturing machines would also be useful but would require an order of magnitude less than the tenths of billions of euro for fabs foreseen in the Chips Act. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139558 |
| By: | Glenn Magerman (ULB, CEPR and CESIfo); Alberto Palazzolo (Economics and Research Department, National Bank of Belgium and ULB) |
| Abstract: | After decades of globalization, many countries are now considering various measures to reduce their dependence on third countries and to incentivize domestic production. This paper analyzes a policy toolbox encompassing trade, industrial, and public policies and their effects on the EU and its geographical regions. We develop a multi-sector, multi-region general equilibrium framework with imperfect competition, input-output linkages, and external economies of scale. Regional and supranational governments set policies and raise taxes and provide subsidies to fund these. We calibrate our framework using detailed data on 235 EU NUTS2 regions and 25 Rest of the World aggregates, with 55 sectors and input-output linkages both within and across regions. Our results show that raising trade barriers reduces EU welfare, with substantial variation across regions. Industrial policy generates positive welfare effects. Public policy results are ambiguous. Across all policies, input-output linkages significantly amplify positive and negative welfare changes, dominating other channels such as classical gains from trade or economies of scale channels. Even common policies, like trade policy, can generate significant winners and losers across regions within the same country. Moreover, the same region can gain under one policy but lose under another. These results highlight that one policy objective can be implemented through multiple instruments, generating positive or negative aggregate welfare effects under each instrument, while obfuscating massive heterogeneity in regional outcomes, even within countries. |
| Keywords: | Deglobalization, Regional Inequalities, Trade policy, Industrial Policy, Public Policy, Supply Chains, General Equilibrium |
| JEL: | F10 R12 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202410-464 |
| By: | Eichenauer, Vera; Köppl, Stefan; Köppl-Turyna, Monika |
| Abstract: | In this paper we analyze the effects of investment screening on cross-border venture capital investments in Europe between 2007 and 2022. The data we work with is originally based on PRISM data which has been extended by Eichenauer and Wang and which we combine with deal data from Preqin to assess investment activity. Our results point to unintended negative effects: while the number of actually blocked deals has remained very low, the associated uncertainty and an increase in transaction costs have led to a significant decline in cross-border deals. The effects are stronger in the case of financial (i.e. 'non-strategic') investors, for late-stage venture capital deals, and for deals with investors from non-OECD countries. Moreover, we observe changes in the size of deals and their structure. This has profound policy implications for the financing of innovation in Europe. |
| Abstract: | In dieser Arbeit untersuchen wir die Auswirkungen von Investitionsscreenings auf grenzüberschreitende Venture-Capital-Investitionen in Europa zwischen 2007 und 2022. Die zugrunde liegenden Daten basieren auf den PRISM-Daten, die von Eichenauer und Wang erweitert wurden, und wurden mit Deal-Daten von Preqin kombiniert, um die Investitionstätigkeit zu analysieren. Unsere Ergebnisse zeigen unbeabsichtigte negative Effekte: Obwohl die Zahl tatsächlich blockierter Deals sehr gering bleibt, hat die damit verbundene Unsicherheit sowie die Erhöhung der Transaktionskosten zu einem deutlichen Rückgang grenzüberschreitender Investitionen geführt. Besonders stark sind diese Effekte bei finanziellen (d.h. "nicht-strategischen") Investoren, bei späten Venture-Capital-Deals und bei Investoren aus Nicht-OECD-Ländern. Zudem beobachten wir Veränderungen in der Größe und Struktur der Deals. Diese Ergebnisse haben weitreichende politische Implikationen für die Finanzierung von Innovationen in Europa. |
| Keywords: | cross-border venture capital, investment screening, Europe, transaction costs |
| JEL: | F55 F21 G24 L14 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ecoarp:308092 |
| By: | ISBASOIU Ancuta (European Commission - JRC); FELLMANN Thomas (European Commission - JRC) |
| Abstract: | The Common Agricultural Policy Strategic Plans (CSPs) of the EU Member States (MSs) introduce a new CAP delivery model for the programming period 2023-2027, establishing a common framework for CAP payments, while granting MSs the flexibility to design interventions for direct payments, sectoral interventions, and rural development tailored to the needs of their agricultural sector. This report serves a dual purpose: Firstly, it provides an overview of the CSPs Master file, which consolidates all 28 CSPs to facilitate a structured analysis of the new CAP, along with essential concepts characteristic to the CSPs. Secondly, the report presents a comparative analysis of the initially approved CSPs, focusing on the financial aspects and specifics of their implementation across MSs, as well as some insights into the contributions to organic farming. The analysis of all CSPs highlights significant diversity and heterogeneity in the interventions adopted by the MSs. The CAP is supported by 307 billion EUR, comprising 264 billion EUR from the EU Budget and 43 billion EUR from national co-financing. Direct Payments are the most dominant component, with the Basic Income Support for Sustainability remaining the most important CAP tool to support EU farmer income, accounting 51% of direct payments, followed by eco-schemes at 24%. Rural Development allocations also show considerable diversity across intervention types and MSs. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc138785 |
| By: | SOLER GARRIDO Josep (European Commission - JRC); DE NIGRIS Sarah (European Commission - JRC); BASSANI Elias (European Commission - JRC); SANCHEZ Ignacio (European Commission - JRC); EVAS Tatjana; ANDRÉ Antoine-Alexandre; BOULANGÉ Thierry |
| Abstract: | The European Union adopted the AI Act in August 2024, and the provisions for high-risk AI systems will start to apply after a transition period of 2 or 3 years. European harmonised standards for the AI Act, provided they are published in the Official Journal of the EU, will grant a legal presumption of conformity to AI systems developed in accordance with them. European standardisation organisations, led by CEN and CENELEC, are in the process of drafting the necessary AI standards, following a request from the European Commission. This brief discusses some of the key characteristics expected from upcoming standards that would support the implementation of the AI Act. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139430 |
| By: | NIEHAVES Björn; KLASSEN Gerhard |
| Abstract: | Digital transformation is essential for modern, effective and user’s centric public administrations. Within public sector operations, Public Procurement is the most common way for public administrations to acquire innovative digital solutions if not developed in-house. In this important area that account for 14% of the GDP in Europe, there is a need to identify and understand the influencing factors affecting the uptake of innovative digital solutions designed for and adopted by public administrations specifically through GovTech practices to support a successful digital transition and modernisation of the public sector in Europe. While building on previous research in the area, this work focuses on the uptake of innovative digital solutions for the provision of interoperable public services specifically in cross-border and multilevel governance systems, and their policy implications with particular attention to the Interoperability Act. With this in mind, the study analyses GovTech practices for the public sector acquisition of innovative digital technologies focusing specifically on the engagement of Start-ups and SMEs in the design, provision and management of procured interoperable innovative public services. In this context, what are the key Success Factors for cross-border GovTech success? This study attempts to identify key barriers and opportunities for the wider uptake and deployment of cross-border GovTech solutions in the European Union. The study is grounded on an extensive literature and policy review over the last 10 years, and on the insights stemming from qualitative interviews with 111 GovTech founders across 17 EU Member States, two workshops with domain experts, public sector practitioners and policy makers. The researchers analysed both national and European GovTech programs. The study identified 7 key dimensions that shape cross-border GovTech practices, where Policy is acting as a dominant influencing factor. These dimensions being policy and regulations, finance and markets, culture and language, framework support, human capital, and technology. The study also highlighted a tension within the GovTech environment, trying to balancing political goals with economic interests. Whether importing from cross-border or exporting GovTech solutions, understanding the balance between policy, finance, culture, support activities, human capital markets and technology is crucial for success in the evolving GovTech landscape, and in shaping policies that enhance modernisation in the public sector, EU’s digital sovereignty and technological independence. The results stemming from this work, their policy implications and the resulting recommendations articulated in a number of actions addressing different stakeholders in this area are particularly relevant for informing and shaping current and future policy measures aimed at creating a cohesive digital market and driving innovation within public services across Europe. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139723 |
| By: | Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This article examines trends in population, labour, prices, incomes and consumption across eight Eastern European countries – Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, Romania, the Soviet Union and Yugoslavia – between 1950 and 1990. It finds that, despite persistent shortages, economic and social conditions generally improved until the late 1970s. Incomes and consumption rose steadily, and access to education and health care expanded, often at rates comparable to or even surpassing those in some Western European economies. However, the 1980s brought mounting economic challenges, as the state increasingly lost labour to the informal sector, wages and incomes stagnated, inflation surged in several countries, and consumption growth began to slow significantly. wiiw COMECON Dataset https //comecon.wiiw.ac.at/ |
| Keywords: | population, labour, incomes, prices, consumption, living standards, well-being, Eastern Europe, socialism |
| JEL: | N34 P22 P23 P24 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:wii:wpaper:255 |
| By: | Luis Ayala |
| Abstract: | European tax-benefit systems play a crucial role in providing social insurance and mitigating economic risks, thereby reducing income inequality and fostering social cohesion. They also play a vital role in providing resilience during economic shocks. Despite their stabilizing impact, these systems face the challenge of addressing new social transitions, such as changes in economic activity locations and labour market transformations. This report aims to summarize some of these issues, paying special attention to the problems of income instability. We find that the tax-benefit systems in EU countries play a crucial role in stabilizing incomes during economic downturns, although their effectiveness varies across countries. Strengthening these systems is also necessary to support middle-income groups and enhance inter- and intragenerational income mobility. Tax benefit systems generally increase income mobility, but their impact has declined in many EU countries since the early 21st century, indicating a need for stronger and more consistent policy interventions. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139510 |
| By: | Laetitia Hauret; Ursula Holtgrewe; Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw); Ludivine Martin |
| Abstract: | This paper analyses the impact of different types of offshoring and technological change as well as the mediating role of trade union representation at the firm level on the quality of workers’ jobs in the EU in terms of atypical employment, which is further differentiated by type of atypical employment (i.e. temporary contracts and involuntary part-time work) as well as self-reported skills mismatch. It uses worker-firm-level data from the 2015 and 2021 European Working Conditions Surveys (EWCSs) merged with industry-level data on offshoring; the information and communication technologies (ICT) asset types of information technology (IT), communication technology (CT), and software and database (DB) technology; and robotisation. The results show that a worker’s likelihood of being in atypical employment is related to both forces analysed but in different ways, as there is a higher probability of being in atypical employment due to offshoring or IT but a lower probability of being in atypical employment due to CT. The two types of atypical employment are affected differently, with strong differences being found between workers in manufacturing and services industries. Both forces are of limited importance for workers’ self-reported skills mismatch and, as such, only temporarily lead to over-skilling in the case of offshoring but to under-skilling in the case of technological change. Trade union representation at the firm level only plays a limited mediating role in the likelihood that workers are either in atypical employment or report a skills mismatch. |
| Keywords: | Trade unions, offshoring, technological change, atypical employment, skills mismatch, multilevel analysis |
| JEL: | F16 F22 F66 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:wii:wpaper:258 |
| By: | PONTI Marisa; PORTELA Manuel; PIERRI Paola; DALY Angela; MILAN Stefania; KAUKONEN LINDHOLM Riikka (European Commission - JRC); MACCANI Giovanni; PETER DE SOUZA Siddharth; THABIT GONZALEZ Sara (European Commission - JRC) |
| Abstract: | Drawing upon the ambitious policy and legal framework outlined in the Europe Strategy for Data (2020) and the establishment of common European data spaces, this Science for Policy report explores innovative approaches for unlocking relevant data to achieve the objectives of the European Green Deal. The report focuses on the governance and sharing of Green Deal data, analysing a variety of topics related to the implementation of new regulatory instruments, namely the Data Governance Act and the Data Act, as well as the roles of various actors in the data ecosystem. It provides an overview of the current incentives and disincentives for data sharing and explores the existing landscape of Data Intermediaries and Data Altruism Organizations. Additionally, it offers insights from a private sector perspective and outlines key data governance and sharing practices concerning Citizen-Generated Data (CGD). The main conclusions build upon the concept of "Systemic Data Justice, " which emphasizes equity, accountability, and fair representation to foster stronger connections between the supply and demand of data for a more effective and sustainable data economy. Five policy recommendations outline a set of main implications and actionable points for the revision of the INSPIRE Directive (2007) within the context of the common European Green Deal data space, and toward a more sustainable and fair data ecosystem. However, the relevance of these recommendations spills over Green Deal data only, as they outline key elements to ensure that any data ecosystem is both just and impact-oriented. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139026 |
| By: | Angeloni, Ignazio |
| Abstract: | In this paper, the ECB monetary policy stance is assessed by comparing the recent tightening cycle (2022-today) with the two preceding ones, which took place in 2000-2001 and in 2006-2008. Interest rates, quantitative indicators and monetary conditions indices (MCIs) are used for this purpose. The main finding is that at the peak of the latest tightening cycle, the ECB monetary policy stance was no more restrictive than it was at the peak of the two preceding ones; actually, probably less. This contrasts with the fact that in the more recent case inflation was higher and more persistent than in the two earlier episodes. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 4 December 2024. |
| Keywords: | ECB Monetary Policy Stance, Tightening Cycle, Inflation |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:308084 |
| By: | R. LOWE Chistopher; MINSSEN Timo; SKENTELBERY Claire |
| Abstract: | The European Union (EU) is at an important point for developing its industrial biotechnology (IB) sector, as emerging biotechnologies advances merge with traditional industry. This external expert report reviews the EU's IB sector and associated emerging technologies, looking at its strengths, weaknesses, opportunities, and threats (SWOT) that affect its potential for growth and international competitiveness. The EU's biotechnology sector has strong foundations, including a solid research infrastructure supported by collaborative projects and partnerships, which have historically enabled innovation. These foundations are beneficial for the growing IB sector, with its skilled workforce and alignment with global sustainability goals. The EU's established industrial base and investment support, such as through the European Investment Bank and other funds, provide a strong base for shiſting towards bio-based production. However, several weaknesses limit progress. Slow-moving legislation and a lack of integrated capital markets in the EU make it hard to turn biotech research into market-ready applications. Fragmented regulations and a lack of transparency create uncertainty for investors and developers. Additionally, political debates on biotechnology have led to public misperceptions, creating barriers that slow the acceptance and adoption of biotechnological solutions. Internationally, the EU risks losing ground to faster-moving competitors who are prioritizing their IB sectors. Regions like North America and Asia are scaling up quickly and using targeted policies, highlighting the need for the EU to act decisively to maintain its competitiveness and secure critical supply chains. On the other hand, the EU has a chance to use its research strengths to gain a competitive edge by promoting technology convergence. Developing regional Centers of Excellence and bio-foundries, customized to local economic and scientific contexts, could speed up the commercialization of biotech innovations. Recent initiatives from the European Commission, like the upcoming Biotech Act, signal progress toward a regulatory framework that could foster growth in the sector. The report’s main recommendations include better communication strategies to improve public understanding of IB, targeted investments in scaling-up infrastructure, and more collaboration across sectors. Establishing global standards, metrics, and programs to improve workforce skills is essential to translate EU biotech innovations into economic and social benefits. The report tackles regulatory and legal issues, notably linked to intellectual properties, and approaches the problematics facing the IB sector and its innovation landscape with an integrated view of the whole value chain. In summary, as the EU balances its own capabilities with external pressures, a focused strategy on innovation, addressing regulatory barriers, and strengthening public-private partnerships will be key to securing its role in global IB. The report lays out ideas that could help the EU position itself as a leader in sustainable and economically viable biotech solutions, reinforcing its role in tackling global challenges and driving economic growth. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139415 |
| By: | Di Mauro, Filippo; Matani, Marco; Ottaviano, Gianmarco I. P. |
| Abstract: | Based on the sufficient statistics approach developed by Huang and Ottaviano (2024), we show how the state of technology of European industries relative to the rest of the world can be empirically assessed in a way that is simple in terms of computation, parsimonious in terms of data requirements, but still comprehensive in terms of information. The lack of systematic cross-industry correlation between export specialization and technological advantage suggests that standard measures of revealed comparative advantage only imperfectly capture a country's technological prowess due to the concurrent influences of factor prices, market size, markups, firm selection and market share reallocation. |
| Keywords: | comparative advantage, European cross-country data, firm heterogeneity, international trade, monopolistic competition, multi-product firms, productivity |
| JEL: | B17 C19 C51 C80 D21 D43 F02 F12 F14 F61 L13 L25 O49 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwhdps:308049 |