The effects of international trade on the planet’s climate and environment are manifold and complex. This makes assessment of the impact of free trade agreements (FTAs) a delicate matter. This study provides an overview of the development of sustainability chapters in FTAs and discusses their potential and limitations. It highlights particular industry-specific environmental issues related to EU trade, especially with developing countries, and presents complementary policy options. In this vein, it zooms in on the EU-Mercosur FTA, for which a political agreement was reached in June 2019. It contrasts the estimated cost of increased CO2 emissions attributable to intensified trade relations, as one element of the ‘pains from trade’, with the estimated ‘gains from trade’ arising from lower prices for consumers. The analysis suggests that the benefits outweigh the costs; yet, the result is sensitive to assumed prices for pollutants. Furthermore, the effectiveness of the incorporated sustainability chapter is limited by its enforceability. The latter provokes a discussion on the modernisation of the framework of the World Trade Organization, which currently does not allow environmental challenges to be tackled effectively.
This study aims to analyse whether and how the Western Balkan economies could benefit from near-shoring trends after the COVID-19 pandemic. It begins by discussing recent trends in foreign investment, and then presents an econometric analysis of determinants of foreign direct investment in the Western Balkans and East Asia. This is followed by a set of surveys, interviews and case studies, of different actors involved in global supply chains and investment, including foreign companies that have invested in the Western Balkans, foreign companies that are considering investing in the Western Balkans, local companies from the Western Balkans, and investment promotion agencies from these economies. The study concludes that Western Balkan economies can indeed benefit from near-shoring trends in the post-pandemic world, but would have to go beyond low labour costs in order to achieve that. Putting a focus on skilled labour, investment in education and training, improving infrastructure and governance would be the most important things to do. This Publication has been replaced by a revised version on 24 June 2021.
The COVID-19 pandemic marks an unprecedented shock to global growth and trade and brought international dependencies into the spotlight. This triggered discussions on resilience and robust-ness of global value chains. In this paper we assess which products can be considered as vulnera-ble to trade shocks at the global level – referred to as ‘risky’ products – by constructing a ‘product riskiness indicator’ for 4700 globally traded products based on components such as market con-centration, clustering tendencies, network centrality of players, or international substitutability. In a second step the bilateral imports of risky products are matched to multi-country input-output tables enabling the analysis of the importance of internationally sourced risky products by country and using industries. Higher-tech industries are more prone to supply-chain vulnerability given the large share of risky products in high-tech product categories. Third, we apply a ‘partial global extraction method’ to assess the GDP impact of reshoring. Assuming that imports of risky products are re-shored from non-EU27 to EU27 countries suggests an increase in the EU27 GDP of up to 0.5%. The non-EU27 countries lose from such re-shoring activities accordingly. This suggests that it is also in the interest of the supplier countries and industries to assure robust or at least resilient supply chains. Finally, selected policy aspects in the context of the envisaged EU Open Strategic Autonomy are debated.
This publication is available in German language only. For a brief English summary see further below. Diese Studie analysiert Effekte der Coronakrise auf die Arbeitsmarktintegration von in Osterreich lebenden Asylberechtigten und subsidiar Schutzberechtigten aus den Herkunftslandern Syrien, Afghanistan, Irak und Iran. Die Analyse basiert auf einem Panel von Fluchtlingen, die sowohl an der dritten Welle der sogenannten FIMAS Befragung (im Fruhjahr 2019) als auch der vierten Welle (im Herbst 2020) teilgenommen haben. Der Vergleich der Arbeitsmarktsituation dieser Personengruppe im Fruhjahr 2019 – vor Beginn der Coronakrise – mit jener im Herbst 2020 – wahrend der Coronakrise – ermoglicht eine genaue Analyse der Effekte der Coronakrise auf die Arbeitsmarktintegration dieser Fluchtlingsgruppe. Folgendes sind die wichtigsten Resultate dieser Studie Insgesamt blieben viele der Fluchtlinge in Beschaftigung oder wechselten entweder aus der Arbeitslosigkeit oder der Inaktivitat in die Beschaftigung. Jedoch erfuhren weibliche Gefluchtete und Gefluchtete mit hohem (tertiarem) Ausbildungsniveau wahrend der Coronakrise eine Verschlechterung ihrer Arbeitsmarktsituation. English Summary Labour market integration of refugees in Austria in times of the Corona crisis Special analysis of the FIMAS Refugee Panel This study analyses the effects of the Corona crisis on the labour market integration of recognised refugees and beneficiaries of subsidiary protection from Syria, Afghanistan, Iraq and Iran who live in Austria. The analysis is based on a panel of refugees who participated in both the third wave of the so-called FIMAS survey (conducted in spring 2019) and the fourth wave (conducted in autumn 2020). The comparison of the labour market situation of this group of refugees in spring 2019 - before the start of the Corona crisis - with that in autumn 2020 - during the Corona crisis - allows a detailed analysis of the effects of the Corona crisis on their labour market integration. The following are the main findings of this study Overall, many of the refugees remained in employment or moved either from unemployment or inactivity into employment. However, female refugees and refugees with high (tertiary) education levels experienced a deterioration of their labour market situation during the Corona crisis.
The competitiveness of industries and countries is shaped more and more by technological advancement in the production and use of information and communications technology (ICT). This report considers the supply side of ICT goods and services. It studies the drivers of ICT production location and trade across countries with a focus on the relative position of the EU. The analyses clearly indicate that the EU must step up its efforts to accelerate the shift towards digital production and strengthening the ICT sector that produces the required technologies and services. In addition, from a trade policy perspective, a harmonised set of standards and regulatory framework is to be aimed at to minimise mismatches in technical specifications and requirements. This will lead to the diffusion of positive externalities and should allow for a smooth operation of the global value chains in these products.
The EU member states in Central and Eastern Europe (EU-CEE) were experiencing rising labour shortages prior to the COVID-19 pandemic, and ongoing demographic decline means that the issue is likely to resurface once the pandemic is over. As a result, the bargaining power of labour has increased, wages have been generally rising ahead of labour productivity, and industrial action (strikes) – the level of which has remained low in recent decades – has emerged in some instances. In the face of labour and skill shortages, people have been investing in education. The share of employees with tertiary education has increased and vocational training has gained in importance, although active labour market policies have been used only selectively. Employers have increasingly been investing in fixed assets, especially in manufacturing, and the degree of robotisation has risen strongly. Despite domestic concerns that automation would generate massive job losses, our findings suggest that capital deepening has taken place faster where labour was in higher demand. Thus, labour was not substituted with capital, but rather the complementary effect prevailed. Employment actually increased in EU-CEE over the past two decades. Employers could hire not only the formerly unemployed, but also the formerly inactive, and used the relaxed immigration policies to attract foreign workers, especially from Ukraine and the Western Balkan countries. Czechia, Hungary, Slovenia and Slovakia have become net receivers of migrants, while in Bulgaria and Poland immigration largely compensates for the natives who go abroad. However, immigration from non-European countries as a general solution to the problem of labour shortages in EU-CEE is highly problematic in the current domestic political context. Overall, both our findings for the EU-CEE region over recent years and the experience of Western Europe during the ‘golden age’ (1950-1973) suggest that labour shortages are not in themselves an obstacle to rapid structural change and income growth. However, for such an economic model to be sustainable, more active government policies will be needed, such as greater public investment in education and training, higher minimum wages in order to encourage automation, and more extensive welfare networks in order to deal with the possible negative short-run side-effects of automation.
It is now over three decades since the eleven EU member states in Central, Eastern, and Southeastern Europe (EU-CEE) started their transition to market capitalism. All countries experienced deep recessions in the early 1990s, but since have achieved mostly sustained convergence with Western Europe. Many EU CEE countries have overtaken Southern EU member states in terms of economic development. However, growth rates have slowed since the 2008 crisis, and the level of economic and social development varies widely across the region. This study has three key components. First, it establishes that the existing EU-CEE growth model may be reaching its limit, especially for the region’s most developed countries. Second, it details the megatrends which will further impact the region’s growth model now and in the future, including demographic, environmental, and digital factors. Finally, it outlines a set of policy options to develop the region’s growth model in a way that would drive a more sustained and sustainable rate of convergence with Western Europe in the coming decades. We find that governments in the region need to a) provide an underlying infrastructure that can support the growth of internationally competitive companies, b) fully embrace and take advantage of the digital revolution, c) maximise all available resources to profit from the green transition, and d) use policy levers to stimulate the automation of low productivity jobs and ease the transition into new and higher value work for their populations. Behind this should stand two important supportive pillars accommodative fiscal and monetary policy at the national and EU levels and a more progressive tax system to fund an expanded welfare state.
We compare the economic growth performance of Belarus and Lithuania since the collapse of the Soviet Union in 1991. Our interest in this country pair is driven by the two countries' interwoven history as well as by the fact that Belarus remains autocratic and strongly tied to Russia, while Lithuania has reinvented herself as a democratic market economy fully integrated into the EU. Our aim is to understand better the extent to which the growth differential between the two countries can be traced to increased efficiency, i.e., total factor productivity, in the use of capital and other resources via, inter alia, better institutions (intensive growth) as opposed to sheer accumulation of capital (extensive growth), the hallmark of Soviet economic growth. To this end, we compare the development of some key determinants of growth in the two countries since the 1990s. Employing a simple growth accounting model we find that institutional reforms, open and transparent governance, and good education play a more important role for output and efficiency than crude capital accumulation. Hence Lithuania does better than Belarus, which remains marred by problems related to weak governance as well as autocratic rule. As in Estonia and Latvia we find that the EU perspective made a significant contribution to growth in Lithuania. The Russian connection has done less for Belarus. At last, we also touch upon the impact of the corona virus on the economies of the two countries.
This publication is available in German language only. For a brief English summary see further below. Die Verbreitung der neuartigen Krankheit COVID-19 stellt alle Volkswirtschaften rund um den Globus vor gesundheitliche und wirtschaftliche Herausforderungen. Von der Pandemie und den Masnahmen zur Eindammung der Ausbreitung des Coronavirus sind internationale Wirtschaftsbeziehungen besonders stark betroffen, wodurch kleinen, offenen Volkswirtschaften zusatzliche Risiken erwachsen. Die wirtschaftliche Situation wird in Landern mit relativ hoher Abhangigkeit von internationalem Handel und Tourismus als Wachstumsmotoren verscharft. Die wirtschaftlichen Effekte der Pandemie in MOSOEL betreffen Osterreichs Investoren und Banken, die stark in der Region vertreten sind, sowie uber internationale Produktions- und Handelsverflechtungen. National variierende Einschrankungen grenzuberschreitender Mobilitat treffen den Tourismus sowie Berufspendler, insbesondere zwischen Osterreich und Ungarn. Die Notwendigkeit fur die koordinierte Erhaltung der Reisefreiheit zeigt sich auch deutlich in Osterreichs Abhangigkeit von Arbeitskraften aus MOSOEL in systemrelevanten Sektoren – vom Transportwesen, uber die Landwirtschaft bis hin zur Alten- und Krankenpflege. Nach den ersten einschneidenden Monaten der Pandemie zeigten sich erste Anzeichen Richtung Normalisierung fur die Beziehungen mit Deutschland, der Schweiz und den Visegrad-Landern. Dennoch ist selbst unter gunstigen Bedingungen eine Ruckkehr zum Status quo unwahrscheinlich Die Krise hat Trends beschleunigt und wird neue Herausforderungen mit sich bringen, welche die osterreichischen Nachbarschaftsbeziehungen nachhaltig pragen werden.
This publication is available in German language only. For a brief English summary see further below. Die Studie liefert eine evidenzbasierte Analyse der Qualitat der Daseinsvorsorge und ihrer Auswirkungen auf die Lebensumstande in Osterreichs Stadten. Dabei umfasst sie folgende Bereiche a) Ausbildung und Erziehung, b) Gesundheit, c) Wohnen, d) offentlicher Verkehr, e) die Ausgabenstruktur der Haushalte und f) die personliche Einschatzung der Lebensumstande durch die Einwohner reprasentativer Stadte. Diese Bereiche werden entweder im europaischen Vergleich oder im Vergleich zu Bayern dargestellt. Die Ergebnisse zeigen, dass Osterreichs Stadte im europaischen Vergleich attraktive Orte sind zu leben und arbeiten. Sie bieten hochwertige Jobs und wichtige Leistungen der Daseinsvorsorge in den Bereichen Bildung, Gesundheit, Wohnen und offentlicher Verkehr - auch fur ihre Umlandgemeinden - an. Dadurch geniesen die BewohnerInnen der osterreichischen Stadte im EU-Vergleich einen sehr hohen Lebensstandard und ein hohes Niveau an Lebensqualitat. Ihre Kosten fur Wasser, Energie und insbesondere Wohnen sind im Vergleich zu den Gesamtausgaben gering und damit bleiben deutlich mehr Mittel fur Freizeit und Kultur ubrig. Zum Vergleich, die Freizeit- und Kulturausgaben der BewohnerInnen Osterreichs Stadte sind, hinter Schweden, die zweithochsten in der EU. English Summary The quality of services of general interest in Austria's cities and their impact on living conditions in a European comparison The study provides an evidence-based analysis of the quality of services of general interest and their impact on living conditions in Austrian cities. It covers the following areas a) education and upbringing, b) health, c) housing, d) public transport, e) the expenditure structure of households and f) the personal assessment of living conditions by the inhabitants of representative cities. These areas are presented either in European comparison or in comparison to Bavaria. The results show that Austria's cities are attractive places to live and work. They offer high-quality jobs and important services of general interest in the areas of education, health, housing and public transport - also for their surrounding communities. As a result, the inhabitants of Austrian cities enjoy a very high standard of living and a high level of quality of life compared to other EU countries. Their costs for water, energy and especially housing are low compared to their total expenditure, leaving significantly more funds for leisure and culture. For comparison, the leisure and cultural expenditure of the inhabitants of Austrian cities is the second highest in the EU, behind Sweden.
This study provides a systematic assessment of the costs of the ongoing armed conflict in the Donbas region of Ukraine. By combining the pre-war geographical distribution of fixed capital with data on battle intensity, survey evidence on household damage in the conflict-affected areas and novel data on the macroeconomy of certain areas of the Donetsk and Luhansk regions, the report estimates the minimum reconstruction costs of the region at USD 21.7 billion. On the basis of the composition of the costs, the study argues that the government’s main focus should be on restoring the basic institutions that are usually taken for granted in most economies the markets and state capacity. The study proposes the key features of a reconstruction plan to help achieve this goal. This plan – assuming a lasting ceasefire is being observed – involves a continuation of the reform path in order to achieve sustainable and inclusive economic growth, to attract both foreign and domestic investments, improve the well-being of Ukrainian citizens and increase the opportunity costs of conflict. The systematic collection and dissemination of data on the Donbas region is essential. Ukraine should strive for balanced trade with the rest of the world. Last but not least, ensure that the peace settlement is durable. In the case of the Donbas this would mean an additional agreement that would not substitute the Minsk II Agreement but would both help to implement and complement it. Website 'Disconnected - Economic Challenges and Costs of Reintegrating the Donbas Region'
This study analyses recent trends in the mobility of health professionals in Europe. It first identifies the drivers of this mobility, then analysis its main push-and-pull factors, and finally shows how different European countries are affected by these recent movements of health professionals. Our analysis focuses specifically on the patterns of mobility among medical doctors and nurses between 2010 and 2017. A number of indicators have been collected that provide a comprehensive picture of how the pattern of supply and demand for health professionals has changed over the past decade, illustrating the role that the mobility of health professionals across European countries plays in these developments. We find that a number of European countries have benefited from the mobility of health professionals, but this has accentuated imbalances in a number of other countries. Furthermore, a gravity model is used to identify the push-and-pull factors of mobility in a sample of 32 European countries over 2000‑2017. Wage differentials in the health sector across the European countries certainly make some of the countries more successful at attracting health professionals than other countries that are failing to retain them. Consequently, the latter group of countries are facing huge challenges to provide health assistance to their own rapidly ageing populations.
The study analyses the relationships between capital dynamics, productivity, global value chains and foreign direct investment using panel data techniques. Among other results, we confirm the high importance of tangible and intangible ICT capital for productivity and GVC integration. We examine the extent of underinvestment in ICT in the EU relative to other major economies and identify bottlenecks for efficient capital allocation. The sluggish economic performance of the EU in the post-crisis period has been further challenged by the COVID-19 outbreak. Consolidating policy efforts to facilitate ICT investment, tackling the barriers to ICT adoption and broad-based digitalisation are critical for the EU in order to maintain a competitive edge and unlock new growth opportunities in the new normal.
In recent years, the general economic recovery has finally fed through to a significant increase in real wages in the Western Balkan countries, Moldova and Ukraine. Nevertheless, wage shares have barely picked up, and have even declined slightly in several places. Only in Kosovo has significant convergence with the Austrian wage level been registered. The improvement in labour market conditions in the countries covered has had only a moderately positive effect on wage developments. Despite recent declines, many countries continue to record double-digit unemployment rates, meaning that the bargaining power of employees has improved only slightly. The gradual decentralisation of wage-setting mechanisms has also slowed wage growth. In general, collective-bargaining mechanisms are much less developed than, for example, in Austria. Their scope is limited by the low share of employees in total (formal) employment. High unemployment and large wage gaps, especially in comparison with Western Europe, have led to considerable outward migration and population decline in many of these countries. This trend is expected to continue in the future. In the long run, this will result in the loss of an important share of the human capital of these countries, which might affect their prospects for convergence with Western European levels, including in terms of wages. Disclaimer The study was commissioned by the Arbeiterkammer Wien. This is a translation of the German version that was published as wiiw Research Report in German language No. 15 in September 2019.
This study discusses the challenges that economic policy-makers in Europe have to cope with, in order to ensure an economically prosperous and institutionally stable community of Member States of the European Union (EU). At the analytical level, we not only document a process of multi-dimensional polarisation of EU countries, but also link the existing economic divergences with a central long-term problem, namely structural polarisation differences in the institutional and legal embedding (e.g. in the areas of tax and corporate law, the labour market or the financial sector) and in technological capabilities are a major driver of divergence in living standards between some Member States. This polarisation, which started even before the financial crisis but has intensified over the last ten years, is due largely to the global and the European ‘race for the best location’. Without coordinated and cooperative intervention by economic policy-makers, a further drifting-apart of economic development paths seems unavoidable. The large differences in the production structures of the EU countries and the resulting highly unequal distribution of technological capabilities are self-reinforcing in nature, and will further intensify polarisation. The present study provides proposals for a coherent European overall strategy that not only addresses existing problems and renders possible the often-promised upward convergence between EU countries, but also provides a potential basis for dealing with key future challenges (such as digitisation, ageing society, climate change or global trade) on the basis of common European objectives. The focus is on safeguarding and expanding European values and institutions, in order to deepen European integration at key points; and thus also to contribute, in the medium to long run, to a transformation of the global economic order from the European side. A central argument is that coordinated measures in various policy areas – especially in wage, monetary, fiscal and industrial policy – are of central importance in creating a long-term successful economic basis for the common European economic and monetary area. Disclaimer The study was first published by the Friedrich-Ebert-Stiftung in German language (‚Wirtschaftliche Polarisierung in Europa Ursachen und Handlungsoptionen‘ by Jakob Kapeller, Claudius Grabner, Philipp Heimberger, ISBN 978-3-96250-376-5, Bonn, 2019). The German version of this study was financed by the FES under the project Fur ein Besseres Morgen.
In recent years, the general economic recovery has finally fed through to a significant increase in real wages in the Western Balkan countries, Moldova and Ukraine. Nevertheless, wage shares have barely picked up, and even declined slightly in several places. Significant convergence towards the Austrian wage level has only been registered in Kosovo. The improvement in labour market conditions in the countries covered has had only a moderately positive effect on wage developments. Despite recent declines, many countries continue to record double-digit unemployment rates, meaning that the bargaining power of employees has improved only slightly. The gradual decentralisation of wage-setting mechanisms has also slowed wage growth. In general, collective bargaining mechanisms are much less developed than, for example, in Austria. Their scope is limited by the low share of employees in total (formal) employment. High unemployment and large wage gaps, especially in comparison with Western Europe, have led to considerable outward migration and population decline in many of these countries. This trend is expected to continue in the future. In the long run, this will result in the loss of an important share of the human capital of these countries, which might affect their prospects for convergence towards Western European levels, including in wages.
The paper presents an analytical assessment of the implementation of European Innovation Partnerships (EIPs) launched as one of the commitments of the EU Flagship Initiative Innovation Union with the aim to achieve innovative breakthroughs addressing major societal challenges. The EU launched five EIPs to address important societal challenges (1) Active & Healthy Ageing; (2) Water; (3) Agricultural Productivity and Sustainability; (4) Raw Materials; and (5) Smart Cities and Communities. The paper reviews the rationale of introducing the EIPs as a policy intervention aimed at promoting innovation in the EU and traces the organic evolution and governance structures of the newly emerging formations. It then provides an analytical evaluation of this EU policy initiative based on factual analysis of its implementation experiences and a comparison of its objectives and actual outcomes. In particular, the paper analyses the role of the EIPs as drivers of systemic change in the European innovation ecosystem and catalysts of new innovation activity in Europe. This critical assessment serves as the basis for drawing some conclusions about the strengths and weaknesses of the EIPs as a new policy approach to foster innovation activity in Europe. One central conclusion is that while the EIPs have been very efficient in promoting collaboration among innovation stakeholders they have fallen short of breeding innovation activity of the expected scope and scale. The paper analyses the reasons for this weakness and formulates some recommendations that could serve as possible remedies.
This paper discusses new results using the EU KLEMS 2019 Release focussing on the role of ICT and intangibles assets employing a growth accounting framework and an econometric analysis. The EU KLEMS 2019 data covers most EU Member States, the US and Japan, forty detailed industries according to NACE Rev. 2 (ISIC Rev. 4) along with nine aggregated industries and spans over the period 1995-2017. In particular, intangible assets outside the boundaries of the national accounts are taken into account. The data are used to study total factor productivity, labour and capital productivity developments in a comparative cross-country and cross-industry dimension with an emphasis on the role of capital investments. Inter alia, the analysis studies the implications of various asset types and particularly the role of ICT and intangible capital, as well as changes in labour services and the composition thereof, as drivers of value added and labour productivity growth. Significant differences in the underlying growth contributions between the pre-crisis and post-crisis periods in growth performances are highlighted. Disclaimer A comparative analysis based on the EU KLEMS Release 2019 The paper is written as part of the project ‘Industry level growth and productivity data with special focus on intangible assets’ under the Service Contract No. ECFIN-116-2018/SI2.784491 financed by the European Commission, DG ECFIN. We would like to thank Dale Jorgenson and participants of the Asian KLEMS conference (14-15 October 2019, Bejing) for useful comments.
Labour markets in the Central and Eastern European member states of the EU (EU-CEE8) have improved significantly since the global economic crisis of 2008-2009. Unemployment rates have declined steadily, primarily due to adverse demographic trends and massive outward migration to the West, which have resulted in a decline in the working-age population. Nevertheless, until recently wage growth in EU-CEE8 was rather restrained, resulting in generally stable wage shares. The so-called ‘Phillips curve’, which represents a negative correlation between unemployment and wage growth, has not held for most of EU CEE8 during this period – unlike, for example, for Austria or Germany. The main reasons for this have been the progressive flexibilisation and liberalisation of the labour markets of EU CEE countries in the years since the economic crisis. In particular, wage negotiation mechanisms have been decentralised and the degree of coverage by collective-bargaining agreements has declined, in some cases dramatically. This has tended to weaken the negotiating position of employees, thereby counteracting the positive effects of the general improvement in the labour market situation. Disclaimer The study was commissioned by the Arbeiterkammer Wien.
The emergence of global value chains (GVCs) has opened up the possibility of functional specialisation as a new dimension of the international dimension of labour. Along with the usual gains from trade associated with specialisation according to comparative advantages, the functional specialisation along value chains functions also reinforce technological asymmetries within the world economy. This paper presents empirical evidence on this asymmetry confirming that developing countries serve primarily as ‘factory economies’ while developed countries take the role of ‘headquarter economies’ (Baldwin, 2013). The concept of the ‘smile curve’ suggests that factory economies generate comparatively little value added in their value chain activities. If this is the case, the specialisation as a factory can be expected to act as a drag on economic growth. Our econometric analysis shows that this is indeed true but only beyond a GDP per capita threshold of about USD 14,800. We see this result tightly connected to the notion of a functional middle-income trap. Escaping this growth trap is difficult but by no means impossible and requires countries to adjust their functional specialisation patterns towards more knowledge-intensive value chain functions, especially in the knowledge-intensive pre-production activities. Disclaimer Research for this paper was financed by the Anniversary Fund of the Oesterreichische Nationalbank (Project No. 17665). Support provided by Oesterreichische Nationalbank for this research is gratefully acknowledged.
