NEW EU MEMBERS OF CENTRAL AND EASTERN EUROPE

Level of Integratedness

Tibor PalánkaiEmeritus Professor

Corvinus University of BudapestMaster Course

2014

Prof. Palánkai Tibor

Main Focus of Integration Theories

Emergence of integration theories from 1950s. Their main focus:• The content (or essence) of integration processes;• The institutions, regulation (policies) and

governance of integration;• The advantages and disadvantages of integration

(cost-benefit analysis); and • The problems of integration maturity (capacities or

capabilities for integration).

Analysis of Content of Integration

Three questions analysed about integratedness:

Theoretical bases of analysis of content of integration,

Methods and indices of analysis,

Fact about development of global and regional integration.

Main Schools of Theories on Content of Integration

We examine two main schools of integration theories:

• International division of labour theories,

• Theories on interdependence and integration.

Division of labour theories

Separation of the simple transactions or “cooperation” and contrasted them with “integration”, and interpreted the latter as a new quality. Integration defined as:

• Certain intensity of the international division of labour.

• Complexity of cooperation extending to the whole re-production process,

• “Lasting” and “durable” cooperation,• Institutionalised cooperation.

Division of labour theories

Increase of efficiency and welfare based on international division of labour, through specialization and cooperation,

The “fair distribution” of gains or the “just retour” was from the outset an accepted basic principle in the EC, and in certain cases decisively influenced the formation of public opinion (e.g. in connection with decisions to join).

Later „cohesion” and „solidarity” formally endorsed.

Interdependence and integration

Interdependence follows from intensity and complexity of cooperation.

The interdependence as a new quality of international relations, when at a certain point the position of countries changes significantly toward each other, and their policies and actions become mutually dependent. (R.O. Keohane, J. S. Nye.)

It might help us if we set a minimum dependency threshold (10%).

Interdependence and integration

Cooperation with cost consequences, and are balanced with benefits. Recently dramatically increased.

Mutual (reciprocal) impacts assuming certain equality.

The process is highly asymmetric in reality. If unilateral then one-sided („imperialistic”) dependence.

Interdependence and integration - close concepts.

Attempts for Measuring Integration

KOF Swiss Economic Institute, the 2012 index: 187 countries and 24 parameters;

MGI (Maastricht Globalization index: 117 countries, similar to KOF.) (2002 and 2008).

A.T.Kearney/Foreign Policy: 62 countries and 4 key spheres;

Earnst & Young 2012: 60 countries with 20 parameters.

Global Connectedness Index – UNIDO. 2011.

Globalization Indices

Main parameters:

Intensity of economic ties (flows and stocks),

Migration, international communication, Internet,

Conditions (liberalization, deregulation etc.)

International organizations and treaties,

Number of embassies, UN Missions, treaties.

Cultural: number of McDonalds or IKEA,

Environmental deficits (footprints) (MGI).

Globalization Indices

KOF: Globalization index (2012):1. First ten: BE, IR, NL, AT, SG, SE, DK, HU, PT,

SW.2. Central E: CZ (13.) SK (19.), PL (25.) SL (29.)3. Large EU: UK (14.), FR (18.), GE (22.) IT (22.)4. Southern EU: ES (16.), GR (23.)5. Large non-EU: US (35.), RU (47.) NI (53.), CH

(73.), BR (74.) IN (110.)6. HU: KOF: 9., MGI: 10., E-Y: 9., Kearney: 20:

Integration Profiles

„Integration Profile”: New proposal.

Composition of a „picture” based on mosaics.

Extension of analysis to qualitative and efficiency aspects: Structure, performance, dependence, balancedness, or convergence.

Going beyond real integration + participation in institutions and policies.

Avoiding traps of ranking.

Integration Profiles

Main parameters:

1. Real-economic integration (integratedness):

2. Institutional and regulatory integration:

3. Comparative performances :

4. Convergence and divergence:

Integration Profiles

Main parameters of real integration:• Trade integration: flows, stocks, intensities;• Structure of trade relations; • Sub-regional concentration and

interconnectedness;• Factor integration: flows, stocks, intensities;• State and characteristics of financial integration; • Transnationalisation of company sectors.

Integration Profiles

Main parameters of regulatory integration:

• Participation in global institutional and policy structures, and regulatory processes;

• Compliance with EU institutions and policies (acqui communautaire);

Integration Profiles

Main parameters of comparative performances:• External economic performances , balancedness

of integration (trade balances, relation of capital export and import);

• Macro-economic performances;• Consequences of capital market integration

(gains and losses);• Main characteristics of socio-economic

development (based among others on the Lisbon Score Board);

Integration Profiles

Convergence and divergence:

• Convergence of levels of development and structures;

• Structure of dependences, interdependence; • Regional and social divergences, polarisation;• Problem of the Centre/Core and the Periphery.

Indices measuring of trade intensity

1. Share of export/import to GDP:• Txt/Y × 100, or Tmt/Y × 100. • (Txt and Tmt – total export and total import)• Txi/Y × 100, or Tmi/Y × 100. • (Txi and Tmi – intra-regional export or import).2. Share of regional trade to total:• Txi/Txt × 100, or Tmi/Tmt × 100.3. Comparison of per capita trade: Txt/P and Txi/P, or Tmt/P and Tmi/P (P – pop.)

Development of integration processes

Global integration: Global export/global GDP:1950: 3-5%, 2000s: around 20%.„The trade is now an integral part of the structure

of national production in all modern states.” (Held, 2005: 149).

• X/GDP in developed states: 1913: 11%, 1950: 8%, 1973: 18% and 1985: 23%

• Same data according Maddison: 1870: 4,6%, 1998: 17,2%.

Development of European integration

EU integration: Share of intra EU export to GDP: 1960: 7,7%; 1970: 10%; 1980: 13%; 1990: 14%; 2000: 22%; 2008: 22%.

Share of intra-export in total export in EC/EU:EC6-EC10 1960: 30%; 1972: 50%; 1985: 55%, EU15: 1992: 62%, 2004: 65%, 2008: 60%. EU 27 : 1999: 68%; 2004: 66%; 2008: 67.5%.

Integration of New Members

Share of EU15 in the new members export:

1990: 25-30%; 1999: 68.6%; 2004: 65.4%; 2008: 59.7%.

Share of NMS of in NMS total export:

1990: 10%, 1999: 13.2%; 2004: 15.35,

2007: 19.5%.

Share of RoW in NMS export:

1999: 18.3%; 2004: 19.4%; 2007: 20,9%.

Measuring Trade Intensity

In % of GDP: trade of goods or services, intra-trade:

Bellow 10%: Marginal (no) intensity;

Between 10-30%: Low intensity;

Between: 30-50% Medium intensity;

Between: 50-70% High intensity;

Above 70% Very (extremely) high intensity.

Trade Intensities

Total export of goods in GDP:

1. Very high: BE and SK.

2. High intensity: HU (3. 68.3%), CZ, NL, SL, EE.

3. Medium: GE, IR, AT, DK, FL, SE, MT, LT, PL, BG.

4. Low: FR, IT, UK, ES, PT, LV, RO.

5. Marginal intensity: EL (8.8%) and CY (7.7%).

Trade Intensities

Internal export of goods - services in GDP:

1. Very high: LU (147%) and SK (70.4%).

2. High intensity: BE (69.1%),CZ (64.7%) HU (5. 63.5%), NL (57.3%), EE (53.3%), IR (50%).

3. Medium: GE, AT, CY, MT,LT, BG, PL.

4. Low: FR, IT, UK, DK, FL, SE, ES, PT, LV, RO, EL.

Trade Intensities

Per capita total export in €:1. Belgium 25.0142. Germany 9.8113. Czech Republic 7.8234. Hungary 5.8935. France 5.6516. Spain 3.5207. Portugal 2.9328. Greece 1.530

Trade Intensities

Summary conclusions:

1.HU among the 5 most intensively integrated.

2.Benelux and C.E. + EE, IR are highly integrated.

3.Large countries (FR, IT, UK)+ ES, PT, RO, LV are lowly integrated.

4. Marginally integrated (total goods): EL and CY.

5. Others either medium or low (South EU-low).

Trade Structures (Internal export) (%)

Country Agr. R.M. Ener. Manuf. OtherEU27 9.7 3.6 6.8 51.3 28.6Germany 6.9 2.7 2.8 49.0 28.6 Sweden 5.9 7.9 8.3 44.5 33.3Hungary 7.3 2.8 2.5 67.6 19.9Czech R. 4.0 3.4 4.3 59.7 38.6Slovakia 4.2 3.2 5.6 55.9 31.1Portugal 10.4 5.9 3.8 36.4 43.5Greece 25.6 5.2 7.1 27.3 34.8

Trade Structures (Internal export) (%)

Pattern of structural changes:

1. C. E. converged with developed EU.

2. Food, energy and r. m. around 11-13% (DE – 12%) in CE. (EU27 20%)

3. High industrialisation of C.E.

4. Differences arise in terms of „others”.

5. Southern EU – high agriculture and lower industrialisation (even in case of ES).

Trade balances of EU

2009: Trade deficit of EU27 – €105 bn.• Deficit with China €133bn, Japan €13bn.• Surplus with USA: €45bn.) It was €32bn in

2000 and tripled to €94bn. by 2006.

Contradicting the exchange rate assumptions: With China the Euro undervalued, while to the dollar overvalued (1€ equals with 1.2$ in PPP.

Euro market rates were around 1.3$

Trade Balances

Countries Int. trade Ext. trade. Trade with GE

BE. NL. IR, + + +

HU. CZ, SK, + + +

PL, + - -

SL, - + +

FR, UK, IT, - - -

AT, PT, ES, - - -

EE, LT,LV, - - -

BG, RO. - - -

Trade Balances (Internal trade)

High surplus (above 3% of GDP): NL (21%), IR (13.2%), HU (9.6%), SK (7.6%), CZ (7.0%), BE (6.4%), GE (3.0%).

Low surplus (0 and +3%): LU, DK, PL.

Low deficit (0 and -3%): UK, IT, FL, SE, ES, LT, SL

High deficit countries (above -3%): FR (3.3%), EL, PT, LV, BG, RO, MT, CY (20.8%).

Structural imbalances

Proportions of high-tech products (HU: with 28% is first).

H: in foods: X was nearly 7 times over M in 1988, gradually melting away. Now, X of HU is only 25% above import.

Energy dependence of EU27 in 2007 was 53%. (HU: 61%)

• Dependence between 80-90%: IT, ES, PT, BE, MT, CY.

• Between 20-30%: UK., CZ., RO, PL, EE.

Production Factors

• Capital and labour - flow and stock:• Capital export and import in GDP:

Cx/Y × 100 and Cm/Y × 100.• Capital export in proportion to capital import:

Cx/Cm × 100.• Labour flows and share of foreign labour force.

Incoming and outgoing.

Labour flows in EC/EU

• After 2004, from NMCs – (PL. RO. BG. LT and LV) main supplier,

• UK, IR. IT, ES, PT, DE. and FR.) main receivers (DE – recently net emigration).

• HU – net immigration with about 10-30 thousand peoples (CZ. Similar). In recent years, after 2010, substantial outflow from HU.

The proportion of EU and non-EU workers: 1/3:2/3.

Flow of Capital till 1970s

Between 1958 and 1973 limited internal movement of capital, no fusions, limited cooperation.

• Strong American inflow, and control of many European sectors (cars, electronics etc.), induced by common market.

From 1970s, accelerating capital export (UK already before), and Germany rapidly became net capital exporter.

Factors of Flow of Capital after 1970

• Process supported by crisis, pressure for reconstruction.

• Technological reconstructions and innovation, new management methods.

• That created pressures for integration.

Flow of Capital in 1980-1990s

By 1980s, due to slowing down of American inflow into Europe, and acceleration of European capital inflow to USA, by the end of 1980s Europe has become net capital exporter to USA.

• Growth of Japanese capital inflow and control of some sectors (car and electronics).

• Creation of the Single Market played important role.

Flow of Capital in 2000s

By 2000s, strong global EU positions, but dominance of Atlantic relations.

• In 2000, the American capital is about 62% of all capital invested in EU.

• More than 50% of EU investments are in USA.• Japanese expansion looses momentum after

2000 and remains one-sided.• Other inflows (Arabic or Russian) remain limited.

Flows of Capital - EU Integration (2009)

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

Flows of Capital - EU Integration (2009)

Country Cm/GDP (%) Cx/GDP (%) Cx/Cm (%)

Belgium 200 188 94

Ireland 111 130 116

Netherlands 81 120 149

Sweden 82 87 106

Finland 36 54 150

Denmark 50 64 128

Flows of Capital - EU Integration (2009)

Country Cm/GDP (%) Cx/GDP (%) Cx/Cm (%)

Spain 43 43 100

Portugal 49 29 59

Austria 45 43 95

Italy 17 23 135

Greece 13 12 93

Flows of Capital – EU Integration (2009)

Country Cm/GDP (%) Cx/GDP (%) Cx/Cm (%)Hungary 78 16 21Czech R. 64 8 12Slovakia 60 4 7Poland 43 7 16Estonia 84 33 40Slovenia 31 19 60Romania 35 1 2Bulgaria 63 1 1.5

Summary of Capital Integration

• High proportion of FDIs in GDP (50-70%) – indication of intensity of global integration.

• Developed countries are characterised by net capital exporter position (Cx is about 40-50% over Cm).

• This is an important parameter of level and balancedness of integration.

• NMCs gradually capital exporters, but only beginning (Cx is only about 10-40% of Cm)

Characteristics of Real-Integration

• Extremely highly integrated countries,• Highly integrated countries, • Medium integrated countries, • Low integrated countries, • No integration.Five groups have been formally created, but the

countries can be placed into three. In some cases, the performance can be low or marginal (the trade integration of Cyprus or Greece), but the minimum medium level of integration is achieved by every single country.

Characteristics of Real-Integration

Extremely highly integrated countries: BE, NL, IE, AT, LU, DK, HU, CZ, SK and PL.

In this group we can find the small developed core countries and East-Central Europe (except Sweden, Finland and Slovenia.

Characteristics of Real-Integration

Highly integrated countries: DE, FR, UK, IT, FL, PT, SE, ES, EE and SL.

In this group we have listed the large developed countries and Finland, Sweden, Portugal and Slovenia.

Characteristics of Real-Integration

Medium level integrated countries: GR, CY, ML, LT, LV, BG and RO.

In this group we have placed the Southern EU (except Spain), the Baltic countries (except Estonia), and the two Eastern Balkan countries. Their listing is influenced mainly by their lower capital intensity, which counter-balances their trade relations.

Characteristics of Institutional Integration

When attempting to measure institutional integration we do not venture for quantified evaluation. We put the performance of the member countries into three boxes.

• Very highly integrated countries;• Highly integrated countries; and • Medium integrated countries.

Characteristics of Institutional Integration

Among the very high integrated countries we can list the 18 euro-zone countries. These countries practically apply all of the policies, legal and regulatory systems of EU (acqui communautaire). Only exception is Ireland, but its staying out of Schengen can be explained by special geographical and political reasons. The “very high” qualification of these countries is justified by the fact, that these are the only countries, which have full singe market and currency in the world economy.

Characteristics of Institutional Integration

We put among the highly integrated states three countries (Denmark, Poland and Lithuania). They are not members of the euro-zone, but they take part in Schengen and participate in the monetary reforms. Poland is not yet member of ERM, but with Lithuania, they could be euro-zone members in foreseeable future. The relations of Denmark are very close to the euro-zone membership.

Characteristics of Institutional Integration

There are 6 members (United Kingdom, Sweden, Czech Republic, Hungary, Bulgaria and Romania) which belong to the medium level integration countries. Beyond that they are not euro-zone members, they do not participate in ERM, and they stay out fully or partly from the euro reform mechanisms. Bulgaria and Romania are still out of Schengen. For differing reasons, the future euro-zone membership of these countries is uncertain.

General Characteristics of Integration

In general, the EU is characterised by a high level of global and regional integration, which creates a unique position for the Union in the global economy. Upon their intensity of integration into the institutions and policies into EU structures, there is no member of the Union, which could be classified lower than medium level integrated country. In terms of real-integration, Hungary belongs to the ten most integrated countries of the world, while institutionally is a medium level country.

END

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