Structural change in times of increasing openness: assessing path dependency in European economic integration
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Structural change in times of increasing openness: assessing path dependency in European economic integration 1,2,3 ¨ Claudius Grabner 1,5 ¨ Bernhard Schutz
· Philipp Heimberger1,4 · Jakob Kapeller1,2 ·
© The Author(s) 2019
Abstract This paper analyzes the dynamics of structural polarization and macroeconomic divergence in the context of European integration, where the latter is primarily understood as an increase in economic and financial openness. In the process of estimating the dynamic effects of such an openness shock on 26 EU countries, we develop a taxonomy of European economies that consists of four groups: core, periphery, and catching-up countries in Eastern Europe as well as financial hubs. We show that these four country groups have responded in a distinct way to the openness shock imposed by European integration and argue that the latter should be seen as an evolutionary process that has given rise to different path-dependent developmental trajectories. These trajectories are linked to the sectoral development of European economies and the evolution of their technological capabilities. We propose a set of interrelated policy measures to counteract structural polarization and to promote macroeconomic convergence in Europe. Keywords Europe · Path dependency · European integration · Economic openness · Competitiveness JEL Classification B5 · F6 · F45 Supported by funds of the Oesterreichische Nationalbank (Austrian Central Bank, Anniversary Fund, project number: 17383). The data as well as all code required to replicate the empirical exercises in the paper are available on Github: https://github.com/graebnerc/structural-change. The raw data are also published as (Gr¨abner et al. 2019). Electronic supplementary material The online version of this article (https://doi.org/10.1007/s00191-019-00639-6) contains supplementary material, which is available to authorized users. Claudius Gr¨abner
[email protected]
Extended author information available on the last page of the article.
C. Gr¨abner et al.
1 Europe between convergence and divergence Once upon a time, the perspective of deepened economic integration on the European continent seemed to provide a route to successive economic and political convergence of Europe’s nation states. In particular, the establishment of the European Monetary Union (EMU) and the introduction of the Euro had raised high hopes for rapid convergence among member states (e.g. Blanchard and Giavazzi 2002). Until the financial crisis of 2007/2008, a series of empirical patterns were indeed pointing towards a process of convergence: increasing integration in terms of trade and investment had resulted in a catching-up process of Eastern European countries (Goedem´e and Collado 2016), the integration of financial markets had reached unexpected heights (Baldwin et al. 2015; Hale and Obstfeld 2016), and the successive harmonization of environmental legislation, labor standards and consumer protection regulation had contributed to a partial unification of regulatory envi
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