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IMPACT OF EUROPEAN INTEGRATION : WHICH RELEVANCE FOR LATIN AND CENTRAL AMERICA?

IMPACT OF EUROPEAN INTEGRATION : WHICH RELEVANCE FOR LATIN AND CENTRAL AMERICA?. MARCO LOPRIORE Atlas Study Visit Montevideo, November 5, 2002. TODAY’S AGENDA I nternal m arket - Impact on prices, benefits for companies - FDI and trade Cohesion - Impact on closing development gap

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IMPACT OF EUROPEAN INTEGRATION : WHICH RELEVANCE FOR LATIN AND CENTRAL AMERICA?

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  1. IMPACT OF EUROPEAN INTEGRATION:WHICH RELEVANCE FOR LATIN AND CENTRAL AMERICA? MARCO LOPRIORE Atlas Study Visit Montevideo, November 5, 2002

  2. TODAY’S AGENDA • Internal market - Impact on prices, benefits for companies - FDI and trade • Cohesion - Impact on closing development gap - Macroeconomic impact on trade balance • Enlargement - Impact on trade with Central and Eastern Europe - And with Mediterranean area • Economic and Monetary Union • Macro impacts • Regional

  3. INTERNAL MARKET

  4. INTERNAL MARKET – CECCHINI REPORT 1988 (A) • Delays at frontiers for custom purposes, administrative burdens impose costs on trade, restrictions on competition for public purchases, Restrictions on financial and transport sector; • Empirical estimates: frontier formalities cost 1,8 % of value of intra EU traded goods; technical regulations cost 2% of companies total cost; • Forecasted: Increase in GDP of 5% or 20-30% intra EU trade • Too optimistic ?

  5. INTERNAL MARKET (A) • Impact on public purchase: imports of public sector from 6% in 1987 to 13% in 1997; • Impact on peripherical regions: (Portugal, Ireland, Greece); • Prices are becoming more similar(except for motor vehicle - see table); • Large industries reap benefits: in particular from smaller countries (Greece, Finland, Denmark, Ireland); • Difficulties of SMEs (higher fixed costs);

  6. CAR PRICE DIFFERENCES IN EUR10:annual average of difference of highest to lowest price in % • The introduction of the euro has not yet had an impact on manufacturers’ pricing policies: • the highest price can still differ more than 25% from the cheapest country within the euro area

  7. PARTICIPATION OF LARGE COMPANIES IN INFRASTRUCTURE PROJECTS

  8. INTERNAL MARKET(B) • EU attracted 44% FDI in 1990 compared to 28% in 1980; • While mergers / acquisitions doubled between 1991 and 1999, only 30% between 1986-1995 were between 2 different Member States; • Foreign businesses reaping benefits? • US companies produced in 1997 48% of value added and 44% of jobs in UK and respectively 44% and 33% in NL;

  9. EU INTEGRATION AND TRADE • Pattern of trade tend to become more similar as EU become more interdependent; • Intra industry trade is high for all EU; • Exception for Greece, Ireland and Portugal where it is low because of their development gap in the productive structure;

  10. INTRA-EU TRADE INTEGRATION • BLUE (B + L), IRL and NL intra-EU trade GDP ratio is higher than 30%; • Small MS intra-EU trade GDP ratio is higher than Large MS ratio; • D,E,F and I intra-trade GDP ratio is lower than 15%;

  11. COHESION

  12. REDISTRIBUTING INCOME BETWEEN COUNTRIES AND REGIONS Million €

  13. MAP OF EUROPE:THE MODEL CENTRE-PERIFERY THE PENTAGON: London, Paris, Milan, Munich, Hamburg • 20% of territory; • 40% of population; • 50% GDP of EU

  14. TRADE EFFECTS OF COHESION POLICY(see next table) • 25% of the Cohesion Fund returned to rich countries through imports; • in 1999 this estimation has reached an average of 35%; • Structural funds have an impact on trade balance in cohesion countries • In a short term: Greece and Portugal increased their imports towards rest of Europe; • In a long term: the trade balance will improve;

  15. MACRO ECONOMIC IMPACT OF SF: Trade balance variations in % relative to GDP

  16. FOREIGN DIRECT INVESTMENT AND STRUCTURAL FUNDS (1989-1993) % of GDP

  17. ENLARGEMENT

  18. TRADE IMPACT OF ENLARGEMENT • CEEC are already oriented to EU since 1990 - Trade between EU and CEEC grew 20% annually; • Export compatibility; • Benefits for border countries: Germany, Italy, Austria; • But strong growth from Portugal, Ireland, Switzerland and Spain; • UK is compatible but not using it; • Regional effects and frontier regions?

  19. Tabella: Similitudini nelle strutture commerciali tra paesi della UE e paesi PECO negli anni 1993 e 1997 Country EU exports and CEEC imports ("Trade creation") EU imports and CEEC exports ("Trade diversion") 1993 1997 1993 1997 Austria - 0.98 - 0.92 Germany 0.98 0.96 0.69 0.86 Greece 0.31 0.39 0.53 0.48 Ireland 0.78 0.81 0.51 0.71 Italy 0.94 0.92 0.72 0.86 Sweden - 0.94 - 0.90 United Kingdom 0.93 0.95 0.67 0.87 SIMILARITIES IN TRADE STRUCTURESBETWEEN EU MEMBER STATES AND CEEC (1993 and 1997)

  20. IMPACT OF EUROMED PROCESS(see next table) • Free-Trade Area 2010; • 4 of 15 EU Member States are benefiting (F, I, G, UK); • EU invest to improve production process of traditional sectors: • 80% of textile FDI • 50% of Motor vehicle FDI (sector particularly sensitive to trade zones – Turkey) • US however important presence: • 50% of telecoms FDI ; • 41% chemicals FDI; • 48% beverages FDI;

  21. Tabella: Principali investitori europei e stranieri nei vari settori dell'economie mediterranea Sectors Principle investors Larger European countries Telecommunications USA (50%); UE (41%) France (15%); UK (6%) Tourism UE (42%); USA (40%) Arab Countries (15%) France (21%); Italy (6%) Car UE (50%); USA (28%); Japan (16%) Italy (23%) IT UE (46%; USA (41%) Germany (13%); Italy (13%); France (12%) Chemical USA (41%); UE (40%) Germany (10%); France (8%); Italy (7%); UK (7%) Textile/clothing UE (80%; USA (19%) Italy (40%); France (24%) Food /beverage USA (48%); UE (28%; Switzerland (10%) France (16%); Denmark (7%) NL (5%) Petrol and gas resources UE (49.5%); USA (38%) France (10%); Italy (10%); UK (7%); NL (4%) MAIN EUROPEAN ANDFOREIGN INVESTORS IN SECTORS OF MEDITERRANEAN ECONOMIES Fonte: Università Bocconi, FDI in the Mediterranean countries, Ottobre 2000

  22. Economic and Monetary Union

  23. MORE STABILITY THROUGH EMU • Enhanced stability in all EU countries through coordination and surveillance of economic policies (Ireland, Germany) • Price inflation reduced from 20% in Greece and 13% in Portugal in 1999 to less than 5% in 2000. • Lower transaction costs (no exchange costs, risk) with the euro brings increasing market integration and growth: especially for EU countries wich trade a lot with other Euro-area countries

  24. CONCENTRATION AND SPECIALISATION WITHE EMU ? • Regional specialisation in US – see manufacturing sector in Lake district – Chicago, Theories of Mundell • Euro and Single Market will bring the same in Europe? • Vulnerability to sector-specific shocks (assymetric) • Studies show no fast specialisation/concentration • Ireland only very specialised in IT industries

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