Emerging Market Economies and European Economic Integration.

Brown, Stuart

Emerging Market Economies and European Economic Integration R Scott Hacker, Borje Johansson, and Charlie Karlsson (eds), Edward Elgar: Northampton, MA, 2004, pp. 328.

Comprising papers from a 2002 conference of the European Regional Science Association, this valuable volume's title omits specific reference to the regional dimension of transition. While dealing with European states, what is novel here is a unifying spatial (eg local) perspective on two overlapping phenomena--movement towards market-based mechanisms and harmonisation of national policies. This economic-geographical slant on uneven development, job creation, and income generation applies insights from a rich variety of economic sub-literatures to the impact of transition and integration on (sub-or cross-national) regions.

Part I contains three papers with a regional perspective. Johannes Brocker highlights the common basis for international and inter-regional trade, by characterising international trade as a special case of regional trade models, rather than the reverse, as typically assumed. More strikingly, Brocker shows how imperfect competition-based trade theories improve on the factor endowment-grounded Heckscher-Ohlin framework, providing a firmer theoretical foundation for the gravity equation. The latter--which highlights geographical distance as a determinant of trade flows--has proven particularly powerful in explaining inter-country (and inter-regional) trade.

Viesturs Pauis Karnups takes an historical look at Latvian-Scandinavian trade, motivated in part by the work of B Eichengreen and DA Irwin, among others, who emphasize the influence on current trade of sunk costs inherent in historical trade relations. Although a gravity equation approach predicts relatively robust Baltic-Scandinavian trade, it never fully recovered its moderate volume from the Great Depression. Germany and the UK crowded out Baltic-Scandinavian regional trade then, as it does now, although overlapping commodity composition among the Baltic and Scandinavian states also contributed.

An intriguing paper by Mikolaj Herbst and Karol Olejniczak studies the impact of transition-cum-integration on border trade. They contrast three eastern Polish towns which adjoin Lithuania, Belorussia, and Ukraine, and highlight influences from trade liberalisation on local incomes and employment. Inter-country turnover increases when border controls are relaxed, but these localities suffer a sharp decline in employment and incomes from the obsolescence of border-crossing installations. The study demonstrates how superior leadership in the border municipalities is critical in catapulting the positive impulse from initial liberalisation to sustainable cross-border interaction and growth, well beyond the temporary and limited expansion of local market, suitcase trade. More durable benefits require developing inter-enterprise supply linkages, cross-border employment opportunities, and joint investments involving local governments, as is supposedly seen on Poland's western border. Hence, the general presumption that border regions can be expected to evolve faster than the hinterland under transition and integration finds scant support, at least in the case of Poland.

Section II focuses on intra- and inter-regional labour markets as part of transition-cum-integration. Using a multiregional equilibrium search framework, Jos van Ommeren, Piet Rietveld and Stefan Woudenberg model the labour market effects of local infrastructure improvements. This perspective is critical for the transition economies both because they face higher than average unemployment rates and highly variable regional responses to transition. Enhanced infrastructure in the model acts to increase job vacancies and reduce local unemployment. While wages prove insensitive to infrastructural changes, commuting costs decline, increasing the feasibility of working farther from home. In a careful econometric study, Herbert Brucker, Boriss Siliverstovs and Parvati Trubswetter estimate a migration stock function based on data from Germany-bound migration for eight older EU member countries. Their results support the theoretical hypothesis that the long-run stock of migrants is positively related to per capita income differentials between host and source countries, although the impact on home employment rates is ambiguous.

Using regional employment data for Bulgaria, Hungary and Romania, Iulia Traistaru and Guntram Wolff apply shift-share analysis to differentiate between structural and region-specific explanations for differential regional employment dynamics. They find that region-specific factors rather than location of faster (slower) growing industries or regional-industry interaction largely explain variations in regional employment. Regression analysis corroborates these results for Bulgaria and Romania but not for Hungary. A parallel perspective is provided by Maria Plotnikova and Tatiane de Menezes, who use World Bank household survey data to differentiate between region-specific and human capital explanations for growing regional income inequalities under transition. The authors are careful to conclude that--even though regional variables are significant for all countries in the region--EU social rather than regional policy interventions may still prove warranted in given situations.

In addition to two remaining papers on Hungarian regional inequality by Akos Jakobi and regional tourism clusters in Estonia by Urmas Kase, Tiit Kask, Heli Muristaja and Garri Raagmaa, the volume is well served by a thoughtful editorial introduction on the complexity of EU harmonisationcum-transition policies. In particular, the editors deftly mine the varied strands of recent economic theory--everything from modern economic geography and trade models to institutional economics, endogenous growth and the economics of migration--lending greater coherence to the varied contributions that follow.

There are several papers with little apparent relation to the common regional theme. Doina Maria Radulescu traces the increase and subsequent containment of quasi-fiscal deficits in Romania's transition. Such deficits--hidden central bank subsidies and inter-enterprise arrears--exert equivalent impacts to measured budgetary deficits. They proliferated as ad hoc palliatives for deep-seated, structural problems. A second paper by Uwe Schubert and Bernd Schuh contrasts alternative methodological approaches to understanding 'sustainable development' and underscores the limitations of micro-theoretical assumptions to this inherently complex and multi-dimensional challenge. In yet another paper, Andreas Johnson relates the (national) pattern of per capita FDI flows to various indices of transition. The conclusions corroborate earlier econometric analysis, which demonstrates a statistically significant, positive relationship between the depth of reforms and the volume of FDI.

Stuart Brown

Maxwell School of Citizenship and Public Affairs, Syracuse University, 200 Eggers Hall, Syracuse, NY 13244, USA.

E-mail: ssbrown@maxwell.syr.edu