IDEAS home Printed from https://ideas.repec.org/a/bic/journl/v5y2004-2005i1p5-27.html
   My bibliography  Save this article

Formal Integration: FDI and trade in Europe

Author

Listed:
  • Camilla Jensen

    (Center for East European Studies, Copenhagen Business School)

Abstract

The paper seeks to explain why formal integration, i.e. membership of the European Union (EU), should matter to Central and Eastern Europe (CEE) by testing a number of hypotheses about the relationship, respective levels and intensity of relationship of the two fundamental forces of real integration: trade and foreign direct investment (FDI). It is expected that formal integration will matter to the level of flows due to a concentric bias (trade creation) arising from introducing deeper integration among countries. But the effect on FDI may be more ambiguous since a lowering of transaction cost should make firms substitute from FDI towards more trade. The analysis shows that FDI and trade are complements at the bilateral aggregate country level within Europe. The analysis also verifies that formal integration has given rise to a concentric bias, but only in the aspect of trade. While the present EU member and the new Accession countries participate equally in FDI flows. The analysis of intensity of relationship between trade and FDI, gives very strong and positive results. Contrary to earlier analysis it is found that causation is two-way and much greater for the chain of causation running from trade to FDI especially in intra-Union flows. But it is also verified that FDI is a particularly important catalyst of trade between the EU and CEE countries.

Suggested Citation

  • Camilla Jensen, 2004. "Formal Integration: FDI and trade in Europe," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 5(1), pages 5-27, December.
    • Handle: RePEc:bic:journl:v:5:y:2004/2005:i:1:p:5-27
    as

    Download full text from publisher

    File URL: https://www.tandfonline.com/doi/epdf/10.1080/1406099X.2004.10840415
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, vol. 85(2), pages 212-218, May.
    2. Layard, Richard & Nickell, Stephen J., 2016. "Combatting Unemployment," OUP Catalogue, Oxford University Press, number 9780198779933 edited by Eichhorst, Werner & Zimmermann, Klaus F..
      • Layard, Richard & Nickell, Stephen J., 2011. "Combatting Unemployment," OUP Catalogue, Oxford University Press, number 9780199609789 edited by Eichhorst, Werner & Zimmermann, Klaus F., Decembrie.
    3. Bryson, Alex, 2002. "The union membership wage premium: an analysis using propensity score matching," LSE Research Online Documents on Economics 4953, London School of Economics and Political Science, LSE Library.
    4. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    5. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084, Elsevier.
    6. Tiiu Paas & Raul Eamets & Jaan Masso & Marit Room, 2003. "Labour Market Flexibility And Migration In The Baltic States: Macro Evidences," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 16, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    7. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-193.
    8. Miller, Paul & Mulvey, Charles, 1996. "Unions, Firm Size and Wages," The Economic Record, The Economic Society of Australia, vol. 72(217), pages 138-153, June.
    9. Jackman, R. & Layard, R. & Nickell, S., 1996. "Combatting unemployment: is flexibility enough?," LSE Research Online Documents on Economics 47446, London School of Economics and Political Science, LSE Library.
    10. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097, Elsevier.
    11. Boeri, Tito & Brücker, Herbert, 2001. "Eastern Enlargement and EU-Labour-Markets: Perceptions, Challenges and Opportunities," IZA Discussion Papers 256, Institute of Labor Economics (IZA).
    12. Lars Calmfors, 1993. "Centralisation of Wage Bargaining and Macroeconomic Performance: A Survey," OECD Economics Department Working Papers 131, OECD Publishing.
    13. David Blanchflower & Alex Bryson, 2002. "Changes over time in union relative wage effects in the UK and the US revisited," NBER Working Papers 9395, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Masahiro Tokunaga & Ichiro Iwasaki, 2017. "The Determinants of Foreign Direct Investment in Transition Economies: A Meta-analysis," The World Economy, Wiley Blackwell, vol. 40(12), pages 2771-2831, December.
    2. Sõrg, Mart & Tuusis, Danel, 2008. "Foreign banks increase the social orientation of Estonian financial sector," Wirtschaftswissenschaftliche Diskussionspapiere 01/2008, University of Greifswald, Faculty of Law and Economics.
    3. Lefilleur, Julien & Maurel, Mathilde, 2010. "Inter- and intra-industry linkages as a determinant of FDI in Central and Eastern Europe," Economic Systems, Elsevier, vol. 34(3), pages 309-330, September.
    4. Balaban, Suzana & Živkov, Dejan & Milenković, Ivan, 2019. "Impact of an unexplained component of real exchange rate volatility on FDI: Evidence from transition countries," Economic Systems, Elsevier, vol. 43(3).
    5. Tokunaga, Masahiro & Iwasaki, Ichiro, 2014. "Transition and FDI: A Meta-Analysis of the FDI Determinants in Transition Economies," RRC Working Paper Series 47, Russian Research Center, Institute of Economic Research, Hitotsubashi University.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Raul Eamets & Epp Kalaste, 2004. "The Lack of Wage Setting Power of Estonian Trade Unions?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 5(1), pages 44-60, December.
    2. Kari, Seppo & Ylä-Liedenpohja, Jouko, 2005. "Cost of Capital for Cross-border Investment: The Fallacy of Estonia as a Tax Haven," Discussion Papers 367, VATT Institute for Economic Research.
    3. Seppo Kari & Jouko Ylä-Liedenpohja, 2004. "Cost of Capital for Cross-Border Investment: The Fallacy of Estonia as a Tax Haven," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 5(1), pages 28-43, December.
    4. Echavarría-Soto, Juan José & López, Enrique & Ocampo, Sergio & Rodríguez-Niño, Norberto, 2012. "Choques, instituciones laborales y desempleo en Colombia," Chapters, in: Arango-Thomas, Luis Eduardo & Hamann-Salcedo, Franz Alonso (ed.), El mercado de trabajo en Colombia : hechos, tendencias e instituciones, chapter 18, pages 753-794, Banco de la Republica de Colombia.
    5. Mr. Marcello M. Estevão, 2003. "Do Active Labor Market Policies Increase Employment?," IMF Working Papers 2003/234, International Monetary Fund.
    6. Calmfors, Lars & Forslund, Anders & Hemström, Maria, 2002. "Does active labour market policy work? Lessons from the Swedish experiences," Working Paper Series 2002:4, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    7. de Koning, J. & Layard, R. & Nickell, S. & Westergaard-Nielsen, N., 2004. "Policies for full employment," LSE Research Online Documents on Economics 47444, London School of Economics and Political Science, LSE Library.
    8. Bertil Holmlund, 2002. "Labor Taxation in Search Equilibrium with Home Production," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 415-430, November.
    9. Rüdiger Wapler & Daniel Werner & Katja Wolf, 2018. "Active labour market policies in Germany: do regional labour markets benefit?," Applied Economics, Taylor & Francis Journals, vol. 50(51), pages 5561-5578, November.
    10. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
    11. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    12. Yu‐Fu Chen & Dennis Snower & Gylfi Zoega, 2003. "Labour‐market Institutions and Macroeconomic Shocks," LABOUR, CEIS, vol. 17(2), pages 247-270, June.
    13. Ravi Balakrishnan, 2001. "The interaction of firing costs and on-the-job search: an application of a search theoretic model to the Spanish labour market," Working Papers 0102, Banco de España.
    14. Ron Smith & Gylfi Zoega, 2004. "Global Shocks and Unemployment Adjustment," Economics wp24_smith, Department of Economics, Central bank of Iceland.
    15. Grandner, Thomas, 1996. "Is wage-leadership an instrument to coordinate unions' wage-policy? The case of imperfect product markets," Department of Economics Working Paper Series 42, WU Vienna University of Economics and Business.
    16. Karl Ove Moene & Michael Wallerstein, 1993. "The Economic Performance of Different Bargaining Institutions," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 19(4), pages 423-450.
    17. Andrea Bassanini & Romain Duval, 2006. "The Determinants of Unemployment across OECD Countries," Post-Print halshs-00120584, HAL.
    18. Forslund, Anders & Gottfries, Nils & Westermark, Andreas, 2005. "Real and nominal wage adjustment in open economies," Working Paper Series 2005:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    19. Markus Leibrecht & Silvia Rocha-Akis, 2014. "Sozialpartnerschaft und makroökonomische Performance," WIFO Monatsberichte (monthly reports), WIFO, vol. 87(8), pages 555-567, August.
    20. Fitzenberger, Bernd & Kohn, Karsten, 2005. "Gleicher Lohn für gleiche Arbeit? : zum Zusammenhang zwischen Gewerkschaftsmitgliedschaft und Lohnstruktur in Westdeutschland 1985-1997 (Equal pay for equal work? * on the relationship between union m," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 38(2/3), pages 125-146.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bic:journl:v:5:y:2004/2005:i:1:p:5-27. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anna Zasova (email available below). General contact details of provider: https://edirc.repec.org/data/biceplv.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.