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Winners and loosers in the European Monetary Union: A neural network analysis of spatial industrial shifts

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  • Peter Nijkamp

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  • Shunii Wang

Abstract

The forthcoming creation of a single European currency area will likely have far reaching impacts on the competitive position of European industries, as a result of a decline in transaction costs and currency risks for intra-European trade. These impacts will take place independent of the question whether the 15 EU countries form an Optimum Currency Area or not. The generally expected gains of trade from an integrated European market may therefore not be Pareto-optimal, as a monetary union may have significant distributional impacts on individual countries and regions. Then there will be winners and losers. This paper addresses the welfare impacts of a single European currency area by investigating industrial changes and shifts in location that may take place after the introduction of the EURO, based on the idea that fixed exchange rated in the EMU will be reflected in a decline in transportation costs and industrial clustering. The empirical analysis uses an extensive data set on industrial production, interest rates and exchange rates in the various European countries. Two policy scenarios are envisaged, with a retrospective (backcasting) scenario on the likely effects of (i) a fixed exchange rate in the past and (ii) a fixed exchange linkage with the US dollar. Next, a neural network analysis is developed to trace for the two above mentioned scenarios the foreseeable and likely welfare effects of a single monetary union. It is concluded that the introduction of the EMU- according to the two past scenarios ? would have worsened for most European countries the industrial competitiveness.

Suggested Citation

  • Peter Nijkamp & Shunii Wang, 1998. "Winners and loosers in the European Monetary Union: A neural network analysis of spatial industrial shifts," ERSA conference papers ersa98p377, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa98p377
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    References listed on IDEAS

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    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, number 9780521558839.
    3. Freddy Heylen & André Van Poeck, 1995. "National Labour Market Institutions and the European Economic and Monetary Integration Process," Journal of Common Market Studies, Wiley Blackwell, vol. 33(4), pages 573-595, December.
    4. George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
    5. Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
    6. McKinnon, Ronald I, 1994. "A Common Monetary Standard or a Common Currency for Europe? Fiscal Lessons from the United States," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(4), pages 337-357, November.
    7. Jaeger, Albert & Parkinson, Martin, 1994. "Some evidence on hysteresis in unemployment rates," European Economic Review, Elsevier, vol. 38(2), pages 329-342, February.
    8. Krugman, Paul & Venables, Anthony J, 1990. "Integration and the Competitiveness of Peripheral Industry," CEPR Discussion Papers 363, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Ramon Tremosa-i-Balcells & Joan Costa-i-Font, "undated". "The "relative competitiveness" patterns of Spanish regions after the European Monetary Union (1999-2002)," Studies on the Spanish Economy 169, FEDEA.
    2. Joan Costa-i-Font & Ramon Tremosa-i-Balcells, "undated". "Spanish Regions and the Macroeconomic Benefits of European Monetary Union (EMU)," Studies on the Spanish Economy 89, FEDEA.

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