2017 11 wiiw bo wp 126

Engjëll Pere and Eniel Ninka

International trade in Western Balkan Countries. Analysis based on the Gravity Model (PDF)

Abstract

We adopt the gravity model to analyse the international trade relations of Western Balkan (WB) countries and of the WB region as a whole, using WIIW and World Bank data, over a period of 20 years (1995-2014).

Data show a tendency toward better integration of WB countries with the world economy, increased openness of their economies, persistence of their trade deficits, and, for most of them, an improvement of the coverage ratio.

For the region as a whole, the volume of international trade outpaced that of intra-regional trade reaching, in 2014, a difference of nearly 5 times. The main partner for the region remains the European Union, particularly Germany and Italy.

The gravity model of exports of the WB region shows that its exports are positively impacted by the common language and common borders with third countries, by trade with European Union, and large and highly industrialized countries, while distance and region’s level of per capita Gross Domestic Product both have a negative impact.

Considering the imports, the model shows that they are positively impacted by existence of common borders and language with the region, and by region’s and partner countries’s level of economic development, while the distance has again a negative impact.

Keywords:  Western Balkans, International trade relations, Gravity model, Economic integration.

JEL classification:  C59, F14, F15

Countries covered:  Albania,  Bosnia  &  Herzegovina;  Croatia,  Kosovo,  Macedonia, Montenegro, Serbia, and the Western Balkan region as a whole

The post 126 International Trade in Western Balkan Countries: Analysis Based on the Gravity Model appeared first on wiiw Balkan Observatory.

2016 11 wiiw bo wp 125

Vladimir Gligorov

The Transfer and Adjustment Problems in the Balkans (PDF)

Abstract

How to deal with significant external imbalances due to persistent cross-border financial flows which eventually dry out while accumulated foreign debts need to be financed from increased exports? Keynes and Ohlin, primarily, debated an apparently more specific issue of unilateral transfers in the case of German reparations after the World War I and that debate has had lasting influence on the theory of trade and international finance and even on the understanding of the dynamics of exchange rates in financial and fiscal adjustment. These issues have resurfaced in the discussions of financial crisis in a monetary union, like that of the euro area.

The aim of this essay is to use the arguments presented in this debate and in subsequent clarifications  and extensions to understand the development of external imbalances in the Balkans and the prolonged adjustment in the context of the financial crisis after 2008. The motivation is that this is an important topic in international macroeconomics and a recurrent problem in this region, though I will look more thoroughly only into the last episode of the financial crisis from 2008 onwards.

The essay follows the arguments advanced in this classic debate and applies them to examples of post-crisis adjustment in the Balkans (not just in the post-socialist countries, but also looking at the problems that Greece is having with servicing its large foreign debt). The essay should provide the framework for the understanding of Balkan problems of adjustment to outward transfers to service in some cases of unsustainable foreign debts. It also seeks to develop hypotheses that invite a detailed look at the data and their assessment by somewhat more in depth discussion of particular cases.

Keywords: macroeconomic imbalances, current account adjustment, debt problems, Greece, Balkans, Keynes

JEL classification: E12, E44, F32, F34

Countries covered: Balkan States, Greece

The post 125 The Transfer and Adjustment Problems in the Balkans appeared first on wiiw Balkan Observatory.

2016 08 wiiw bo wp 124

Isilda Mara and Michael Landesmann

Massive Migration and its Effect on Human Capital and Growth: The Case of Western Balkan and Central and Eastern European Countries (PDF)

Abstract

We analyse the effect of massive migration particularly from the Western Balkans and the Central and Eastern European countries on human capital and growth. In our analysis, we use a system of three equations to estimate simultaneously the effect of migration on human capital and on growth. An important driver of migration is chain migration, as well as the unemployment and income differentials  between developing and developed countries. Overall, our findings suggest that migration of highly skilled from the Western Balkan and Central Eastern European countries has been beneficial to economic growth and income convergence of these countries. Our analysis supports the positive impact of low-skilled migration on the composition of human capital in the source countries.

Keywords: migration, brain drain, brain gain, economic growth, human capital

JEL classification: F22, J24, O15, O40

Countries covered: CEE, Western Balkans

The post 124 Massive Migration and its Effect on Human Capital and Growth: The Case of Western Balkan and Central and Eastern European Countries appeared first on wiiw Balkan Observatory.

2016 06 wiiw bo wp 123

Mario Holzner, Amat Adarov and Luka Šikić

Backwardness, Industrialisation and Economic Development in Europe (PDF)

Abstract

The present work uses long-term economic development data (1952-2010) as well as a detailed industry-level panel data (1963-2011) to analyse industrialisation patterns in Europe, implications of economic backwardness and the role of European integration in facilitating industrialisation and development. We find evidence of some income convergence in Europe, but mostly in countries that were able to exploit the ‘advantages of (mild) backwardness’. Regions of extensive backwardness such as the Balkans had difficulties to catch up. Membership in the European Union helped especially more backward economies to develop faster.

Keywords: Economic development, economic growth, industrialisation, urbanisation

JEL classification: O14, O18, O43, O47

Countries covered: SEE

The post 123 Backwardness, Industrialisation and Economic Development in Europe appeared first on wiiw Balkan Observatory.

2016 06 wiiw bo wp 122

Ivo Bićanić, Milan Deskar-Škrbić and Jurica Zrnc

A Narrative Explanation of Breakpoints and Convergence Patterns in Yugoslavia and its Successor States 1952-2015 (PDF)

Countries covered: Yugoslavia

The post 122 A Narrative Explanation of Breakpoints and Convergence Patterns in Yugoslavia and its Successor States 1952-2015 appeared first on wiiw Balkan Observatory.

2016 05 wiiw bo wp 121

Eduard Alvarez, Mario Holzner, Stefan Jestl and Jordi Marti-Henneberg

Introducing Railway Time in the Balkans: Economic effects of railway construction in Southeast Europe and beyond since the early 19th century until present days (PDF)

Abstract

In this paper we analyse the economic effects of railway infrastructure at the national level for European countries as well as at the local level for Southeast European cities based on a novel railway database capturing decades of the 19th century up to the early 21th century. A panel fixed effects regression analysis at the country level indicates a positive economic impact emanating from railway infrastructure, whereby the effect appears to be even stronger for less developed Southeast European countries. In addition, a linear spatially augmented multilevel model at the city level sheds light on the positive effects resulting from railway infrastructure on urban development. Its positive spillover effects occur within countries as well as across borders.

Keywords: Railway, infrastructure, Balkans, Southeast Europe, backwardness, urban development, economic development, railway accessibility, infrastructural spillovers, multilevel model, historical analysis

JEL classification: L92, N13, N14, N73, N74, N93, N94, O18, O47, R11, R41

The post 121 Introducing Railway Time in the Balkans: Economic effects of railway construction in Southeast Europe and beyond since the early 19th century until present days appeared first on wiiw Balkan Observatory.

2016 03 wiiw bo wp 120

Elizabeth Dávid-Barrett, Vladimir Gligorov and Jelena Krstić

Corruption Risk and Legitimacy in Outsourced Public Service Provision: Evidence from Serbia (PDF)

Abstract

The provision of public services is an important way for weak states to build legitimacy, as long as the public regards the allocation of resources as impartial and fair. However, in societies where resources have long been distributed according to particularist and informal ties, it may be difficult to ensure an impartial allocation. We argue that the challenge of using service provision to build state legitimacy is complicated by the wider trend towards increasing private provision of public services. This makes it harder to hold the state to account for service provision, especially in transition and developing-country contexts where the distinction between the public and private spheres is in any case blurred. To explore these issues in the context of Serbia, the paper focuses on the public procurement process. We discuss process and outcome indicators of corruption risk in Serbian public procurement, assess the institutional control framework, and consider four recent cases of irregularities that are indicative of corruption risk.

Keywords: public procurement, outsourcing, corruption, patronage, legitimacy, transition, ccountability

Countries covered: Serbia

The post 120 Corruption Risk and Legitimacy in Outsourced Public Service Provision: Evidence from Serbia appeared first on wiiw Balkan Observatory.

2016 02 wiiw bo wp 119

Petre Caraiani

A quantitative explanation of the low productivity in South-Eastern European economies: the role of misallocations (PDF)

Abstract

It is well known that Southeast Europe is the least developed area in Europe. Using a methodology based on the idea of heterogeneous firms, this paper studies the degree to which firm heterogeneity and resource misallocation can explain the lower TFP in Southeast Europe. The results show a significant degree of heterogeneity and resource misallocation, although the results are sensitive to the calibration used. There are evidences that firm-level productivity depends on firm size, while taxation negatively influences it. There is also some evidence that foreign-owned firms are more competitive, as are exporting firms. Results are generally robust across the various specifications used, but less so relative to the measure of productivity used. Additional evidences suggest that infrastructure-related obstacles as well as institutional instability drive the output distortion, while no factor is underlined as a significant driver of capital distortions, suggesting the need for better data sources for the latter.

Keywords: total factor productivity, firm heterogeneity, South East Europe

JEL classification: D24, O47, L25

Countries covered: SEE

The post 119 A quantitative explanation of the low productivity in South-Eastern European economies: the role of misallocations appeared first on wiiw Balkan Observatory.

Zoran Aralica and Nebojsa Stojcic

Regional Patterns of Deindustrialization and Prospects for Reindustrialization in South and Central East European Countries (PDF)

Abstract

Past decades in Central and South East European countries have been characterised with shrinking of manufacturing output and employment. However, little is known about the causes, nature and the extent of deindustrialization in these countries at the regional level. The objective of this research is to explore the regional patterns of deindustrialization and determinants of reindustrialization in several CEECs and SEECs. Our analysis presents one of the first attempts to address these processes at regional level while taking into account the spatial effects. A spatial panel Durbin econometric technique is applied to data covering 2006 – 2012 period to discern inter – regional from intra – regional effects. Results of investigation reveal spatial clustering of economic activity. Traits of deindustrialization are observed in metropolitan areas and in regions on eastern belt of these countries while other regions reveal traits of shift towards high technology intensive manufacturing. Recommendations for future policy makers are provided.

Keywords: deindustrialization, reindustrialization, regions, spatial analysis

Countries covered: CEE, SEE

The post 118 Regional Patterns of Deindustrialization and Prospects for Reindustrialization in South and Central East European Countries appeared first on wiiw Balkan Observatory.

2015 11 wiiw bo wp 117

Roman Römisch

Estimating agglomeration in the EU and the Western Balkan regions (PDF)

Abstract

The paper develops a model to consistently estimate agglomeration and agglomeration economies in European NUTS3 regions. It is based on the empirical observation that the size of population across regions as well as of other economic variables tend to follow a Zipf distribution. Furthermore, the model is extended to capture agglomeration effects in traditional regional convergence estimations. Agglomeration is analysed for 25 European countries, including Macedonia and Serbia, and the years 2000 to 2012. Results indicate significant agglomeration effects on the level and growth of regional economic development, with agglomeration and agglomeration economies generally declining in the Western European countries and increasing the Central East and South East European countries.

Keywords: Zipf’s Law, agglomeration economies, Europe, Western Balkans

Countries covered: European Union, Western Balkans

The post 117 Estimating agglomeration in the EU and the Western Balkan regions appeared first on wiiw Balkan Observatory.