landesmann
TRANSCRIPT
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
www.wiiw.ac.at
Competitiveness/Structural Convergence in
Central and Eastern Europe
Michael A. Landesmann
OENB/SUERF Meeting 22 June 2007
‚Central and Eastern Europe: Is Convergence on Track?‘
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Competitiveness/Structural Convergence in Central and
Eastern Europe – Topics to be discussed
Structural convergence:
- Is it to be expected? Why are we interested?
- Output and employment: structures and behaviour
- Productivity – wage dynamics
- Features of the labour markets, particularly reg. skills
- Regional patterns
Competitiveness:- Trade balances and current accounts
- Dynamics of inter- and intra-industry specialisation
- Outsourcing dynamic
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Structural Convergence A. What is it? B. Why is it interesting? C. Is it to be expected?
Ad B. - Structural convergence shapes Balassa-Samuelson process- Interest in structural convergence/divergence process per se: involves
adjustment processes/costs; changes in behavioural relationships; important for policy planning.
Ad C. - Yes: Income growth implies productivity level (supply side) convergence and
convergence of demand structures- No: Scope for specialisation structures also in an integrated European space (factor endowments, size of country, geographic location, etc.)
Institutional specificities (partly still linked to legacy of transition)
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Structural features in the catching-up process
Aggregate issues of catching-up:
- Growth
- GDP-Employment relationship
- GDP growth – current accounts Structural features and convergence processes in
Central and Eastern Europe:
- output and employment structures
- productivity dynamics
- link to international specialisation patterns
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
www.wiiw.ac.at
The aggregate picture
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GDP per head, real growth annual averages 1993-2000 and 2000-2006, in percent EU-25 countries, incl. Bulgaria and Romania
0
1
2
3
4
5
6
7
8
9
EU
-15
EU
-25
Aus
tria
Bel
gium
Ger
man
yD
enm
ark
Fin
land
Fra
nce
Uni
ted
Irel
and
Luxe
mbo
urN
ethe
rland
sS
wed
en
Spa
inG
reec
eIt
aly
Por
tuga
l
Bul
garia
Cze
chE
ston
iaH
unga
ryLi
thua
nia
Latv
iaP
olan
dR
oman
iaS
lova
kia
Slo
veni
a
EU
-15
EU
-25
Aus
tria
Bel
gium
Ger
man
yD
enm
ark
Fin
land
Fra
nce
Uni
ted
Irel
and
Luxe
mbo
urN
ethe
rland
sS
wed
en
Spa
inG
reec
eIt
aly
Por
tuga
l
Bul
garia
Cze
chE
ston
iaH
unga
ryLi
thua
nia
Latv
iaP
olan
dR
oman
iaS
lova
kia
Slo
veni
a
1993-2000 2000-2006
Source: AMECO Database
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Growth of gross domestic product:
Wider Europe% annual change, 2006 and 2006-2020 forecasts
1.1
2.31.5
2.8
4.1
5.24.8
5.2
7.36.8
6.05.8
8.9
7.4
6.1
3.2
6.86
9.6
12.1
7.1 7
2.3
4.9
6.14.6
6.5
5.6 5.2
2.6
0
2
4
6
8
10
12
14
2003 2004 2005 2006 2006-2015
EU-15 NMS-10 Bu,Ro,Cr Turkey SEE-5 Ukraine
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
www.wiiw.ac.at
The employment-output relationship
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90
100
110
120
130
140
150
160
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Employment GDP Employment GDP
Employment and GDP growth 1995 = 100
EU-15 NMS-10
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Source: wiiw Database
-4
-2
0
2
4
6
CZ HU PL SK SI BG RO
2000 2001 2002 2003 2004 2005 2006
Employment growth rates 2000-2006 in %
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4
8
12
16
20
2000 2001 2002 2003 2004 2005 2006
CZ HU PL SK SI BG RO
Unemployment rates 2000-2007LFS, %, annual average
Source: wiiw Database
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Employment growth rates
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
CZ HU PL SK SI EE LV LT BG RO1996-2000
2001-2006
Source: wiiw Database
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Structural break in employment-to-GDP
relationship
1995-2000 2001-2006
CEE4 0.117 0.183Other NMS -0.261 0.199
Separate Fixed Effects panel regressions of log(employment) on log(GDP)
Note: CEE4 is CZ, SK, SI, HU; Other NMS are PL, EE, LV, LT, BG, RO
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GDP growth and Current Account balance
-10
-8
-6
-4
-2
0
2
4
6
8
CZ HU PL SK SI BG RO
GDP 1995-99
CA 1995-99
GDP 2000-06
CA 2000-06
Source: wiiw Database
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GDP growth and Current Account balance
Panel estimation of CA change (in % of GDP) on real GDP growth (annual data)
1995-1999 2000-2006CEE5 -0.46 -0.12Baltics -0.52 -0.25Romania & Bulgaria -0.63 -0.45
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
www.wiiw.ac.at
Structural change, convergence and the
U-shaped pattern of employment growth
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Stylized U-shaped pattern of employment
growth in NMs
Employment levels
TimeStrong presence of sectors with declining output shares and strong productivity catching-up
Increasing weight of sectors with strong output growth and lower productivity catching-up
Aggregate GDP growth / catching-up and convergence in output structures (with more advanced economies)
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-9 -6 -3 0 3 6 9 12
Health and social work
Education
Public administration
Community services
low skill sectors (G-I)
high skill sectors (J,K)
Market services
low skill sectors
medium skill sectors
high skill sectors
Secondary sector
Primary sector
Divergence of employment shares from EU-15 structure, 2005
NMS-4 NMS-7
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Employment growth in sectors,
1999-2005
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
Health and social work
Education
Public administration
Community services
low skill sectors (G-I)
high skill sectors (J,K)
Market services
low skill sectors
medium skill sectors
high skill sectors
Secondary sector
Primary sector
Total Employed
NMS-4 NMS-7
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-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
Health and social work
Education
Public administration
Community services
low skill sectors (G-I)
high skill sectors (J,K)
Market services
Secondary sector
Primary sector
NMS-4 NMS-7 PL
Value added, difference to EU-15, 2005
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40
60
80
100
120
140
1995 1997 1999 2001 2003 2005
AgricultureNMS-7 (CZ, HU, SK, SI, EE, LV, LT)
40
60
80
100
120
140
1995 1997 1999 2001 2003 2005
Poland
60
80
100
120
140
160
1995 1997 1999 2001 2003 2005
IndustryNMS-7 (CZ, HU, SK, SI, EE, LV, LT)
60
80
100
120
140
160
180
1995 1997 1999 2001 2003 2005
Poland
Output and Employment, 1995-2005
Output Employment
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60
80
100
120
140
160
180
1995 1997 1999 2001 2003 2005
Basic Services (Trade, Restaurants, Hotels, etc.)
NMS-7 (CZ, HU, SK, SI, EE, LV, LT)
60
80
100
120
140
160
180
1995 1997 1999 2001 2003 2005
Poland
60
80
100
120
140
160
1995 1997 1999 2001 2003 2005
Financial and Business Services
NMS-7 (CZ, HU, SK, SI, EE, LV, LT)
6080
100120140160
180200
1995 1997 1999 2001 2003 2005
Poland
Output and Employment, 1995-2005
Output Employment
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-6-4
-2024
68
Agriculture, forestry,fishing
Industry total Trade, hotels,restaurants
Finance and businessserv.
Value added Productivity Employment
Growth by sectors, 1995-2005 in % p.a.NMS-7
-6-4
-20
24
68
Agriculture, forestry,fishing
Industry total Trade, hotels,resaurants
Finance and businessserv.
Poland
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
www.wiiw.ac.at
Wage-productivity dynamics and the changing
pattern of international specialisation
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Poland: Dynamics of wages,
productivity and unit labour costs, 2000-2006Relative to Austria (2002=100)
0
20
40
60
80
100
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Totalmanufacturing Textiles Leather Machinery
Electricalequipment Transport
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Bulgaria: Dynamics of wages,
productivity and unit labour costs, 2000-2005Relative to Austria (2002=100)
0
30
60
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Wag
es
Pro
duct
ivity
Uni
t lab
.cos
ts
Totalmanufacturing Textiles Leather Machinery
Electricalequipment Transport
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Market shares in EU-25 imports
00,5
11,5
22,5
low tech medium-lowtech
medium-hightech
high tech officemachin.&
comp.
1995 2000 2005Czech Republic
00,5
11,5
22,5
low tech medium-lowtech
medium-hightech
high tech officemachin.&
comp.
1995 2000 2005Hungary
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Market shares in EU-25 imports
00,5
11,5
22,5
low tech medium-lowtech
medium-hightech
high tech officemachin.&
comp.
1995 2000 2005Poland
00,20,40,60,8
1
low tech medium-lowtech
medium-hightech
high tech officemachin.&
comp.
1995 2000 2005Slovak Republic
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Market shares in EU-25 imports
00,20,40,60,8
low tech medium-lowtech
medium-hightech
high tech officemachin.&
comp.
1995 2000 2005Bulgaria
0
0,5
1
1,5
low tech medium-lowtech
medium-hightech
high tech officemachin.&
comp.
1995 2000 2005Romania
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Dynamics of international specialisation
Unbalanced productivity growth plus wage drift shifts comparative
advantage structures in Central-Eastern Europe
FDI allocation reflects these shifts and reinforces them Result is up-grading of positions of CEECs in international trade
specialisation (inter- and intra-industry)
Outsourcing story important (and consistent with above) CEECs become important locations for industrial production (like
other successful catching-up regions) and net importers of
business and financial services
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Export unit value ratios by industrial groupings(groupings 1 – low tech, 3 – medium/high tech)
-0.4
-0.15
0.1
EU-15 NMS ACCs Turkey Tigers1
Tigers2
China
period 1: 1995-1997period 2: 2002-2004
period 1: 1995-1997period 2: 2002-2004
1 – low tech 3 – medium/high tech
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Import penetration ratios in USA
in medium high-tech industries
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
EuropeSouth
Ireland EastEurope
Tigers 1Tigers 2 China India SouthAmerica
Mexico EFTA RestOECD
Japan EU NorthRest ofWorld
1980-1987 1988-1992 1993-1996 1997-2000
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Import penetration ratios in Japan
in medium high tech industries
0.0
1.0
2.0
3.0
4.0
5.0
EuropeSouth
Ireland EastEurope
Tigers 1 Tigers 2 China India SouthAmerica
Mexico EFTA RestOECD
EU North Rest ofWorld
1980-1987 1988-1992 1993-1996 1997-2000
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
www.wiiw.ac.at
The impact of structural convergence –
example from the labour market:
Skill up-grading, the pressure on the low-skilled and
supply side adjustment
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Employment by educational categories1992-2005
405060708090
100110120130140
1992 1994 1996 1998 2000 2002 2004
Hungary:(Index: 1992 = 100)
40
60
80
100
120
140
160
180
1993 1995 1997 1999 2001 2003 2005
Poland:(Index: 1992 = 100)
40
60
80
100
120
140
1993 1995 1997 1999 2001 2003 2005
Czech Republic:(Index: 1993 = 100)
Primary education
Secondary education
Tertiary education
Total employment
2005
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Skill shift
Decomposition into ‘within’ and ‘between’ effects:
i
iii
ii seses
where
jj
ii
E
Ee , iii ESs / and ESs /
E stands for employment, S for skilled workers
overstrike denotes average over time; the index i denotes industries.
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Skill shifts – between and within components in
low-, medium- and high-skill sectors,1999-2005
-1
0
1
2
3
4
L M H L M H L M H L M H
between within total skill shift
Source: wiiw
CZ HU SI SK
L=low-skill sectors, M=medium-skill sectors, H=high-skill sectors
High education
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49
Skill shifts – between and within components in
low-, medium- and high-skill sectors,1999-2005
-2
0
2
4
6
L M H L M H L M H
between within total skill shift
Source: wiiw
EU-North EU-South NMS-4
L=low-skill sectors, M=medium-skill sectors, H=high-skill sectors
High education
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Skill shifts – between and within components in
low-, medium- and high-skill sectors,1999-2005
-8
-6
-4
-2
0
2
4
between within total skill shift
Source: wiiw
EU-North EU-South NMS-4
L=low-skill sectors, M=medium-skill sectors, H=high-skill sectors
Low education
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0
510
15
20
95 05 95 05 95 05 95 05 95 05 95 05 95 05 95 05
low medium medium-high high
Outsourcing: Shares in total EU-27 imports, focus on MH
(largely CEEs) and China; 1995 and 2005 (in % of total)
Source: wiiw
CN MH CN MH CN MH CN MH
0
20
40
60
95 059505 9505 9505 9505 9505 9505 9505 9505 9505 950595 05
Processed Parts Final Total
HL HH USA HL HH USA HL HH USA HL HH USA
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Skill up-grading processes in NMS and OMS:
The decomposition analysis of ‘within’ and ‘between’ effects of
skill up-grading shows strong within effects and also a ‘sector
bias’ effect (towards sectors with higher skill content)
The CEECs also show a strong shift in sectoral employment
structures towards high-skill sectors – ‘between effect’.
Focussing on the shares of the low skilled we see a particularly
strong skill up-grading pressure (sharp contraction of the share of
low skilled workers) in the Northern countries in medium- & high-
skill industries; evidence of up-grading pressure from
catching-up economies (see also outsourcing story).
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
www.wiiw.ac.at
Labour supply response
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Growth of labour force, 15-64, 1999 - 2003, in %
-15
-10
-5
0Low educated
EU-15 EU-S NMS-4 NMS-7 NMS-8
0
5
10
15
20
25
EU-15 EU-S NMS-4 NMS-7 NMS-8
Highly educated
0
5
10
15 Medium educated
EU-15 EU-S NMS-4 NMS-7 NMS-8
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0
5
10
15
20
25
25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64
NMS-7 NMS-8 EU-10
Share of population in education groupsin % of total population in education groups
Low
0
5
10
15
20
25
25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64
High
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
www.wiiw.ac.at
The regional dimension
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0.00
0.10
0.20
0.30
0.40
0.50
0.60
Sw
eden
Net
herla
nds
Fin
land
Irel
and
Aus
tria
Den
mar
k
Bel
gium
Fra
nce
Ger
man
y
Uni
ted
Kin
gdom
Spa
in
Italy
Por
tuga
l
Gre
ece
OM
S
NM
S
Slo
veni
a
Lith
uani
a
Bul
garia
Rom
ania
Hun
gary
Cze
ch R
epub
lic
Est
onia
Pol
and
Slo
vaki
a
Latv
ia
1995 2002
Size of regional income disparities in the EU-27 regionsCoefficient of Variation, regional GDP per capita at PPS.
NUTS-3 regions, 1995 & 2002
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Agriculture regions
Industry regions
Basic service regions
Business service regions
Capital cities
Regional Clusters
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60
100
140
180
Ca
pita
ls
Ag
ricu
ltura
l
To
uri
sm
Min
ing
Ba
sic
Ind
ust
ry
Fw
loo
kin
gin
d
Ba
sic
Se
rvic
es
Bu
sin
ess
Se
rvic
es
NMS North EU South EU ALL
Regional GDP per head, 2002in percent of country averages, cluster weighted averages
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-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Ca
pita
ls
Ag
ricu
ltura
l
To
uri
sm
Min
ing
Ba
sic
Ind
ust
ry
Fw
loo
kin
gin
d
Ba
sic
Se
rvic
es
Bu
sin
ess
Se
rvic
es
NMS North EU South EU ALL
Regional GDP growth, 1995-2002average yearly growth rates, relative to country average, cluster weighted averages
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60
80
100
120
140
160
180
Ca
pit
al
cit
ies
Ag
ric
ult
ura
l
To
uri
sm
Min
ing
Old
Ind
us
tria
l
Ne
wIn
du
str
ial
Se
rvic
e
primary secondary tertiary
Population (15-64 years): Region types and educational
attainment levels, 2003
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69.0 to 75.0
75.0 to 80.0
80.0 to 82.0
82.0 to 84.0
84.0 to 86.0
86.0 to 94.0
Employment rates – of persons with completed tertiary education(employment as a proportion of the highly educated working-age population 25-64 years), 2003
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23.0 to 38.0
38.0 to 45.0
45.0 to 51.0
51.0 to 56.0
56.0 to 59.0
59.0 to 63.0
63.0 to 82.0
Employment rates – of persons with low level education(employment as a proportion of the low educated working-age population 25-64 years), 2003
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Summary points regarding
Structural convergence and competitiveness
Aggregate catching-up proceeds (pretty close to absolute convergence model)
Structural break in GDP-employment relationship (explanation lies partly in structural dynamic) – aggregate U-shaped pattern
Sectoral convergence in output and employment structures (with some important exceptions)
Uneven productivity (catching-up) dynamic across sectors plus wage drift
Changing pattern of international (intra-European) specialisation (dynamic Ricardian model with Gerschenkron effect and transitory dynamic)
Outsourcing dynamic
Skills: strongly negative employment trends of the least qualified; sharp rise in the demand for highly skilled; labour supply adjustments (demography; educational choices; international and national migration flows)
Regional differentiation marked (linked to tertiarisation and industry clustering)
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Methodological remarks regarding research on
structural convergence:
Keep track of behavioural structural breaks
Keep track of transitory dynamics
Full structural convergence not to be expected;
heterogeneity remains a feature of an integrated
economic space