landesmann

Competitiveness/Structural Convergence in Central and Eastern Europe: 

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?‘

Competitiveness/Structural Convergence in Central and Eastern Europe – Topics to be discussed: 

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

Structural Convergence: 

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)

Structural features in the catching-up process: 

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

The aggregate picture: 

The aggregate picture

GDP per head, real growth annual averages 1993-2000 and 2000-2006, in percent EU-25 countries, incl. Bulgaria and Romania: 

GDP per head, real growth annual averages 1993-2000 and 2000-2006, in percent EU-25 countries, incl. Bulgaria and Romania Source: AMECO Database

Growth of gross domestic product: Wider Europe% annual change, 2006 and 2006-2020 forecasts: 

Growth of gross domestic product: Wider Europe % annual change, 2006 and 2006-2020 forecasts

GDP per head at PPS, EU-25 countries, incl. Bulgaria and Romania : 

Source: AMECO Database GDP per head at PPS, EU-25 countries, incl. Bulgaria and Romania

The employment-output relationship: 

The employment-output relationship

Employment and GDP growth 1995 = 100: 

Employment and GDP growth 1995 = 100 EU-15 NMS-10

Slide11: 

Source: wiiw Database Employment growth rates 2000-2006 in %

Unemployment rates 2000-2007LFS, %, annual average: 

Unemployment rates 2000-2007 LFS, %, annual average Source: wiiw Database

Employment growth rates: 

Employment growth rates Source: wiiw Database

Structural break in employment-to-GDP relationship: 

Structural break in employment-to-GDP relationship 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

GDP growth and Current Account balance : 

GDP growth and Current Account balance Source: wiiw Database

GDP growth and Current Account balance: 

GDP growth and Current Account balance Panel estimation of CA change (in % of GDP) on real GDP growth (annual data)

Structural change, convergence and the U-shaped pattern of employment growth: 

Structural change, convergence and the U-shaped pattern of employment growth

Stylized U-shaped pattern of employment growth in NMs: 

Stylized U-shaped pattern of employment growth in NMs Employment levels Time Strong 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)

Slide19: 

Divergence of employment shares from EU-15 structure, 2005

Employment growth in sectors, 1999-2005: 

Employment growth in sectors, 1999-2005

Slide21: 

Divergence of employment shares from EU-15 structure, 2005

Employment growth in sectors, 1999-2005: 

Employment growth in sectors, 1999-2005

Slide23: 

Value added, difference to EU-15, 1999

Slide24: 

Value added, difference to EU-15, 2005

Slide25: 

Agriculture NMS-7 (CZ, HU, SK, SI, EE, LV, LT) Poland Industry NMS-7 (CZ, HU, SK, SI, EE, LV, LT) Poland Output and Employment, 1995-2005

Slide26: 

Basic Services (Trade, Restaurants, Hotels, etc.) NMS-7 (CZ, HU, SK, SI, EE, LV, LT) Poland Financial and Business Services NMS-7 (CZ, HU, SK, SI, EE, LV, LT) Poland Output and Employment, 1995-2005

Growth by sectors, 1995-2005 in % p.a.: 

Growth by sectors, 1995-2005 in % p.a. NMS-7 Poland

Wage-productivity dynamics and the changing pattern of international specialisation: 

Wage-productivity dynamics and the changing pattern of international specialisation

Poland: Dynamics of wages, productivity and unit labour costs, 2000-2006Relative to Austria (2002=100): 

Poland: Dynamics of wages, productivity and unit labour costs, 2000-2006 Relative to Austria (2002=100)

Czech Republic: Dynamics of wages, productivity and unit labour costs, 2000-2006Relative to Austria (2002=100): 

Czech Republic: Dynamics of wages, productivity and unit labour costs, 2000-2006 Relative to Austria (2002=100)

Hungary: Dynamics of wages, productivity and unit labour costs, 2000-2006Relative to Austria (2002=100): 

Hungary: Dynamics of wages, productivity and unit labour costs, 2000-2006 Relative to Austria (2002=100)

Bulgaria: Dynamics of wages, productivity and unit labour costs, 2000-2005Relative to Austria (2002=100): 

Bulgaria: Dynamics of wages, productivity and unit labour costs, 2000-2005 Relative to Austria (2002=100)

Romania: Dynamics of wages, productivity and unit labour costs, 2000-2006Relative to Austria (2002=100): 

Romania: Dynamics of wages, productivity and unit labour costs, 2000-2006 Relative to Austria (2002=100)

Market shares in EU-25 imports: 

Market shares in EU-25 imports Czech Republic Hungary

Market shares in EU-25 imports: 

Market shares in EU-25 imports Poland Slovak Republic

Market shares in EU-25 imports: 

Market shares in EU-25 imports Bulgaria Romania

Dynamics of international specialisation: 

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

Intra-industry trade position: Vertical product differentiation and quality up-grading: 

Intra-industry trade position: Vertical product differentiation and quality up-grading Calculations from detailed (6-digit) product level trade statistics Export relative unit values (in EU 25 imports)

Export unit value ratios by industrial groupings(groupings 1 – low tech, 3 – medium/high tech): 

Export unit value ratios by industrial groupings (groupings 1 – low tech, 3 – medium/high tech) 1 – low tech 3 – medium/high tech

Price and quality competition in EU-15 markets 1995/98 - 2002/04 by country groups: 

Price and quality competition in EU-15 markets 1995/98 - 2002/04 by country groups Low tech industries Medium-high tech industries

Import penetration ratios in EU-Northin medium high-tech industries: 

Import penetration ratios in EU-North in medium high-tech industries

Import penetration ratios in USA in medium high-tech industries: 

Import penetration ratios in USA in medium high-tech industries

Import penetration ratios in Japanin medium high tech industries: 

Import penetration ratios in Japan in medium high tech industries

The impact of structural convergence – example from the labour market:Skill up-grading, the pressure on the low-skilled and supply side adjustment: 

The impact of structural convergence – example from the labour market: Skill up-grading, the pressure on the low-skilled and supply side adjustment

Employment by educational categories1992-2005: 

Employment by educational categories 1992-2005 Hungary: (Index: 1992 = 100) Poland: (Index: 1992 = 100) Czech Republic: (Index: 1993 = 100) 2005

Skill shift: 

Skill shift Decomposition into ‘within’ and ‘between’ effects: E stands for employment, S for skilled workers overstrike denotes average over time; the index i denotes industries.

Grouping of industries into low-, medium- and high-skill industries; EU-27: 

Grouping of industries into low-, medium- and high-skill industries; EU-27 High-skill industries

Skill shifts – between and within components in low-, medium- and high-skill sectors,1999-2005: 

Skill shifts – between and within components in low-, medium- and high-skill sectors,1999-2005 Source: wiiw CZ HU SI SK L=low-skill sectors, M=medium-skill sectors, H=high-skill sectors High education

Skill shifts – between and within components in low-, medium- and high-skill sectors,1999-2005: 

Skill shifts – between and within components in low-, medium- and high-skill sectors,1999-2005 Source: wiiw EU-North EU-South NMS-4 L=low-skill sectors, M=medium-skill sectors, H=high-skill sectors High education

Skill shifts – between and within components in low-, medium- and high-skill sectors,1999-2005: 

Skill shifts – between and within components in low-, medium- and high-skill sectors,1999-2005 Source: wiiw EU-North EU-South NMS-4 L=low-skill sectors, M=medium-skill sectors, H=high-skill sectors Low education

Outsourcing: Shares in total EU-27 imports, focus on MH (largely CEEs) and China; 1995 and 2005 (in % of total): 

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 Processed Parts Final Total HL HH USA HL HH USA HL HH USA HL HH USA

Skill up-grading processes in NMS and OMS:: 

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).

Labour supply response: 

Labour supply response

Growth of labour force, 15-64, 1999 - 2003, in %: 

Growth of labour force, 15-64, 1999 - 2003, in %

Share of population in education groupsin % of total population in education groups: 

Share of population in education groups in % of total population in education groups Low High

The regional dimension: 

The regional dimension

Size of regional income disparities in the EU-27 regionsCoefficient of Variation, regional GDP per capita at PPS.NUTS-3 regions, 1995 & 2002: 

Size of regional income disparities in the EU-27 regions Coefficient of Variation, regional GDP per capita at PPS. NUTS-3 regions, 1995 & 2002

Regional Clusters: 

Regional Clusters

Regional GDP per head, 2002in percent of country averages, cluster weighted averages : 

Regional GDP per head, 2002 in percent of country averages, cluster weighted averages

Regional GDP growth, 1995-2002average yearly growth rates, relative to country average, cluster weighted averages : 

Regional GDP growth, 1995-2002 average yearly growth rates, relative to country average, cluster weighted averages

Population (15-64 years): Region types and educational attainment levels, 2003: 

Population (15-64 years): Region types and educational attainment levels, 2003

Employment rates – of persons with completed tertiary education(employment as a proportion of the highly educated working-age population 25-64 years), 2003: 

Employment rates – of persons with completed tertiary education (employment as a proportion of the highly educated working-age population 25-64 years), 2003

Employment rates – of persons with low level education(employment as a proportion of the low educated working-age population 25-64 years), 2003: 

Employment rates – of persons with low level education (employment as a proportion of the low educated working-age population 25-64 years), 2003

Regional net migration flows5 year periods,in % of the labour force (cumulative) : 

Regional net migration flows 5 year periods,in % of the labour force (cumulative)

Summary points regarding Structural convergence and competitiveness: 

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)

Methodological remarks regarding research on structural convergence:: 

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