Abstract
As an EU member state since 1995, Austria has taken part in all subsequent European integration steps: the deepening of EU integration via the single market and Economic and Monetary Union (EMU) with the introduction of the euro, and the enlargement of the EU, in particular the grand enlargements of the EU since 2004. There have been and will be several anniversaries for Austria to celebrate around the years 2014 and 2015: 25 years since the fall of the Iron Curtain and hence the expansion of new market opportunities through the opening up of Eastern Europe; 20 years of EU membership and 15 years of EMU (euro) membership; 10 years since the start of the major EU enlargement towards Eastern Europe. With the Croatian accession in 2013, the EU now counts 28 members. To capture the effects of the last 25 years of Austria’s integration into Europe, an integration model is estimated. This is able to reproduce the main integration effects theoretically expected from the regime changes since 1989. In this respect, the Austrian integration model could also serve as a prototype for other EU member states. Overall, the participation in all integration steps since 1989 has added approximately 1 % to Austria’s real GDP per year.
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Notes
- 1.
In a comprehensive ex ante study Breuss et al. (1994) estimated the potential macroeconomic and sectoral effects of Austria’s EU accession with the WIFO macro cum input–output model. Keuschnigg and Kohler (1996) estimated, also ex ante, the possible Austrian integration effects of EU accession with a single-country dynamic general equilibrium model (sectoral and macroeconomic results).
- 2.
- 3.
To estimate ex post the integration effects of Austria’s EU membership, on earlier occasions a similar small country macro model approach has been applied (Breuss 2010a, 2013c). In the case of a comparison of the integration performance of Austria, Finland, and Sweden in the EU (Breuss 2003b), and for the evaluation of the EU accession of Bulgaria and Romania (Breuss 2010b), small macro-integration models of a similar type as the present integration model were estimated to simulate the specific integration features of these countries.
- 4.
The literature treats ‘regime changes’ in the context of ‘regime switching models’ using Markov chain econometrics (e.g., see Hamilton 2008). Generally, many economic time series occasionally exhibit dramatic breaks in their behaviour, associated with events such as financial or other crises. In our case, the breaks occurred due to four integration shocks (1989, 1995, 1999, and 2004/07) of European integration.
- 5.
Badinger and Breuss (2005) analyzed the sectoral change of mark-up pricing after EU accession in Austria. The results were mixed. Some sectors had pronounced mark-up reductions (mining and quarrying, wholesale and retail trade, financial services and real estate), whereas in other sectors no notable mark-up change was found.
- 6.
Prior to EU accession, candidate countries of the 2004 and 2007 enlargements had already abolished trade tariffs with the old EU member states in the context of the asymmetric liberalization process of the Europe agreements (EAs): The EU eliminated tariffs and NTBs on imports from the CEECS in 1997, and the CEECs did so by 2002. After EU accession, the new member states entered the customs union of the EU and participated in the EU’s single market program. That meant, on the one hand, adjustments of the national external tariff to EU’s CET and the abolition of border controls. Hence, the remaining trade costs were eliminated.
- 7.
Levchenko and Zhang (2012) estimate welfare gains due to European trade integration since 2000 in the West (average +0.14 %; Austria, with +0.39 %, is the biggest winner) and in the East (+7.94 %). The biggest winners are Estonia (+17.25 %), Latvia (+11.93 %), and Bulgaria (+10.57); the welfare gains of the other CEES are below 10 %.
- 8.
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Appendices
Appendix 1: The Estimated Integration Model for Austria
Real GDP (Cobb–Douglas production function; bn. EUR, 2005 prices) GDPR = (TFP) * ((K^0.26) * (EE^0.74)) |
Total factor productivity (TFP) DLOG(TFP) = −0.0117597194657 + 0.975350400527 * DLOG(AP) + 0.00368866066045 * RAD + 0.000364739422324 * D(XQUOTA) |
Research & development: R&D in % of GDP RAD = −0.771758304314 + 0.0900123360683 * LOG(GDPR) + 0.918022689413 * RAD(−1) + 0.450963636885 * D_1995_2015 |
Private consumption deflator DLOG(PCN) = 0.974494644295 * DLOG(CPI) − 0.0100090054202 * D_2002 |
Private consumption index: National definition DLOG(CPI) = 0.00685148354097 + 0.210308218697 * MARKUP * DLOG(ULC) + 0.232379177613 * MARKUP * DLOG(PM) + 0.407094518941 * DLOG(CPI(−1)) + 0.014977340126 * D_1984 |
Harmonized index of consumer prices: HICP DLOG(HICP) = 0.974397164556 * DLOG(CPI) |
GDP deflator DLOG(PGDP) = 0.883285761406 * DLOG(CPI) + 0.432199804412 * DLOG(PX) − 0.275658593485 * DLOG(PM) |
Wage per employee (Phillips curve) DLOG(WE) = −0.00688732197519 + 0.658922532489 * DLOG(CPI) + 0.439378457835 * DLOG(AP(−1)) + 0.0643927893279 * 1 / U − 0.059812308921 * D_1980 |
Wages WN = (WE * E) / 1000 |
Taylor rule for the euro area RSH_EA18 = 2 + DLOG(HICP_EA18) * 100 + 0.5 * (DLOG(HICP_EA18) * 100 − 2.0) + 0.5 * (DLOG(GDPR_EA18) * 100 − 1.5) |
Interest rate, short-term RSH = −5.5262147236 + 0.667905535844 * RSH_EA18 + 0.0136803208004 * LOG(CPI) * 100 − 2.35378845633 * D_1983 |
Interest rate, long-term RLH = 0.400105575997 + 0.23428902887 * RSH + 0.152448613707 * DLOG(CPI) * 100 + 0.674036427571 * RLH(−1) |
Capital demand DLOG(K) = 0.000347597990373 + 0.000690816072569 * D(BUD) − 0.000555726084856 * PRDEF + 0.10749650936 * DLOG(GDPR) + 0.000211122052822 * D(DLOG(WE) * 100 − (RLH − DLOG(PGDP) * 100)) + 0.879984556303 * DLOG(K(−1)) |
Capital coefficient: K/Y KY = (K / GDPR) |
Labor demand (total employment) DLOG(EE) = 0.174447800692 * DLOG(GDPR) − 0.0646686954094 * DLOG(WE) + 0.00183780684966 * D(BUD) + 0.688076954685 * DLOG(EE(−1)) |
Labor demand (employees) DLOG(E) = −0.0020926578709 + 0.787853784774 * DLOG(EE) + 0.174748348465 * DLOG(GDPR) + 0.262099988497 * DLOG(E(−1)) |
Labor supply: Labor force LS = EE + US |
Labor productivity (total economy) AP = (GDPR / EE) |
Unit labor costs ULC = (WN / GDPR) |
Unemployment rate (Okun’s law) D(U) = 0.0856028080042 − 7.48943374025 * DLOG(GDPR) + 0.00304288354196 * D(POP − MIGR_OST89 − MIGR_EU95 − MIGR_EUEW04) + 0.804600244209 * D_1982 − 0.0362182637141 * BUD |
Unemployment, total in 1000 persons US = ((U * LS) / 100) |
Exports of goods and services, total, real DLOG(XGSR) = −0.0436572302437 + 2.22907387142 * DLOG(GDPR_EU28) − 0.555430829575 * DLOG(REER_IC37) + 0.0393558155438 * D_1989_2015 |
Exports of goods and services, total, nominal bn. EUR XGSN = XGSR * (PX / 100) |
Export quota: Exports goods and services in % of GDP XQUOTA = (XGSN / GDPN) * 100 |
Imports of goods and services, total, real LOG(MGSR) = −5.3567516112 + 1.77756769413 * LOG(GDPR) + 0.228751889216 * D_1989_2015 |
Imports of goods and services, total, nominal bn. EUR MGSN = MGSR * (PM / 100) |
Import quota: Imports goods and services in % of GDP MQUOTA = (MGSN / GDPN) * 100 |
Current account in nominal bn. EUR (AMECO) CA = XGSN − MGSN |
Current account in % of GDP (AMECO) CAGDPN = ((XGSN − MGSN) / GDPN) * 100 |
Current account in nominal bn. EUR (OeNB) CA_OeNB = CA − CA_Diff_to_OeNB |
Current account in % of GDP (OeNB) CA_OeNBGDPN = ((CA_OeNB) / GDPN) * 100 |
FDI outflows in % of GDP FDIEX = 0.375640070717 + 1.02837425753 * D(FDISOUT) |
FDI outward stocks in % of GDP FDISOUT = −23.7147058544 + 0.883784157118 * FDISOUT(−1) + 23.3682906272 * D_1989_2015 |
FDI inflows in % of GDP FDIIN = 0.671986218682 + 0.84990945751 * D(FDISIN) |
FDI inwards stocks in % of GDP FDISIN = −28.0471754242 + 0.810412880324 * FDISIN(−1) + 28.0293244537 * D_1989_2015 |
Net household disposable income, nominal (bn. EUR; OECD Economic Outlook; Macrobond) YDN = 2.18851454149 + 0.11686303161 * GDPN + 0.817157924902 * YDN(−1) |
Net household disposable income, real (bn. EUR) YDR = (YDN / (PCN / 100)) |
GDP, nominal (bn. EUR) GDPN = (GDPR * (PGDP / 100)) |
Real GDP per capita (in 1000 EUR) − WELFARE measure 1 GDPRPC = ((GDPR * 1000) / (POP − MIGR_OST89 − MIGR_EU95 − MIGR_EUEW04)) |
GDP per capita in PPS (EU-28 = 100) − WELFARE measure 2 LOG(GDPPC_PPSEU28) = 0.43328354923 + 0.00346210004573 * DLOG(GDPRPC) + 0.911257550549 * LOG(GDPPC_PPSEU28(−1)) − 0.0461887756332 * D_2001 |
Budget position: Budget balance in % of GDP BUD = −1.28851868518 + 0.354920098741 * DLOG(GDPR) * 100 − 0.594239170511 * ELEC + 0.700806989349 * BUD(−1) − 2.70112458588 * D_2004 |
Budget position: Budget balance in % of GDP incl. Net contribution to EU budget BUDNET = BUD + NETEU |
Austria–EU Budget position absolute values in bn. EUR NETEUABS = (NETEU * GDPN) / 100 |
Public debt dynamics: Gross public debt in % of GDP (DEBT = DEBT(−1) − PD − (r − g)*DEBT(−1) + SF (Stock flow)) DEBT = DEBT(−1) − PRDEF + SNOW + SF |
Primary budget balance in % GDP PRDEF = BUD − INTEREST |
Interest payments in % of GDP INTEREST = 0.187508058025 + 7.27693766331 * (RLH / 100) * ((DEBT(−1)) / GDPN(−1)) + 0.893137557651 * INTEREST(−1) |
Snow-ball effect SNOW = 0.276597903339 + 0.00796005959488 * (RLH − DLOG(GDPN) * 100) * DEBT(−1) |
Wage share: Wages in % of GDP (‘Globalization’ reduces LQ) LQ = 15.1699479237 − 0.0316886728056 * (XQUOTA + MQUOTA) − 0.00942994300939 * D(FDISOUT + FDISIN) + 0.791815264509 * LQ(−1) + 3.87639625065 * D_1975 |
Appendix 2: Quantitative Model Inputs of Four Integration Scenarios (Additional Effects Compared to the Baseline Scenario Without EU Integration)
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Breuss, F. (2016). A Prototype Model of European Integration: The Case of Austria. In: Bednar-Friedl, B., Kleinert, J. (eds) Dynamic Approaches to Global Economic Challenges. Springer, Cham. https://doi.org/10.1007/978-3-319-23324-6_2
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