Disembedded Openness: Inequalities in European Economic Integration at the Sectoral Level

Abstract

The process of European integration resulted in a marked increase in transnational economic flows, yet regional inequalities along many developmental indicators remain. We analyze the unevenness of European economies with respect to the embedding of export sectors in upstream domestic flows and their dependency on dominant export partners. We use the WIOD dataset of sectoral flows for the period of 1995–2011 for 24 European countries. We found that East European economies were significantly more likely to experience increasing unevenness and dependency with increasing openness, while core countries of Europe managed to decrease their unevenness but increased their openness. Nevertheless, by analyzing the trajectories of changes for each country, we see that East European countries are also experiencing a turning point, either switching to a path similar to the core or to a retrograde path with decreasing openness. We analyze our data using pooled time series models and case studies of country trajectories.

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Notes

  1. 1.

    Although there is an overall agreement of the trade-creating effects of economic integration, particularly with respect to the European case (e.g., Bergstrand 2008), conceptualizing and measuring such an effect is not a trivial exercise. Whether comparing intra- and extra-area trade or extrapolated pre-integration data with actual post-integration observations, such ex-post assessments, similar to pre-integration assessments of would-be effects, are inherently difficult (Balassa 1967).

  2. 2.

    Whereas “economic integration” typically refers to the institutional and regulatory processes towards (and state of) the creation of a common market (e.g., Balassa 1962), our usage of the term refers explicitly to cross-border economic exchange.

  3. 3.

    WIOD uses a sectoral nomenclature comprising 35 sectors, but as there are no data on intermediate flows for the “private households with employed persons” sector, this sector is excluded in our analyses.

  4. 4.

    The magnitude of intra-sectoral flows might be influenced strongly by concentration of firm sizes. If a sector is represented by few or only one large firm, intra-firm flows might not get reported to statistical agencies.

  5. 5.

    Similar to the openness index and based on the same reasons, we have chosen to exclude the intra-sectoral flows in the diagonal of the input-output tables.

  6. 6.

    A corresponding index for downstream domestic embeddedness is conceivable, i.e., where a sector’s share of domestic inter-sectoral output is contrasted with its share of imports. In agreement with the contemporary literature on international political economy, testing such a corresponding downstream index in our analysis, we found find that the most interesting findings stemmed from looking at exports vis-à-vis domestic inputs, i.e., reflecting where most of the contemporary literature on international political economy and world-system analysis puts its focus.

  7. 7.

    Although a benchmark approach could be used here, i.e., determining an average sectoral domestic/foreign ratio using all countries and years and subsequently adjusting the UDE metric to this benchmark, we preferred allowing for these inherent sectoral properties to shine through in our results, especially as our interest lies in longitudinal change.

  8. 8.

    Permutations tests for the p values of coefficients are especially appropriate since the observations are not drawn as a sample from a large population, but represent all cases (all the country years in the period we consider) (Good 2006).

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Correspondence to Balazs Vedres.

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Vedres, B., Nordlund, C. Disembedded Openness: Inequalities in European Economic Integration at the Sectoral Level. St Comp Int Dev 53, 169–195 (2018). https://doi.org/10.1007/s12116-018-9263-4

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Keywords

  • Economic integration
  • Network science
  • Political economy
  • World system