European Market Integration Research Articles

East-West Integration and the Economic Geography of Europe

Implementation of the European internal market and East-West integration has been accompanied by a dramatic change in the spatial distribution of economic activity, with higher growth west and east of a longitude degree through Germany and Italy. In the east, income growth has been accompanied by increasing regional disparities within countries. We examine theoretically and empirically whether European integration as such can explain these developments. Using a numerical simulation model with 9 countries and 90 regions, theoretical predictions are derived about how various patterns of integration may affect the income distribution. Comparing with reality, we find that a reduction in distance-related trade costs combined with east-west integration is best able to explain the actual changes in Europe’s economic geography. This suggests that the implementation of the European internal market or the Euro has made Europe smaller. In Central Europe, capital regions grow faster and there are few east-west growth differences inside countries. There is no convincing support for the hypothesis that European integration had adverse effects on nonmembers.

European Financial Market Integration: A Closer Look at Government Bonds in Eurozone Countries

The European Union made a number of steps not least of them the introduction of a common currency to foster the integration of the European financial markets. A number of papers have tried to gauge the degree of integration for various financial markets looking at the convergence of interest rates. A common finding is that government bond markets are quite well integrated. In this paper stochastic Kernel density estimates are used to take a closer look at the dynamics that drive the process of interest rate convergence. The main finding is that countries with large initial deviations from the mean interest rate do indeed converge. Interestingly the candidates least suspected namely the countries initially with interest rates at the mean level show a pattern of slight divergence.

Modelling Export and Import Demand Functions: The Spanish Case

During the last decades the exchange trade in Spain overseas has experienced a major boost, firstly related to European market integration and, recently, to the worldwide globalization process, whereby huge exporters (i.e. China or India) have raised to the new international scene and the development of services’ international exchange both played a key role. These changes make the analysis of the conditioning main factors for explaining the evolution of exchange trade flows in Spain by means of econometric models especially hard, since they seldom may approach the special features of the long term under consideration. The aim of this paper is showing the results obtained once traditional demand functions for imports and exports of goods and services for the Spanish economy – quarterly series from National Accounts for the period 1980-2006 – were re-estimated. Besides, within goods’ flows based on home and host’s Euro Area exports and imports, on one hand, and worldwide, on the other, are taken into consideration in order to prove whether trade flows’ determinants may vary across host markets where goods are exchanged. The estimated equations allow us identifying whether traditional determinants on trade flows abroad have suffered relevant changes and how they have contributed in explaining the evolution of the period 1980-2008.

Spillover effects on government bond yields in euro zone. Does full financial integration exist in European government bond markets?

This paper examines the time varying nature of European government bond market integration by employing multivariate GARCH models. We state that unlike other bond markets, in euro markets the default(credit) risk factor and other macroeconomic and fiscal indicators are not able to explain the sovereign bond yields after the beginning of monetary union. This fact might be counted as a signal for perfect financial integration. However, we also find that the global shocks affect Germany and the rest of euro bond markets in various levels, creating particular discrepancies in asset prices even we take into account the market specific factors. Different level responses of each euro market to the global shocks reveal that euro bond markets are not fully integrated with each other unlike the recent literature claimed. Besides, we explore that the global factors are effective for the volatility of yield differentials among euro government bonds.

The Geography of European Cross-Border Banking: The Impact of Cultural and Political Factors

We investigate the determinants of European banking market integration with a focus on the potentially limiting role of cultural and political factors. Employing a unique data set of European cross-border loans and deposits, the study uses various gravity models that are augmented by societal proxies. While trade-theoretic reasoning can explain part of the surge in cross-border banking, we demonstrate that distance and borders still matter in the geography of European cross-border banking. Moreover, we can identify cultural differences and different legal family origin as important barriers to integration.

Financial Crisis Management in Europe and Beyond

Financial and capital market integration in Europe is now well-advanced, but it confronts a serious challenge in the design of workable arrangements for crisis prevention, management and resolution. The expansion of large, complex financial intermediaries exposes the limits of a supervisory regime based strictly on the traditional principle of home-country control. Contemporary European debates on last-resort lending, homehost supervisory responsibilities, and fiscal transfers clarify the fundamental challenge globalizing finance poses more generally for world order. Ultimately, they suggest the necessity of reliable, legitimate and effective instruments for financial burden sharing among integrating polities.

Setting the Pace? Private Financial Interests and European Financial Market Integration

The regulation and supervision of financial services in the EU has undergone significant change between 2000 and 2005, when the so-called Lamfalussy framework, the Basel 2 agreement and its transposition into the Capital Requirements Directive were agreed. This research examines the preferences of national financial interest groups in Germany and the UK (the independent variable) in shaping national input and, more precisely, the contributions given by the relevant public authorities to EU and international policy-making processes (the dependent variable). The impact, if any, on the final outputs (the relevant international and EU agreements) is also discussed. It is argued that the level of involvement of each interest group depends on the policy content, namely, whether the policy concerns a broad institutional issue or specific rules, while the degree of interest group influence in policy-making processes depends on domestic institutions, namely state structure, interest representation and political economy institutions.

Market convergence and advertising standardization in the European Union

In this study, we draw on industrial organization and institutional research to explore the relationship between market convergence and standardization of advertising programs. We argue that environmental isomorphism, which maintains that the external market environment is a principal driver of firms’ institutional structures, places pressure on firms to adapt their organizational structures and strategies to changing institutional conditions. We propose that the convergence associated with European market integration will lead firms to emphasize three advertising strategies: creating a uniform brand image, appealing to cross-market segments, and increasing cost performance in advertising. Further, we hypothesize that these strategies will be associated with an overall tendency to standardize advertising strategy and execution. Results of a survey of managers of subsidiaries of Japanese and U.S. firms operating in the EU suggest that firms that believe the EU is converging are more likely to engage in these standardized advertising strategies. Additionally, our findings suggest that firms that seek to create a uniform brand image and appeal to cross-market segments are more likely to standardize their overall advertising programs. Finally, we find that firms’ desire to create a uniform brand image is a function of their goal of building brand equity, regardless of the level to which markets converge. We draw implications for research and practice regarding firm responses to market convergence.

The Marketisation of European Corporate Control: A Critical Political Economy Perspective

We are entering into a new phase in EU corporate governance. More than ever, our action plan must be focused and based on a solid assessment of actual needs of market players and investors. 1 As Ch...

Markets in Financial Instruments Directive - The Way Forward in European Securities Market Integration?

European financial market integration and investor protection are the main objectives of the Markets in Financial Instruments Directive. The public discussion on the effectiveness of MiFID is still controversial before its entry into force in November 2007. We contribute to this discussion by comparing MiFID against selected aspects of regulatory and financial market integration theory and provide empirical evidence on MiFID driving changes in securities market structure. Four new initiatives in trade reporting and transaction business are discussed with their likely impacts. We conclude that MiFID is generally in line with theoretical requirements and therefore suitable to achieve its objectives. On the empirical side, new initiatives will increase competition. The market for trade reporting services will change significantly whereas new initiatives in transaction services are not able to differentiate themselves successfully in existent competition.

Intégration des marchés financiers européens : Priorité à la concurrence et à la diversité

European financial market integration : priority for competition and diversity Shaping the European financial markets remains an important political task. The political discussion on this issue has recently gained momentum at national and European levels. Therefore, stability and sustainability to safeguard smooth market development is of the utmost importance. The German Savings Banks Association is in favour of a design of the European financial markets that clearly focuses on diversity, competition and an organic process of harmonised supervision. Pluralist financial market conditions ensure efficient solutions for customers in Europe. JEL classification : G15, G18, G21

Reordering the Marketplace: Competition Politics in European Finance*

AbstractOver the last 15 years, Europe has seen the liberalization of national financial markets as well as the integration of these markets and their governance through the introduction of the ‘Lamfalussy process’. This article argues that we can best understand these shifts as one integrated project of market‐building in Europe, guided by distributional struggles over the terms of mutual markets access. To comprehend the complex linkages between private and public actors across levels of governance, we have to look beyond macro‐theories of integration and financial liberalization upholding an analytical state‐market dichotomy and adopt an integrative approach to theory, instead. Using the example of securities markets, this article argues that ‘competition politics’ are key to understanding European financial market integration.

Did Vasco da Gama Matter for European Markets? Testing Frederick Lane's Hypotheses Fifty Years Later

In his seminal publications between the 1930s and 1960s, Frederick Lane offered three hypotheses regarding the impact of the Voyages of Discovery that have guided debate ever since. First, pepper and other spice prices did not rise in European markets in the century before the 1490s, and thus could not have %u2018pulled in%u2019 the oceanic explorations by their rising scarcity. Second, Portuguese circumnavigation of Africa did not lower European spice prices across the 16th century, implying that the discovery of the Cape route had no permanent effect on Euro-Asian market integration. Third, 15th century Venetian spice markets were already well integrated with those in Iberia and northern Europe, implying that Portugal could not have had an intra-European market integrating influence in the 16th century. Lane developed these influential hypotheses by relying heavily on nominal spice prices from Venice and the Levant. This paper revisits Lane%u2019s hypotheses by using instead relative spice prices, that is, accounting for inflation. It also draws on evidence from Iberia and northern Europe. In addition, it explores European market integration before and after 1503, the year when da Gama returned from his financially successful second voyage. Lane%u2019s three hypotheses are rejected: the impact of the Portuguese was profound on all fronts. We conclude by using a simple model of monopoly and oligopoly to decompose the sources of the Cape route%u2019s impact on European markets.

German Exports to the Euro Area

This paper analyzes the determinants of German exports to the euro area, which is the biggest market for German products. Three conditional error-correction models based on regionally disaggregated data are developed. One specification includes EMU industrial production and a real external value based on consumer prices, the other two use different EMU investment aggregates, the orresponding real external values and a proxy for European market integration to explain exports. The models perform equally well in a number of diagnostic tests. For short-term forecasts, however, the model using industrial production seems to be the best, since it outperforms the other models in terms of one-step ahead out-of-sample forecasts.

European Financial Market Integration and German Cross Border Portfolio Flows

The paper analyzes the effect of European financial integration, especially of the EMU, on gross portfolio flows between Germany and 47 countries from 1987 to 2002. A gravity model of asset trade a la Martin and Rey (2004) is estimated. The following results are found: (1) There is substantially more portfolio trade between Germany and countries also participating in stage one and three of the EMU. More specifically: Since 2001 cross border portfolio flows between Germany and EMU countries are significantly larger compared to flows between Germany and Denmark, the UK, and Sweden which are part of the EU-15 but not of the Euro area. (2) Developments intertwined with the formation of the EMU such as changes in exchange rate volatility, financial market development and increased real economic integration among EMU countries are not able to account for this effect. (3) The EMU effect on gross portfolio flows is larger for transacting countries with more developed banking and equity markets and for country pairs with more correlated business cycles.

Patterns of labour market integration in Europe--a life course perspective on time policies

This article examines the patterns of labourmarket integration over the life course of men and women in seven European ountries. We select a range of household categories coinciding with different phases in the life course and use the European Community Household Panel survey to identify four broad national models, which are associated with different state regimes with regards to ‘time policy’. These are the Nordic ‘universal breadwinner’ model (Sweden) of high participation involving long part-time or full-time hours and high employment continuity for both sexesover the life course; the ‘modified breadwinner’ model (France) where family formation and motherhood are still associated with withdrawal from the labour market for some groups of women and where mothers who are employed work predominantly full-time; the Mediterranean exit or full-time model (Italy and Spain) where fewer women are employed, but when employed generally work full-time; finally different models of ‘Maternal part-time work’ (Dutch, German and UK) where motherhood is associated with a reduction in the employment rate that is less than that found in the Mediterranean countries and in France, but where part-time hours are the norm for mothers, even when children are older. We conclude that the Nordicmodel features the least pronounced gender inequality in time allocation to employment over the life course combined with a greater level of ‘active ageing’ of older workers. This profile is supported by a coherent and integrated set of policies for time and income management over the life course in contrast to the more piecemeal measures that exist in other national models. Hence, the Nordic model offers important insights for EU employment policy.

06/00586 International market integration for natural gas? A cointegration analysis of prices in Europe, North America and Japan: Siliverstovs, B. et al. Energy Economics, 2005, 27, (4), 603–615.

We examine the degree of natural gas market integration in Europe, North America and Japan, between the mid 1990's and 2002. The relationship between the international gas marker prices, and their relation to the oil price, are investigated through principal component analysis and Johansen likelihood-based procedures. Both of them show a high level of integration within the European/Japanese and North American markets; but they also show that the European resp. Japanese and the North American markets were not integrated.

European public real estate market integration

This study examines dynamic linkages among nine European public real estate markets, with particular attention to the impact of the recent establishment of the European Economic and Monetary Union (EMU). Forecast error variance decomposition results show that the real estate markets of larger EMU economies (Germany, France, Netherlands) became more integrated with other European markets after the establishment of the EMU in 1999. By contrast, increased real estate market integration is not found for some smaller EMU economies (Belgium and Spain). Also, the real estate markets of non-EMU economies (United Kingdom, Switzerland, and Denmark) exhibited either little change or less integration. The EMU has been beneficial in terms of increasing real estate market integration among EMU member countries with more advanced industrial structures.

The Dynamics of Central European Equity Market Integration

This paper examines bilateral and multilateral cointegration properties of the German stock market and those of the three major Central European countries which recently attained membership in the European Union. Cointegration tests cover the time period of July 6, 1995 to February 10, 2005. Additional techniques are also applied to provide further information concerning the dynamic evolution of the integration process during this period. Application of the Johansen (1988) cointegration procedure indicates that, contrary to results for an earlier time period there is evidence of an emerging long-term relationship between the German and UK markets and the Czech market, as well as cointegration within the group of Central European markets. We also apply the Haldane and Hall convergence analysis, in an effort to determine the extent to which these markets are converging to London or Frankfurt. Overall, the results suggest that the process of integration of the Central European countries into the EU is leading to a closer integration of their equity markets with those of major EU countries.

Dynamic stock market integration driven by the European Monetary Union: An empirical analysis

We examine the influence of the European Monetary Union (EMU) on the dynamic process of stock market integration over the period 2 January 1989–29 May 2003 using a bivariate EGARCH framework with time-varying conditional correlations. We find that there has been a clear regime shift in European stock market integration with the introduction of the EMU. The EMU has been necessary for stock market integration as unidirectional causality was found. Linear systems regression analysis shows that the increase in both regional and global stock market integration over this period was significantly driven in part, by macroeconomic convergence associated with the introduction of the EMU and financial development levels.