Stefano Manzocchi

Does Turkey Have a Special Trade Relation With the EU? A Gravity Model Approach

This work presents an application of the “gravity model” to Turkey’s trade flows over 1967-2001. The aim is threefold: first, to highlight the main geographical patterns of Turkey’s trade; second, to provide an assessment of the early impact of the EU-Turkey customs union; and third, to make an informed conjecture on the trade impact of Turkey’s accession to the EU. We find that: i) the volume of EUTurkey trade is in line with the prediction of the gravity model, hence bilateral trade might eventually rise after full preferential integration into the Single Market; ii) country dummies point to relatively strong linkages of Turkey with Mediterranean and CIS countries. Turkey’s accession to the EU may cause both trade creation, and trade diversion with respect to the latter countries. For trade-creation effects prevail over trade diversion effects, Turkey should play the role of a “connecting platform” between Mediterranean and CIS countries, on the one hand, and the enlarged European Union, on the other hand. Preliminary version presented at the First Annual Joint Workshop LLEE – CEPS “La Turchia e l’Unione Europea: quali prospettive?” LUISS Guido Carli University, Rome (Italy), September 29 2004 Comments welcome JEL Classification: C23, F14, F15.

Sectoral Determinants and Dynamics of ICT Investment in Italy

Many measures of the impact of Information and Comunication Technology (ICT) on growth have been provided for the United States; much fewer analyses have been proposed for European countries, due also to scarcity of disaggregated data. In this paper we make use of very detailed sectoral data for Italy to study both the aggregate evolution and the sectoral diffusion of ICT investment expenditure during the 1990s. In the aggregate we find that the 1992 recession strongly halted ICT investment, and only in 1999 the Italian economy recovered the same rate of ICT capital formation. Second, mixed evidence on diffusion is shown by the sectoral expenditure on ICT capital goods: although the ICT fraction of total investment has increased in all the relevant macro-sectors (industry, commerce and advances services), the number of total sectors investing in ICT has not risen between 1992 and 2000. Finally, an econometric analysis of sectoral ICT determination shows that, besides capital intensity and interest rates, R&D expenditure is a strong predictor of ICT investment expenditure. Hence, since R&D-intensive sectors are usually associated with the highest growth potential, ICT expenditure by those sectors may trigger a virtuous growth dynamics.

Outsiders in Economic Integration: The Case of a Transition Economy

We use a spatial model of endogenous growth to investigate the likely impact of discriminatory integration among two advanced countries on their own welfare as well as on the welfare of an outsiders transition economy. On the one side, since per capita income convergence depends on relative market access and local market size, piece-wise integration causes insider-outsider divergence. This phenomenon is exacerbated by slow transition. On the other side, simultaneous exclusion from the integration process and ongoing transition have unpredictable effects on the structural adjustment, which might even exhibit swinging behaviour. Since in practice such swings imply large adjustment costs, careful integration design is required. Under this respect, the asymmetric phasing out of trade barriers built in the Europe Agreements works in the right direction.

Unit root tests of capital mobility in the less developed countries

ConclusionsThis article contributes to the ongoing debate on international capital mobility in the LDCs. The extent of capital mobility has been assessed in a time-series context, performing unit root tests on the adjusted current account for thirty-seven developing countries. The results show that the hypothesis of capital mobility cannot be rejected in a large number of countries.

Intangible Capital and Productivity Growth in European Countries

This paper provides evidence about the diffusion of intangible investment across the EU27 member countries and investigates the role of intangible capital as a source of growth to improve our understanding of the international differences in the mix of drivers of productivity growth across Europe. Our study shows that the capitalization of intangible assets, allow identifying additional sources of long-run growth. We show that intangibles have been a relevant source of growth across European countries and that they cannot be omitted from national accounts. In particular, the ?unexplained? component of macro-economic dynamics, the Total Factor Productivity, becomes less important, while physical capital turns out to be strongly complementary with intangible capital.

External Finance and Foreign Debt in Central and Eastern European Countries

External finance can provide a positive contribution to the transition process and can enhance welfare in former centrally planned economies, especially when domestic saving has not fully recovered after the initial contraction. However, as was pointed out at the beginning of the transition process, foreign debt could exert a strong constraint on the borrowing capacity of some central and eastern European countries. This paper analyzes the determinants of net external borrowing in ten transition economies during 1990-95 and assesses the impact of the outstanding stock of foreign liabilities on net financial inflows.

Outsiders in economic integration

We use a spatial model of endogenous growth to investigate the likely impact of discriminatory integration between two advanced insider countries on their own welfare as well as on the welfare of an outsider transition economy. A first point is that, since convergence in per capita income levels depends on relative market access and local market size, piece-wise integration causes insider-outsider divergence. Nonetheless, outsiders can gain in absolute terms if integration fosters the global growth rate. We also show that exclusion from a regional agreement and on-going transition have unpredictable joint effects on the structural adjustment, which might even exhibit a swinging behaviour. Such swings may imply large adjustment costs, which can be reduced by careful integration design. With this respect, the asymmetric phasing-out of trade barriers built into the Europe Agreements seems to work in the right direction. Finally, we point out that the predictions of the model in terms of direct investment and terms-of-trade dynamics are broadly consistent with some actual developments in transition economies.

Political Regime and Vertical vs. Horizontal FDI

We introduce the effect of the political regime in a model of North-South bilateral foreign direct investment (FDI), and test whether it matters for the nature of FDI inflows to emerging markets. Alternative political regimes in the host country may affect the incentive for foreign investors to implement horizontal rather than vertical FDI, if the political expropriation risk is different for the two kinds of investment. We test the model in a panel of 14 source countries and 24 host countries over 1992-2004, and find that autocracies are likely to receive relatively more FDI of the vertical type, while democracies are more likely to be associated with horizontal FDI inflows.

Searching for the Determinants of IT Investment: Panel Data Evidence on European Countries

The aim of this paper is to identify the stage of IT adoption in individual European economies, and to analyse the determinants of IT investment in a panel of EU countries. We first analyse the dynamics of IT investment expenditure in 15 European countries from 1992 until 2001 and, by means of a cluster analysis, we draw a picture of IT diffusion in Europe. By clustering the European countries according to their shares of IT spending over GDP, we identify three fairly stable groups of fast, medium and slow adopters. We then build an econometric equation of the determinants of IT investment to be estimated with panel data for five European economies over 1980-2001. We consider both aggregate IT investment, and investment in hardware or software taken alone. Financial conditions, income growth and comparative advantage turn out to affect IT investment, but we find that the determinants of hardware investment only partially overlap with those of software.

Intangible Assets and Productivity Growth Differentials Across EU Economies: The Role of ICT and R&D

We analyze productivity growth differentials across the EU in the perspective of intangible, as well as tangible, capital accumulation. Based on a new international dataset on intangibles, we identify three main EU regions corresponding to the Northern area, Central Europe and the Mediterranean area. We find that intangible capital accumulation has strongly contributed to labor productivity growth in the best performing European economies/regions. Moreover, we find evidence that intangible capital accumulation, especially in software and R&D, is associated with spillover effects.