EU Enlargement and Endogeneity in Some OCA Criteria: Evidence from Countries Applying for Admission to the EU
Babetskii, Jan
EU Enlargement and Endogeneity in Some OCA Criteria: Evidence from Countries Applying for Admission to the EU - 2004.
31
The European Commission (1990) reports that closer integration reduces the frequency of asymmetric shocks and synchronizes business cycles more between countries. However, Krugman (1993) posits that closer integration entails greater specialization and hence greater risks of individual shocks. This paper draws on evidence from a group of CEEC countries to determine which argument is supported by the data. It does so by comparing supply and demand shock asymmetry coefficients with trade intensity and exchange rate indicators over time. We find that (i) an increase in trade intensity gives rise to greater demand shock symmetry and the effect of integration on supply shock asymmetry varies from country to country; (ii) a decrease in exchange rate volatility has a positive effect on demand shock convergence. The results confirm the European Commission’s view and Kenen’s argument(2001) that the effect of trade integration on shock asymmetry depends on the type of shock.
EU Enlargement and Endogeneity in Some OCA Criteria: Evidence from Countries Applying for Admission to the EU - 2004.
31
The European Commission (1990) reports that closer integration reduces the frequency of asymmetric shocks and synchronizes business cycles more between countries. However, Krugman (1993) posits that closer integration entails greater specialization and hence greater risks of individual shocks. This paper draws on evidence from a group of CEEC countries to determine which argument is supported by the data. It does so by comparing supply and demand shock asymmetry coefficients with trade intensity and exchange rate indicators over time. We find that (i) an increase in trade intensity gives rise to greater demand shock symmetry and the effect of integration on supply shock asymmetry varies from country to country; (ii) a decrease in exchange rate volatility has a positive effect on demand shock convergence. The results confirm the European Commission’s view and Kenen’s argument(2001) that the effect of trade integration on shock asymmetry depends on the type of shock.
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