EU Enlargement

Knocking on Heaven’s Door

Jozef KoningsLICOS, Centre for Transition

EconomicsKatholieke Universiteit Leuven

Economic Point of view about EU enlargement

Three adjustment mechanisms:

Migration

Growth in Trade

Foreign Direct Investments

Tsjechië Estland Hongarije Polen Slovenië

Population (in millions) 10,3 1,4 10,0 38,6 2,0

BBP per head (in euro) 13500 8500 11700 8700 16100

Agriculture % van de toegevoegde waarde

3,9 6,3 4,8 3,3 3,2

Landbouw: % of employment 5,1 7,4 6,5 18,8 9,9

Unemployment in 1999 8,8 13,7 6,4 16,1 7,0

Inflation 3,9 3,9 10,0 10,1 8,9

Begrotingstekort in % v/h BBP -4,2 -0,7 -3,1 -3,5 -2,3

Aandeel van de export naar de EU15 in % van de totale handel

68,6 76,5 75,1 69,9 63,8

Aandeel van de import van de EU15 in % van de totale handel

61,9 62,6 58,4 61,2 67,8

Basic indicators of the new and candidate members before 2000

Economic Point of View

high value added

routineactivities

EUcompany

CEECmarkets

EUmarkets

lowerlabour costs

ExportsMNO

Imports

Growthpotential

technologyskills

high income

Labour mobility

Migration

How important is migration actually?

After the German unification migration from East to West stayed under the 1% of the labour-population. For other countries it will even be lower.

The effects of Migrants on the wages and the existing employment is negligible.

Positive effects of Migration: extra consumption demand, which stimulates the growth Contribute to the social security, good for financing

pensions. Often high educated people, stimulates the innovation

Trade% in total Fl. export

Annual growth export

% in total B. import

Annual growth import

Export-import ratio

Hungary 0.64 38.72 0.52 10.34 1.25

Poland 1.03 24.20 0.54 -0.58 2.10

Slovenia 0.10 7.46 0.07 0.24 1.74

Czech Rep. 0.44 9.16 0.37 15.88 1.40

Total 2.20 1.50 1.59

Average Annual Growth Flandersi

1995-1998 (%)

Aandeel sector in totale Vlaamse uitvoer

in 1998 (%)

Aandeel sectoriële export

naar CEE

In total Flemish export

Agriculture 6.34 3.24 0.017

Winning delfstoffen

Minerals

11.04

160.03

1.12

0.03

0.008

0.003

Industry

Textile

Leather

Chemistry

Pharma

Electronic devices

Cables,engines,…

Transport

91.52

38.54

47.14

86.39

149.33

418.04

445.11

50.76

91.15

6.94

0.04

17.07

3.15

9.05

0.01

18.56

2.115

0.246

0.010

0.521

0.235

0.420

0.001

0.262

Services 158.19 4.41 0.146

Most important sectors in the Flemmish export to CEE

Average Annual Belgian Import

growthi

1995-1998 (%)

Aandeel sector in totaal Belgische invoer in

1998 (%)

Aandeel sectoriële import uit CEE landen

in totale Belgische import

Agriculture -55.93 2.54 0.010

Winning delfstoffen

Turf

-54.14

-28.59

4.81

0.16

0.012

0.013

Industriy

Textile

Confection

Reed, cork,…

Cokesovenproducten

Electronic devices

Accumulatoren

Lamps

Electric mainten.

Transport

Wood/ wooden furn.

29.72

-0.05

29.55

49.61

-85.70

201.12

6821.27

58.83

297.09

61.00

70.26

91.93

4.05

0.25

0.08

0.07

10.87

0.28

0.34

0.87

17.33

1.36

1.103

0.109

0.014

0.008

0.007

0.247

0.040

0.025

0.046

0.237

0.093

Services -21.36 0.53 0.005

Most important sectors in Belgian import from CEE

Trade

Export Import

DirectJob creation

IntermediateJob creation

Direct Job destruction

Intermediatejob destruction

Total Job creation

TotaleJob destruction

+ -

Net job creation

The relation between international Trade and Employment

1995 1996 1997 1998

Estonia

Hungary

Poland

Slovakia

Slovenia

Czech Rep.

-52

-410

209

-44

-92

237

-30

-618

984

139

-11

68

31

67

1678

-162

-349

-296

41

-18

1330

-147

-169

-539

Total -152 255 970 497

The net job creation in Flanders by trade with CEE

1995 1996 1997 1998

Total job creation

Total Flemish employment

Total job creation as percentage of the total Flemish Employment sector

6.014

2.081.612

0.29

7.282

2.053.126

0.35

10.238

2.080.912

0.49

12.293

2.117.934

0.58

The importance of job creation in the total Flemmish employment sector

Summary about Trade effects

Trade surplus with CEE

This is about very small percentages in the total Trade sector

Effects will be minimal

Net, positive employment effects

Delocalisation and Jobs?

Wage costs almost 7 X lower in CEE

BUT: Productivity is also

more than 7 X lower in CEE

Wage costs and Productivity

Belgium Portugal Poland Hungary Czech R.

Employment 239 113 475 223 396

Wage 40.7 10.1 5.0 5.9 5.13

Labor Productivity 72.9 18.6 10.0 12.6 9.3

Figure 1: Evolution Ratio of Wage Cost to Labor Productivity.5

5.6

.65

.7W

age/P

rodu

ctiv

ity

1995 1996 1997 1998 1999 2000Year

wage/productivity Belgium wage/productivity Portugal

wage/productivity Poland wage/productivity Hungary

How are our sectors doing?

Belg. Portugal Polan Hungary Czech R.

Chemistry 0.58 0.48 0.62 0.55 0.45

Leather Products

0.63 0.57 0.77 0.77 0.78

Paper Products

0.68 0.69 0.50 0.57 0.48

Textile 0.65 0.74 0.73 0.58 0.64

Publishing 0.71 0.56 0.56 0.68 0.62

Are we loosing our industry to Central – and Eastern Europe

Are we loosing our industry to East- and Central Europe?

em

plo

yme

nt P

ola

nd

manufacturing employment in Polandyear

1994 1996 1998 2000 2002

2600

2800

3000

3200

3400

em

plo

yme

nt C

zech

manufacturing employment in Czech Republicyear

1994 1996 1998 2000

1250

1300

1350

1400

1450

Conclusions The EU Enlargement is NO threath to the

Belgian economie because:

1/ we export more to CEE2/ the impact of Trade with CEE stays minimal3/ delocalisation almost doesn’t exist, its more

about investments for the maket

• The EU Enlargement probably stimulates the growth in Belgium

Conclusion