Hans-Böckler-Stiftung STRUCTURAL CHANGE IN TIMES OF INCREASING OPENNESS : ASSESSING PATH DEPENDENCY IN EUROPEAN ECONOMIC INTEGRATION

This paper analyzes the dynamics of structural polarization and macroeconomic divergence in the context of European integration, where the latter is understood primarily as an increase in economic and financial openness. In the process of estimating the dynamic effects of such an openness shock on 26 EU countries, we develop a taxonomy of European economies that consists of core, periphery and catching-up countries, as well as financial hubs. We show that these four country groups have responded in a distinct way to the openness shock imposed by European integration and argue that the latter should be seen as an evolutionary process that has given rise to different path-dependent developmental trajectories. These trajectories relate to the sectoral development of European economies and the evolution of their technological capabilities. We propose a set of interrelated policy measures to counteract structural polarization and to promote macroeconomic convergence in Europe. 1 Institute for Comprehensive Analysis of the Economy (ICAE), Johannes Kepler University Linz; and ZOE -Institute for Future-Fit Economies. 2 The Vienna Institute for International Economic Studies; and Institute for Comprehensive Analysis of the Economy (ICAE), Johannes Kepler University Linz. 3 Institute for Comprehensive Analysis of the Economy (ICAE) and Department of Economics, Johannes Kepler University Linz, jakob.kapeller@jku.at; FMM Fellow. 4 Institute for Comprehensive Analysis of the Economy (ICAE) and Department of Economics, Johannes Kepler University Linz. ————————— Structural change in times of increasing openness: assessing path dependency in European economic integration∗ Claudius Gräbner†, Philipp Heimberger‡, Jakob Kapeller§, Bernhard Schütz¶ Abstract This paper analyzes the dynamics of structural polarization and macroeconomic divergence in the context of European integration, where the latter is understood primarily as an increase in economic and financial openness. In the process of estimating the dynamic effects of such an openness shock on 26 EU countries, we develop a taxonomy of European economies that consists of core, periphery and catching-up countries, as well as financial hubs. We show that these four country groups have responded in a distinct way to the openness shock imposed by European integration and argue that the latter should be seen as an evolutionary process that has given rise to different path-dependent developmental trajectories. These trajectories relate to the sectoral development of European economies and the evolution of their technological capabilities. We propose a set of interrelated policy measures to counteract structural polarization and to promote macroeconomic convergence in Europe.This paper analyzes the dynamics of structural polarization and macroeconomic divergence in the context of European integration, where the latter is understood primarily as an increase in economic and financial openness. In the process of estimating the dynamic effects of such an openness shock on 26 EU countries, we develop a taxonomy of European economies that consists of core, periphery and catching-up countries, as well as financial hubs. We show that these four country groups have responded in a distinct way to the openness shock imposed by European integration and argue that the latter should be seen as an evolutionary process that has given rise to different path-dependent developmental trajectories. These trajectories relate to the sectoral development of European economies and the evolution of their technological capabilities. We propose a set of interrelated policy measures to counteract structural polarization and to promote macroeconomic convergence in Europe.