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Department of Political and Social Sciences
Department of Political and Social Sciences
1
Varieties of Backyard Management EU Integration
and the Evolution of Economic State Capacities in the Southern and Eastern Peripheries of Europe
Laszlo Bruszt and Visnja Vukov European University Institute, June 2013
Department of Political and Social Sciences
Department of Political and Social Sciences
Backyard management
• Strategies of integrating the economies of the countries of the periphery by core countries – extending rules/imposing policies– dealing with developmental externalities of
integration
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Department of Political and Social Sciences
Department of Political and Social Sciences
Patterns of backyard management
• “Integrating Rule Takers” EU – NAFTA comparison (with McDermott, G. in Review of International Political Economy 2012)
– Broad policy goals combined with extensive capacity building
– Massive multiplex assistance and monitoring
– Joint problem-solving instead of checklist compliance
3
Department of Political and Social Sciences
Department of Political and Social Sciences
Patterns of backyard management
• European East-South comparison:– Literature focuses on effects and much less on
strategies– In common: perception of problems in
competitiveness– Diverging: EU strategies of economic
integration4
Department of Political and Social Sciences
Department of Political and Social Sciences
Export share in world markets
Share in total world merchandise exports1995
1997
1999 2001 2003 2005 2007 2008
Visegrad0.3
20.3
40.3
9 0.45 0.55 0.62 0.74 0.77Baltic and Balkan
0.07
0.08
0.07 0.09 0.11 0.12 0.14 0.15
South0.8
50.8
10.8
2 0.82 0.88 0.79 0.78 0.75
5
Department of Political and Social Sciences
Department of Political and Social Sciences
6
Exports – sectoral breakdown
Exports in % of GDP 1995 2007 Total Total Agriculture Industry Services
Visegrad 43.5 64.0 3.8 51.4 8.8Baltics and Balkan 47.6 55.7 5.6 37.5 12.7South 22.3 25.5 2.1 12.5 11.1
Department of Political and Social Sciences
Department of Political and Social Sciences
7
Exports structure
Complex exports in total
goods exports (%)Share of medium and high-tech
in total exports (%)
1995 2007 1995 2005
Visegrad 34 59 42.8 63.8Baltics and Balkan 27 32 38.2 43.9
South 32 39 34.0 49.0
Department of Political and Social Sciences
Department of Political and Social Sciences
8
Inward FDI stock – sectoral breakdown
Inward FDI stock in % of GDP
1995 2007
Total Total Manufacturing Services
Visegrad 12.4 57.8 20.6 28.8
Baltic and Balkan 7.7 55.9 11.5 36.5
South 14.4 35.9 7.4 24.3
Department of Political and Social Sciences
Department of Political and Social Sciences
Fostering competitiveness in the peripheries
• State policies (1995-2007)– Tax policies– Labor market flexibility– Welfare cuts– State aid, education, R&D
9
Department of Political and Social Sciences
Department of Political and Social Sciences
10
State transformation – evolution of policies 1
2007 Corporate taxVAT in total revenue
Horizontal aid
Labour rigidity Education Welfare
Visegrad 18.68 21.45 0.83 1.74 10.62 18.79
Baltic & Balkan 14.08 27.44 0.21 2.44 12.61 13.15
South 26.6 19.30 0.24 3.06 10.61 21.32
EU Average 22.18 21.08 0.38 2.2 11.50 20.98
Department of Political and Social Sciences
Department of Political and Social Sciences
State transformation - evolution of policies 2
Change (in %) between 1995 and 2007
Corporate tax
Share of VAT in total revenues
Horizontal aid
Labour rigidity
Education
Welfare
Visegrad -34.75 +17.05 +103.68 +9.09 +14.66 -0.99Baltic & Balkan -41.24 +9.32 +2.94 -0.81 +2.45 -3.87South -20.36 +5.85 -33.94 -19.69 +14.05 +3.31EU Average -23.29 +10.27 +13.40 -14.35 +6.16 -7.27
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Department of Political and Social Sciences
Department of Political and Social Sciences
Government spending on research and development
Government sector R&D spending 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Visegrad 0.25 0.26 0.22 0.23 0.22 0.22 0.21 0.25 0.24 0.23 0.22 0.23 0.23Baltic & Balkan 0.26 0.24 0.22 0.22 0.21 0.18 0.17 0.17 0.17 0.17 0.17 0.18 0.17
South 0.13 0.15 0.13 0.16 0.16 0.16 0.15 0.15 0.13 0.13 0.14 0.14 0.15
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Department of Political and Social Sciences
Department of Political and Social Sciences
Fostering competitiveness in the peripheries
• High Road: Visegrad Countries– Tax reforms– Labor market flexibility– State Aid, R&D
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Department of Political and Social Sciences
Department of Political and Social Sciences
Fostering competitiveness in the peripheries
• Low Road: Baltic countries and the Balkans– Tax reforms– Labor market flexibility
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Department of Political and Social Sciences
Department of Political and Social Sciences
Fostering competitiveness in the peripheries
• No Road: South– Neither the low nor the high road– Cuts in State Aid, increase in welfare spending
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Department of Political and Social Sciences
Department of Political and Social Sciences
The main elements of the EU strategies
• South: Competitiveness is a domestic issue, focus on incentives– limited pre-accession conditionality– focus on EMU and Maastricht criteria– Post-accession assistance /Cohesion
policies/
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Department of Political and Social Sciences
Department of Political and Social Sciences
The main elements of the EU strategies
• East: Competitiveness is an EU issue, focus on institutions– Extensive and deep pre-accession conditionality,
ex-ante regulatory integration– Functioning market economy with the capacity to
withstand competitive pressure– Extensive and multiplex pre-accession assistance
17
Department of Political and Social Sciences
Department of Political and Social Sciences
Monetary integration
• Assumed to create pressures on states to implement ‘structural reforms’ and reorient their policies towards increasing competitiveness
• Empirics show that monetary integration had exactly the opposite effect (Duval, Vukov)
18
Department of Political and Social Sciences
Department of Political and Social Sciences
Cohesion programs
• Goal: Strengthen developmental state capacity by empowering sub-national actors
• In reality: weakness of sub-national actors strengthened the control of central authorities over funds distribution which served as free rents, reducing incentives to institutional change
19
Department of Political and Social Sciences
Department of Political and Social Sciences
Copenhagen criteria
• Complex institution building aimed at decreasing potential negative externalities of economic integration– Ex-ante regulatory integration – reduction of
domestic rent-seeking alliances
– State building: administrative, regulatory and developmental capacities
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Department of Political and Social Sciences
Department of Political and Social Sciences
SummaryEffects of EU strategies
• South: getting the incentives wrong
• East: getting the institutions right
• No homogenization
• No learning
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Department of Political and Social Sciences
Department of Political and Social Sciences
Summary – NSE&TEAgainst methodological nationalism:
• Domestic institutional change is embedded in regional (and global) political settings
• Most of the transition economies are rule takers
• Need to better understand regional/global effects
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