Economic Papers


  • Integrating regulated network markets in Europe

    NUMBER 05

    Jordi Gual

    This paper assesses the integration strategy of the European Union in regulated network markets. The paper argues that in these markets integration should not be an end in itself. In regulated markets the conventional gains from trade or freedom of establishment may be outweighed by significant welfare losses if integration involves the choice of a misguided deregulation model. Moreover, the design of the integration process will affect the distribution of the gains from integration, and this may be unacceptable to some of the countries and/or social groups involved, leading to the failure of the process. The integration strategy should carefully balance several potentially conflicting interests, with priorities that may not be the same across industries.

    This paper assesses the integration strategy of the European Union in regulated network markets. The paper argues that in these markets integration should not be an end in itself. In regulated markets the conventional gains from trade or freedom of establishment may be outweighed by significant welfare losses if integration involves the choice of a misguided deregulation model. Moreover, the design of the integration process will affect the distribution of the gains from integration, and this may be unacceptable to some of the countries and/or social groups involved, leading to the failure of the process. The integration strategy should carefully balance several potentially conflicting interests, with priorities that may not be the same across industries.

  • Vertical industrial policy in the EU: An empirical analysis of the effectiveness of state aid

    NUMBER 01

    Jordi Gual, Sandra Jódar-Rosell

    This paper assesses the effectiveness of vertical industrial policies within the EU. Vertical industrial policy is defined as government support for specific firms or industries (picking winners or supporting losers) and measured by state aid granted by Member States to the manufacturing sectors. This aid is authorized by EU regulations under certain conditions and regularly monitored. This paper uses Member States data on state aid to manufacturing to analyze the extent to which this government intervention affects the growth of Multifactor Productivity (MFP) in manufacturing. The analysis is conducted using both sectoral aid data and horizontal aid, since in many cases vertical aid is disguised as aid pursuing horizontal objectives. We control for the potential endogeneity of state aids policy. The results indicate that vertical state aid contributes positively to MFP growth.

  • Time to Rethink Merger Policy?

    NUMBER 04

    Jordi Gual

    This paper provides a critical analysis of some of the key features of merger policy as understood and practiced in leading jurisdictions such as the European Community and the United States. It focuses first on a discussion of the gradual move of merger policy towards the examination of unilateral effects. The critical appraisal of this process is based on the practical and theoretical shortcomings of the economic models that underlie the growing prominence of unilateral effects as the key anticompetitive factor arising from a proposed merger. The paper stresses that even if unilateral effects were to lead to an increase in the conventional measures of anticompetitive performance (such as markups), it is not clear that this implies less competitive behavior for many of the most relevant industries in today's advanced economies. Finally, the paper also examines the relation between competition and welfare, and argues that even if competition does indeed diminish due to a merger, it is not a straightforward conclusion that this is not good in terms of economic welfare when we take fully into consideration the incentives to innovate and the dynamic welfare gains that arise from new products and production processes.

  • A Value Chain Analysis of Foreign Direct Investment

    NUMBER 03

    Marta Noguer, Clàudia Canals

    This paper analyzes the determinants of FDI. We use a new data set covering greenfield and expansion projects at a detailed value chain level to examine which factors influence the decision to invest abroad. Our empirical framework is an augmented gravity model that incorporates elements of factor proportions theory. At the aggregate level, we find that distance discourages FDI, size and sharing a language encourages it, and that FDI targets relatively capital-scarce countries. When we classify investment projects according to their stage in the chain of production, we observe a lot of variation across stages. Nevertheless, economic size, distance, and capital abundance are still determining factors for most value chain stages and preserve the sign of their effect. Moreover, even though the results confirm FDI targetting capital scarce countries, we find evidence of a minimum requirement on the host country's capital endowment in all the stages of production except extraction. Finally, ease of doing business is also important, especially so for the location of regional headquarters.

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