Optimal Currency Areas and the Euro, Volume II : Capital and Labor Mobility

This book is the second of three volumes that uses the theory of Optimal Currency Areas (OCAs) and applied econometric techniques to provide the reader with a compact analysis of the Euro area, its evolution and future perspectives. Each volume of the series is dedicated to one of the three critical criteria for an OCA: 1) business cycle synchronization, 2) factor mobility and 3) the existence of a risk sharing system. This second volume deals with the criterion of factor mobility. The authors investigate and discuss whether there are signs of labor and capital mobility that have helped dampen economic shocks among the regions of the Euro during its short history. The book is of interest to a wide range of researchers in financial economics, macroeconomics and economic policy. Preface 5 References 6 Contents 7 About the Authors 9 List of Figures 10 List of Tables 11 1 Introduction 13 1.1 The Main Objectives of the Pivot 14 1.2 Key Findings 17 References 18 2 Literature and Theory 20 2.1 Integrated Labor Markets 20 2.2 The EU Labor Market 23 2.3 Adverse Shocks and Adjustments in Labor Markets 28 2.4 Research Questions: Labor Mobility in Europe 34 2.5 The EU Capital Markets 39 2.6 Adverse Shocks and Adjustments in Capital Markets 40 2.7 Research Questions: Capital Mobility in Europe 43 References 45 3 Labor Mobility, the Empirics 49 3.1 Labor Mobility: Methodology of Analysis 49 3.2 Descriptive Analysis 53 3.3 A Closer Look into Migration Flows 59 3.3.1 Net Migration Flows—Country vs. EU Region 59 3.3.1.1 Simple Regressions 59 3.3.1.2 Multiple Regressions 61 3.3.2 Total Migration Flows—Country vs. EU Region 63 3.3.2.1 Simple Regressions 63 3.3.2.2 Multiple Regressions 63 3.3.3 Net Migration Flows—Country vs. Country (Bilateral Relations) 65 3.3.3.1 Simple Regressions 65 3.3.3.2 Multiple Regressions 71 3.3.4 Total Migration Flows—Country vs. Country (Bilateral Relations) 71 3.3.4.1 Simple Regressions 73 3.3.4.2 Multiple Regressions 73 3.4 Discussion 73 References 83 4 Capital Mobility, the Empirics 85 4.1 Capital Mobility: Methodology of Analysis 85 4.2 Descriptive Analysis 89 4.3 A Closer Look at Capital Flows 90 4.3.1 Net Capital Mobility—Country vs. Country (Bilateral Relations) 92 4.3.1.1 Simple Regressions 92 4.3.1.2 Multiple Regressions 92 4.3.2 Total Capital Flows—Country vs. Country (Bilateral Relations) 94 4.3.2.1 Simple Regressions 94 4.3.2.2 Multiple Regressions 95 4.4 Discussion 108 References 109 5 Conclusion 110 References 113 Appendix 1: Summary of Labor Mobility Literature 114 Appendix 2: Summary of Capital Mobility Literature 120 Appendix 3: Data 122 Data Used for Both Bilateral and Aggregate Studies 122 Population 122 Unemployment 122 USD Real GDP Per Capita 122 USD Nominal GDP 123 Real GDP Per Capita in Local Currency 123 Social Spending 123 Time Trend 124 Distance 124 Data Used for Aggregate Studies 124 Immigration and Emigration 124 EU and EA Memberships 124 Data Used for Bilateral Studies 124 Immigration and Emigration 125 Capital Liabilities and Claims 125 EU and EA Memberships 125 Appendix 4: Cook’s Distance 126 Reference 128 Index 129