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This paper examines the relationship between trust and economic growth. Taking panel data and using a fixed-effects estimation for a 41-country sample over the time period from 1980 to 2004 and with a total of 129 observations, the paper points out that economic growth is negatively related to an increase in trust. This negative finding is in contrast to most empirical findings using a cross-sectional design. The common knowledge which has governed the nature of discussions in social science and economics for the last ten years, that trust is generally positively related to economic performance, must be seriously questioned. From a policy point of view an increase in trust is crucial for countries with low levels of trust, but can likely be neglected by countries with sufficient levels of trust and may even hamper economic performance in countries with high levels of trust. The relationship is tested in the context of EU countries, OECD countries and developing countries. Interpersonal trust and systemic trust is differentiated. [ABSTRACT FROM AUTHOR]

The theory of optimal currency areas states that a currency union may succeed if the participating countries have complementary industry structures. If this is not the case a currency union does not, inevitably, have to fail because market forces will induce adjustments of the industry structures that will eventually lead to a successful currency union. This optimism is, however, not warranted for the euro. The euro has now been in a crisis for more than three years and a self-correcting mechanism leading out of the crisis is not in sight. The reason is that the euro union does not suffer from unadjusted industries, but from unadjusted governments. While industries adjust under the command of the invisible hand of the market in a currency union, this is not necessarily the case for governments. The general point of this paper is that countries with incompatible governments remain inimical in a currency union. They generate externalities and crises which cannot be eliminated as well in a political union. Assume that two countries traditionally cooperate in an economic union. Their governments are financially independent. They 'go Dutch'. A currency union, such as the euro union, is different. It opens not only the option of a closer economic cooperation, but it also allows for a joint cash management so that each government has the temptation to live on the other's costs and hence to generate negative externalities on the other. The governments may be aware of this trap. They conclude a Treaty in order to prevent their mutually destructive behavior. But the Treaty turns out to be non-enforceable and therefore unable to stop the infringements by mutual externalities, this being the essence of the euro crisis. Therefore the governments should withdraw and return to an economic union without externalities. [ABSTRACT FROM AUTHOR]

There is a growing interest in the academic and policy making communities in understanding the effects of sectoral specialisation on labour market performance. The existing empirical evidence, mainly based on US data, generally finds a positive correlation between sectoral specialisation and labour market indicators such as wages and unemployment. The policy implication one can draw from these results is that fostering sectoral diversification may reduce unemployment. However, this lesson may not hold for all countries. In particular, in the case of Europe, the diversity of labour market institutions may play a distinct role in shaping the relationship between sectoral specialisation and labour market performance. In this paper, we investigate the relationship between regional sectoral specialisation and regional unemployment rate in the context of different collective bargaining institutions in the EU countries. We find that collective bargaining institutions do play a role in shaping the unemployment rate differentials across regions belonging to the same country. Furthermore, the relationship between regional specialisation and the regional unemployment rate is stronger in countries with intermediate and decentralised collective bargaining institutions in comparison to countries with centralised collective bargaining institutions. Our results suggest that labour market institutions are likely to influence the outcome of policies aiming at fostering regional diversification. While such policies may result in reducing regional unemployment in countries with decentralised and intermediate levels of collective bargaining, they may not make a big difference in countries with centralised collective bargaining institutions. [ABSTRACT FROM AUTHOR]

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This paper empirically analyzes whether large governments in Europe reflect efficient responses to a changing social and economic environment (‘welfare economic view’) as opposed to wasteful spending (‘public choice view’). To this end, the effect of government size on subjective well-being is estimated in a combined survey and country-level dataset covering 153,268 respondents from twelve EU countries over the 1990–2000 period. The first finding is an inversely U-shaped relationship between government size and well-being. In addition, the analysis suggests that given the high institutional quality as compared to other parts of the world there might be scope for a further enlargement of governments in the EU from a well-being perspective. However, one must acknowledge that the effect on well-being may be quite small and that democratic societies in Europe have no experience with even larger governments. The investigation also reveals that the impact of government size on well-being depends negatively on levels of corruption and positively on the extent of decentralization. Moreover, left-wing voters and low-income earners are the main beneficiaries of a large public sector. Finally, in all twelve EU countries included in the sample higher levels of well-being could have been achieved by allocating a higher share of public resources to education, while Finland and Germany could have given an additional boost to well-being by cutting expenditures on social protection. [ABSTRACT FROM AUTHOR]

Copyright of Kyklos is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Focuses on the harmonization of product standard and regulation at the international trade through coalitions in the European Union. Elimination of cultural differences; Protection of health, environmental and labor standards; Cooperation of international coalitions of producers in lobbying international standards for products.

Analyzes the effects of European Monetary Union (EMU) on the optimal amount of labor-market reforms, from a policy maker's perspective. Positive economics of rigid labor markets; Interaction between EMU and labor-market reforms; Discussion on whether EMU will push the politico-economic equilibrium toward reforming the labor market; Conclusions.

Investigates the strange disappearance of welfare economics in the European Union. Advancement on economics and moral philosophy; Objectives of standard social welfare; Consideration of explicit as the welfare basis for evaluative statements.

We study the reasons for differences in welfare benefit receipt between immigrants and natives in 16 EU countries using Oaxaca-Blinder decompositions of a Heckman model. Differences in welfare benefit receipt diminish or disappear altogether after controlling for differences in characteristics of the two groups. The largest part of this is explained by differences in benefit take-up rather than benefit levels conditional on benefit receipt. The characteristics contributing most to native-immigrant welfare wedges in contributory benefits are differences in age. For non-contributory benefits, differences in household size and composition are most important. Overall results thus suggest a limited capability of selective immigration policies to reduce welfare benefit receipt among immigrants. [ABSTRACT FROM AUTHOR]

Examines the role of location in regional convergence for the case of the European Union. Model of regional convergence with spatial effects; Opposing forces at work across Europe; Argument that growth in each region depends on its own characteristics and on those of the regions that form the neighborhood to which it belongs.

In the course of the EU enlargement process, the participation of accession countries in the European Monetary Union might lead to a significant redistribution of seigniorage wealth if current regulations prevail. In general, accession countries will be winners from this redistribution, for example Poland with 12.9 billion euros, Romania with 9.9 billion euros or Hungary with 3.3 billion euros. Correspondingly, the current member countries of the European Union face costs of 35.3 billion euros in total, the biggest part of which has to be borne by Germany. [ABSTRACT FROM AUTHOR]

In order to evaluate the empirical relevance of the Lucas Critique, we investigate whether the term structure (the relation of the long interest rate to the short interest rate) showed structural change as the deadline for the euro came closer. Our empirical analysis of the term structures (yield curves) in 12 OECD countries uncovers that econometrically estimated behavioural equations for most EMU countries were stable even in the light of the creation of the euro. This finding would seem to defy the Lucas Critique. However, the significant structural instability found for the euro area's core country, Germany, suggests that the Lucas Critique is relevant in the analysis of the impact of the creation (and future extensions) of EMU. [ABSTRACT FROM AUTHOR]

High-quality institutions of conflict management can serve to mitigate the negative effects of adverse external shocks and social conflict on long-run economic growth. But in addition to the benefits (production-enhancing cooperation), there are also costs (taxes and rent-seeking) of conflict-management institutions like corporatism and trust. We examine both positive and negative influences in the context of a simple growth model. Contrary to previous research, we predict a non-linear relationship between institutions and growth. The empirical evidence from a panel for the years 1961-1995 shows that neo-corporatism and trust have each had independent positive effects on long-run growth in the EU, suggesting that the diminishing product range of institutions has not yet been reached. Under an increasing size of government, however, both institutions lead to a dominating negative rent-seeking effect. [ABSTRACT FROM AUTHOR]

Investigates various fiscal issues surrounding economic and monetary union and its' impact on European Union citizens and financial transactions. Positions of European Union in preparation for economic and monetary union (EMU); Costs and benefits associated with EMU admittance; Institutional framework of EMU; Management of EMU currency; Impact of EMU on social security and labor market.