Dr Jan Fidrmuc

 

EC2006 Economics of the European Union

 

Autumn 2009-10

 

LECTURE:     Thu        9-11   LC216

SEMINAR:    Wed       9-10   LC210

 

Office Hours:    Tue/Wed 10.30-11.30am

 

Essay Assignment;

Sample essay 1 (mark: A);  Sample essay 2 (mark: B)

 

Week

Topic

Reading

1

Lecture: Introduction; EU history, institutions and basic facts (updated)

BW 1+2

2

No seminar in week 2!

 

 

Lecture: Decision making (updated)

BW 3

3

Seminar

1.   Explain why it is important that the ECJ rulings cannot be appealed in member states’ courts.

2.   If the ECJ decides on a matter, is there any way that EU leaders can overrule that decision?

3.   In many European nations, the trend of the last couple of decades has been to decentralise decision making from the national level to the provincial or regional level. How could you explain this trend in terms of the theory of fiscal federalism.

4.   The 2004 and 2007 EU enlargements greatly increased the diversity of preferences inside the EU. Use the theory of fiscal federalism to discuss how this change might suggest a different allocation of competencies (decision-making powers) between the EU and the Member States.

 

 

Lecture: Preferential trade liberalization and EU trade policy (updated)

BW 4+5+15

4

Seminar

1.  Consider a Union of five countries denoted A, B, C, D and E. Each country has 20 votes and decisions are taken by simple majority. Assume that all countries vote randomly except for A and B who always cast the same vote. Show how this coordinated voting between A and B changes the distribution of power within the Union. Does coordination make A and B more or less powerful relative to the other member countries?

2.  Using a diagram, show the full Foreign welfare effects of imposing a Home tariff equal to T, i.e. show the impact on Foreign producers and Foreign consumers separately.

3.  One can think about the slope of the MS curve is in terms of the ‘size’ of the home nation: a small country has a very small impact on the world price and its MS curve is therefore essentially flat. Using a diagram, show that when the MS curve is perfectly flat, the welfare effects are unambiguously negative.

4.  Consider the welfare impact of Home imposing a tariff on Foreign exports and Foreign retaliating with a tariff on Home’s exports. Assume that the MS and MD curves for both goods (Home exports to Foreign and Foreign export to Home) are identical.

 

 

Growth effects of economic integration (updated)

BW 7

5/6

Seminar

1.  Show that it is possible for Home and Partner to form a customs union and lower their common tariff against RoW to the point where the new border price faced by RoW exporters is the same as it was before the liberalisation, i.e. P’-T. Show that this adjustment ensures that Home and Partner gain while RoW does not lose from this customs union.

2.  Suppose that signing an customs union between Home and Partner produces a growth effect that raises their income level and thus shifts their MD curves upwards. Use a diagram to show a sufficiently big upward shift in Home and Partner MD curves would ensure that RoW did not lose from this customs union.

3.  When the German re-unification took place, Germany’s labour force rose much more than its capital stock (since much of East Germany’s capital stock was useless in the market economy). Use a diagram to analyse what the growth effects of such an integration .

4.  It is often said that the prospect of EU membership made Central European nations a better, safer place to invest. Using the Solow diagram, show how this would affect growth in these nations.

 

 

 

Economic integration and migration (updated)

BW 8+ZZ

6

Seminar

1.  Explain why the immigration of low-skilled workers hurts native low-skilled workers and benefits high-skilled workers. 

2.  Consider the analytical framework introduced in the lecture but assume that all immigrants are high-skilled workers and that low-skilled and high-skilled workers are complementary. Discuss how this affects the low-skilled workers in the Home country (hint: as the two kinds of labor are complementary, immigration of high-skilled workers raises the marginal product of low-skilled workers).

3.  Freedom to live and work in any EU country is one of the key elements of the Single Market Program. Discuss the main benefits and costs associated with free labor mobility in the EU. Feel free to go beyond economic considerations (e.g. social, political or cultural implications of labor mobility).

4.  Discuss arguments in favour and/or against imposing transitional arrangements on labor migration from those countries that joined the EU in 2004 and 2007.

 

 

7/8

Seminar

1.  Discuss what is occupational downgrading of immigrants and why it might occur.

2.  Discuss brain drain and its implications for the sending and receiving country.

 

 

Economics of Languages and Linguistic Policies (updated)

FG+FGW

8

Seminar

1.  The majority of immigrants to the UK in the wake of the 2004 EU enlargement took up low-skilled occupations. Discuss the likely impact of this immigration on the UK labor market, both the aggregate effect and its distributional implications.

 

 

(a) Common agricultural policy (updated); and (b) Economic geography and regional policy (updated)

BW 12 + 13

9

Seminar

1.  Discuss factors that may affect the choice of linguistic regime in a multilingual country or organization.

2.  In 2003, the world wheat price is above the CAP’s target price so the price floor has become a price ceiling. (i) Using a diagram, show how the EU could implement the price ceiling with an export tax. (ii) What are the welfare effects of this policy?

3.  Before the UK adopted the CAP, it supported its farmers with a system of ‘deficiency payments’, i.e. production subsidies. Using a diagram, analyse this policy, assuming that the import of food was duty free but the government directly paid farmers the difference between the market price and a target price for each unit of food they produced.

4.  The educational level in all EU nations is rising. How would this affect the spatial allocation of production

 

10

Monetary Integration in Europe (updated)

Seminar

1.  During the Asian Crisis of 1997-98, Malaysian currency depreciated sharply. The government responded by imposing strict capital control and pegged the exchange rate to the US dollar. Use the concept of the Impossible Trinity to discuss the merits of this approach. What drawbacks does the Malay approach have in the long term?

2.  The Danish people have rejected, by referendum, joining the Eurozone.  Yet, Denmark has been a member of the ERM-2 since it was created in 1999, and the krone has almost never by more than 1% vis-à-vis the euro.  What difference would eurozone membership make?

3.  In the analysis of asymmetric shocks in the context of the OCA Theory, it is asserted that the real exchange rate l = EP/P* can be depreciated either through a depreciation of the nominal exchange rate E or through a change in the price level P. Explain.

4.  In the presence of an adverse shock, an alternative to depreciation of the real exchange rate is to cut imports by raising tariffs. Why is this alternative usually unpalatable?

 

BW 10, 16-18

11

Seminar

1.  Recently, some Italian politicians have proposed that Italy should leave the eurozone and reintroduce the lira. Evaluate the potential benefits and dangers of this proposal.

2.  `Mandatory capital mobility-as part of the Single Market-turns out to be a hinderance to ERM membership by the new member states.’  Comment.

3.  Some analysts have recently proposed that the EU should implement an EU-wide system of unemployment insurance. Discuss how this would affect the prospects for continuing and widening monetary integration in Europe.

4.  Could immigration be a solution to the lack of labor mobility in Europe?

 

5.  Why are Europeans less mobile than Americans? Note that low mobility is not just observed across national borders but also within each country. What measures could increase labour mobility in Europe?

 

6.  It is sometimes argued that because automatic stabilizers play a more important role in Europe than in the US, there is less need for fiscal transfers among EMU countries. Explain and critically discuss.

 

 

12

Revision lecture

 

 

 

Reading

 

BW

Richard Baldwin and Charles Wyplosz, The Economics of European Integration, 3rd edition, McGraw-Hill, 2009, purchase strongly recommended.

FG

Jan Fidrmuc and Victor Ginsburgh, “Languages in the European Union: The Quest for Equality and its Cost,” European Economic Review 51 (6), August 2007, 1351-1369.

FGW

Jan Fidrmuc, Victor Ginsburgh and Shlomo Weber, “Ever Closer Union or Babylonian Discord? The Official-language Problem in the European Union,” mimeo.

ZZ

Anzelika Zaiceva and Klaus F. Zimmermann, “Scale, Diversity and Determinants of Labour Migration in Europe,” Oxford Review of Economic Policy Vol. 24, No. 3, 2008, pp. 427-451.

 

Last updated: 6 December 2009.