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Effects of European integration on Austria's economy

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  • Engelbert Stockhammer

Abstract

High expectations were placed on the project of European economic integration and Austria's participation in it. Economists had expected that the Single Market would provide a positive supply shock, i.e. rising productivity, resulting in more growth. The optimistic forecasts for neither the EU nor for Austria were borne out by actual economic trends. Economic growth as well as productivity growth decelerated, while unemployment increased. Monetary union was implemented with an economic policy framework, the Stability and Growth Pact (SGP) that geared monetary policy only to price stability and at the same time prescribed restrictive fiscal policies. The SGP therefore reveals a deflationary bias. The existing literature on the effects of EU accession on the Austrian economy by design fails to account for the restrictive effects of the SGP. The paper presents simulation results allowing for supply shocks as well as demand shocks. The simulations are based on a medium-sized macroeconometric model. The results indicate that recent studies overestimate the positive effects of European integration. A simulation of the restrictive demand-side effects of the SGP, with the assumption that around half of the fall in public consumption growth in the Euro countries can be attributed to the SGP, produced significant negative growth effects. The net effect suggests a negative quarter percentage point p.a. during the period 1995-2004.

Suggested Citation

  • Engelbert Stockhammer, 2009. "Effects of European integration on Austria's economy," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(1), pages 19-40.
    • Handle: RePEc:taf:irapec:v:23:y:2009:i:1:p:19-40
    DOI: 10.1080/02692170802496836
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    References listed on IDEAS

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    1. Engelbert Stockhammer & Özlem Onaran & Stefan Ederer, 2009. "Functional income distribution and aggregate demand in the Euro area," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 33(1), pages 139-159, January.
    2. Dani Rodrik, 1998. "Has Globalization Gone Too Far?," Challenge, Taylor & Francis Journals, vol. 41(2), pages 81-94, March.
    3. Josef Baumgartner & Fritz Breuss & Serguei Kaniovski, 2004. "WIFO-Macromod. An Econometric Model of the Austrian Economy," WIFO Working Papers 241, WIFO.
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    Cited by:

    1. José M. Pastor & Lorenzo Serrano, 2012. "European Integration and Inequality among Countries: A Lifecycle Income Analysis," Review of International Economics, Wiley Blackwell, vol. 20(1), pages 186-199, February.

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