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Implications of the European economic integration on the centrally-planned economies

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ING Group Greece - Sidma SA - Telesis Securities
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  1. Abstract.
  2. Introduction.
  3. The Eastern enlargement of the European Union.
    1. 1.1 The European Union enlargement.
  4. The Theoretical Background of Economic Integration
    1. Levels of Economic Integration.
    2. Objectives of Economic Integration.
    3. Cases for Economic Integration.
    4. Cases against Economic Integration.
    5. European Union and Economic Integration.
  5. Empirical Evidence.
  6. The political dimension of Economic Integration.
  7. Conclusions.

Former Communist countries joined the EU in 2004 and in 2007. Having different features in their surrounding region as compared to the older EU members, centrally-planned economies were ? and still are - challenged to alter their political and economic environment in order to align with the EU membership. This paper identifies the implications of economic integration on centrally planned economies. Despite cases against, the net effect of economic integration for consumers and citizens is positive because they are offered a greater variety of products at lower costs and prices. Ex-Communist countries become a pole for foreign direct investment as a result of trade liberalization and market openness. The political dimension of reform policy is vital.

[...] Graph FDI Inflows from transition economies (2006-2010) Adapted from Economist Intelligence Unit ?World Investment Prospects to 2010: Boom or Backlash? The political dimension of Economic Integration The political dimension of economic integration is related to the ability of the governments of the CEE countries to proceed to the necessary reforms as to adjust to the EU requirements. Most of the CEE countries have weak reforming governments. In particular, in Bulgaria, the political situation is improving. An important component of political stability is the ongoing administrative reform aiming to harmonize the Bulgarian legislation to the European norm. [...]


[...] Based on above facts, the upward trend of FDI in the free trade area is fairly explained Cases against Economic Integration Integration is not easily achieved or sustained. Although it might benefit the majority, it may also harm the minority. The lowering of barriers to trade and the investment which occurs between countries may result to an increased price competition. The cases against economic integration involve, but are not limited to, the following: Consumers may benefit but certain groups are harmed: the benefits of free trade outweigh the costs by a significant margin, yet this is irrelevant to those who bear the costs. [...]


[...] Finally, country risk, unit labor costs, host market size and credit rating are the main determinants of FDI flows in centrally-planned economies (Bevan & Estrin, 2000) Empirical Evidence In this section, the paper provides the empirical evidence, which supports the cases for economic integration. In particular: Economic integration increases the mobility of production factors (labor, capital) Capital mobility allows a thorough exploration of countries newly opened to commerce. Capital and labor tend to move from areas where conditions are less favorable for production to those in which they are more favorable. [...]

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