Suchergebnisse

At the heart of the evaluation of the economic costs and benefits of adopting the euro lies the question of whether living standards would be higher outside or inside the Euro Area. It is well established that there is a strong positive relationship between openness to international trade and investment and the performance of the UK economy. European integration is continuing to help raise the openness of the UK economy, as well as stimulating product market competition and making the UK a more attractive location for mobile investments. This provides an additional channel through which potential output in the UK is linked to the degree of integration with the rest of Europe. Adopting a common currency may bring modest further gains to productivity and living standards by stimulating trade as well as competition. Reducing exchange rate volatility may also raise the level of fixed capital investment in the UK, although the direct evidence for this is limited, and stimulate inward investment from outside Europe, but could reduce the level of foreign direct investment between the UK and the Euro Area. However it is far from clear how big the net benefits might be or how soon they might start to appear. If the UK were to enter monetary union at a significantly overvalued real exchange rate the gains might never materialise at all and there could easily be significant net losses.

The world economy continues to face strong deflationary pressures at the present time. Whilst growth has remained above trend levels in North America, the Japanese economy has sunk further into recession, and there are increasing signs of an economic slowdown in Europe. Overall we expect GDP growth in the OECD economies to slow to around 1.8 per cent this year, from an estimated 2.4 per cent in 1998. Global demand as a whole remains relatively weak, with the growth in the volume of world merchandise trade estimated to have halved last year to around 5 per cent and projected to fall further to between 4-4½ per cent this year. Trade in Asia is estimated to have declined by 7½ per cent last year, with potentially serious consequences for growth prospects in economies such as China, Hong Kong and Singapore that have become increasingly affected by the regional economic downturn.

The economic outlook for the global economy has deteriorated appreciably over the past six months. By the late spring it had already become clear that growth in the OECD economies would slow to around 2½ per cent this year from 3 per cent in 1997, with strong domestic demand outside Japan being offset by the growing impact of the contraction in the Asian economies. However the further slowdown projected in 1999 appeared relatively benign, with monetary conditions remaining accommodative in the major economies and commodity prices remaining weak.

In this paper we seek to quantify the impact of the European internal market programme on the sectoral and geographical pattern of foreign direct investment by U.K. corporations. We use an annual panel data set covering investment within seven sectors in the European Union (EU) and the United States, and control for market size, relative costs, innovation, corporate financial constraints and sector‐specific fixed effects. Our results indicate that the programme has had a significant positive effect on the level of investment, in both industrial and service sectors. There is also some evidence of investment diversion from the United States into the EU since 1990.

ABSTRACTConventional unit root tests are biased towards non‐rejection of the null when applied to variables characterized by a one‐time change in their mean. Suggested modifications allowing for a break point require identification of an exogenous change initiated at the time of the break and not subsequently reversed. This paper suggests that modified tests are particularly useful in dealing with legislative changes. Two UK examples are given; the abolition of exchange controls in 1979 and the changes in monetary policy in 1980. Results suggest that allowing for a break changes the apparent order of integration of portfolio shares and real interest rates.

The UK economy entered 1992 having experienced one of the largest falls in the volume of domestically produced output during a single calendar year in the post-war period, with output likely to have fallen by close to 2.5 per cent in 1991. However the pace of the decline has begun to moderate in recent months, with activity in the second half of the year around 2 per cent lower than a year earlier. With oil production having recovered since the summer, it seems likely that onshore activity declined for the sixth successive quarter in the final three months of 1991.