Working Paper: CEPR ID: DP9471
Authors: Giuseppe Bertola
Abstract: When economic integration fosters expectations of productivity convergence, capital flows are driven by consumption-smoothing anticipation of income growth patterns as well as by factor-intensity equalization. In the euro area, financial integration eased accumulation of international imbalances, but the convergence that appears to have been expected was not realized. The resulting crisis casts doubt on the sustainability of the current configuration of the European integration process. A robust and coherent European market and policy integration process would require supranational implementation of the behavioral constraints and contingent redistribution schemes that traditionally operate within National socio-economic systems, and have been weakened in recent experience by uncoordinated policy competition.
Keywords: current accounts; economic integration; income distribution
JEL Codes: E2; F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic integration (F15) | Increased capital flows (F32) |
| Increased capital flows (F32) | Unsustainable financial imbalances (F65) |
| Expectations of productivity convergence (O47) | Increased capital flows (F32) |
| Increased capital flows (F32) | Consumption smoothing (D15) |
| Expectations of future income growth (D84) | Current borrowing and spending behaviors (E62) |
| Lack of effective risk-sharing mechanisms (F65) | Exacerbated crisis (H12) |
| Increased capital flows (F32) | Crises (H12) |
| Economic integration (F15) | Crises (H12) |