Will income inequality cause a middle-income trap in Asia? Bruegel Working Paper 2013/06, 10 October 2013

The Asian economy is expected to realise favourable growth during the first half of this century, but there is no guarantee. There is a discussion about a ‘middle-income trap’, which refers to a country that has realised rapid growth to become a middle-income country but is unable to grow further. A middle-income trap could occur not only if there is a delay in shifting the economy toward a productivity-driven structure, but also if there is a worsening of income distribution.We consider this in line with the theories of development economics and through a quantitative analysis. The relationship between income inequality and the trap can be explained by the Kuznets hypothesis and the basic-needs approach. Our quantitative analysis supports the Kuznets hypothesis, and indicates that,although a low-income country can accelerate its economic growth with the worsening of income distribution as an engine, a middle income country would experience a decreasing growth rate if it fails to narrow the income gap between the top and bottom income groups. The results also show that the basic-needs approach is also applicable in practice, and imply that the improvement of access to secondary education is important. A sensitivity analysis for three Asian upper-middle-income countries(China, Malaysia and Thailand) also shows that the situation related to a middle-income trap is worse than average in China and Malaysia. These two countries, according to the result of the sensitivity analysis, should urgently improve access to secondary education and should implement income redistribution measures to develop high-tech industries, before their demographic dividends expire. Income redistribution includes the narrowing of rural urban income disparities, benefits to low-income individuals, direct income transfers, vouchers or free provision of education and health-care, and so on, but none of these are simple to implement.

The Evolving Integration in East Asia - Too many reservations? CEPS Essay No. 5, 29 April 2013

East Asian economic integration is less well known in Europe than is desirable in the EU’s own enlightened self-interest. It is also badly understood, not least because a range of ‘soft’ cultural, historical and political aspects are insufficiently appreciated in Europe. This CEPS Essay offers a deeper personal reflection on the emergence and development of East Asian economic cooperation and market-driven integration. It attempts to address some of the lingering reservations on both sides and to render the reservations in East Asia more intelligible to Europeans.

Capitalism without Capitalists? A Bottom-Up View of Industrial Transformation in East Germany. CES Germany & Europe Working Papers, No. 00.1, 1999

Research on the industrial transition in East Germany and its outcomes has long focused on the strategy of the Treuhand­ anstalt (IHA). According to institutionalists, David Stark and Lazlo Brust!: (1998), the powerful position of the German privatization agency was not only a result of German unification but also a function of a pathway rooted in the institutional peculiarities of the East German economy before 1989. This paper shows that neither a simple top-down perspective nor the pathway approach, as Stark and Brust!: suggested, are adequate for explaining the internal dynamic of enterprise transformation as well as the outcomes of this process. First of all, the dissolution of the former organizational structures and hierarchies was less coordinated by the 1HA than is often assumed. Often Kombinates fell apart more quickly from below than they could be dismantled from above since enterprises or their units chose the exit­ option and had good reasons to do so. Secondly, although the privatization by the 1HA resulted in the clear dominance of Western investors, the new ownership structure of East German industry as a whole could be characterized as a "capitalism without (East German) capitalists." In fact, what exists in East Germany is rather a kind of "small business capitalism" (KleinbetriebsknpitalifmllS) in which small-and medium-sized producers dominate the landscape. Finally, there was no single starting point in 1989. Two different industrial orders shaped the industrial history of the East German regions which were not destroyed between 1945-89, but rather transformed into the state socialist production system. It can be shown that these older historical patterns are relevant for transition and their outcomes as well.

A Global Analysis of of Imperfect Competition in the Banking Systems and the Latest Israeli Regulation Dealing with Market Failures. ACES Working Paper No. 3, 2007

The high concentration of the banking sector is a cross-border phenomenon that has high impact on local and global economies. This paper's main goal is to analyze the factors that impact concentration in the banking systems around the globe. The innovation of this paper is that we combined economic, "economic environment", and culture variables as explanatory variables for this analysis. We found among other things that regulation in the banking system is helpful in order to keep it competitive. We also found that when the society has more individual values rather than collective ones, its banking sector is less concentrated. In the second part of the paper we focused on the Israeli case, showing that although recent indicators of the Israeli banking system indicate a higher level of concentration and lower level of competition, it seems that the recent trend is moving toward less concentration and higher competition.

Imperial legacy? The EU's Developmental Model and the Crisis of the European Periphery. CES Papers - Open Forum #19, 2013-2014

The high hopes for rapid convergence of Eastern and Southern EU member states are increasingly being disappointed. With the onset of the Eurocrisis convergence has given way to divergence in the southern members, and many Eastern members have made little headway in closing the development gap. The EU´s performance compares unfavourably with East Asian success cases as well as with Western Europe´s own rapid catch-up to the USA after 1945. Historical experience indicates that successful catch up requires that less-developed economies to some extent are allowed to free-ride on an open international economic order. However, the EU´s model is based on the principle of a level-playing field, which militates against such a form of economic integration. The EU´s developmental model thus contrasts with the various strategies that have enabled successful catch up of industrial latecomers. Instead the EU´s current approach is more and more reminiscent of the relations between the pre-1945 European empires and their dependent territories. One reason for this unfortunate historical continuity is that the EU appears to have become entangled in its own myths. In the EU´s own interpretation, European integration is a peace project designed to overcome the almost continuous warfare that characterised the Westphalian system. As the sovereign state is identified as the root cause of all evil, any project to curtail its room of manoeuvre must ultimately benefit the common good. Yet, the existence of a Westphalian system of nation states is a myth. Empires and not states were the dominant actors in the international system for at least the last three centuries. If anything, the dawn of the age of the sovereign state in Western Europe occurred after 1945 with the disintegration of the colonial empires and thus historically coincided with the birth of European integration.