Horizontal and Vertical Interdependence in the Multinational Subsidiary Networks. ACES Working Paper No. 7, July 2008

Existing theoretical studies have predicted that a multinational firm's location choices are interdependent across countries. Little has, however, been done to test the hypothesis at individual subsidiary level. This paper uses a detailed French multinational subsidiary dataset and estimates how a firm's decision to invest in a foreign country is not only conditional on the characteristics of that country but also the firm's existing subsidiary network Using a structural spatial econometric model, the paper finds evidence of both horizontal and vertical interdependence in multinationals' location decisions. The results indicate that while multinational firms have little incentive to duplicate their production in countries with low bilateral trade costs, they are motivated to build a vertical subsidiary network in these countries ~ especially when the countries have complementary comparative advantages.

The European Union as a System of Differentiated Integration: Interdependence, Politicization and Differentiation. IHS Political Science Series No. 137, 10 July 2014

This paper conceptualizes the European Union (EU) as a system of differentiated integration characterized by both variation in levels of centralization (vertical differentiation) and variation in territorial extension (horizontal differentiation) across policy areas. Differentiation has been a concomitant of deepening and widening and has increased and consolidated as the EU’s powers, policy scope, and membership have grown. Turning to explanation, the paper attributes the pattern of differentiated integration in the EU to the interaction of interdependence and politicization. Differentiation among the member states (internal differentiation) results from supranational integration under conditions of high interdependence and politicization. By contrast, external differentiation (the selective policy integration of non-member states) occurs in highly interdependent but weakly politicized policy areas. These constellations are illustrated in case studies of differentiation in the internal market, monetary union, and defence.

EU-Russia energy diplomacy: The need for an active strategic partnership. EU Diplomacy Paper 4/2012, July 2012

This paper explains the conflictive and cooperative elements of energy diplomacy between the European Union (EU) and Russia. It argues that interdependence forms the underlying principle of this relationship and creates both sensitivity and vulnerability for the interdependent parties, thus carrying the sperms of both conflict and cooperation. Both sides would be negatively affected by the other side’s noncooperation within the current policy framework and the prevailing mistrust and recurring tensions can be explained by this sensitivity. However, even if both sides’ policies were adjusted, vulnerability interdependence would still prevent them from seriously reducing their energy cooperation. It is necessary then to see how EU and Russian energy diplomacy can converge and how their strategic energy partnership can be cemented.

No other choice but co-operation. The background of Lithuania's and Latvia's relations with Belarus. OSW Commentary No. 99, 2013-01-04

For years now Belarus has been a key economic partner for Lithuania and Latvia. These two Baltic states have well-developed port infrastructure and thus provide what are the geographically closest and also the cheapest exit to international outlets for Belarusia’s petrochemical and chemical industries, both of which are export-oriented. As a result, the transit of Belarusian goods is one of the major sources of income for the state budgets of the two countries. This economic interdependence has affected the stance Riga and Vilnius take on Minsk at the EU forum. When in February and March 2012 the Council of the European Union was resolving the issue of imposing economic sanction on selected Belarusian companies which backed Alyaksandr Lukashenka’s regime, this triggered a discussion on what the point of such measures is and on possible economic losses in Lithuania and Latvia. As a result of firm resistance from Latvia (which was backed by Slovenia), the Council removed those companies which were most strongly engaged in co-operation with Latvian partners from the list of those to be covered with economic sanctions. Lithuania, which is more critical of the political situation in Belarus, did not express its official opposition to the sanctions. Despite some differences in the policies adopted by Riga and Vilnius, it turned out that Minsk could count on strong support from local business groups in both of these countries, as these groups fear impediments in this highly profitable co-operation and also retaliation from the Belarusian government. The existing economic bonds mean that neither Vilnius nor Riga have any other choice but to co-operate with Belarus. They must therefore adopt a carefully balanced policy towards Minsk. At the same time, being EU member states, they do not officially deny that a problem exists with the violation of human rights by Alyaksandr Lukashenka’s regime. It is for this reason that the governments of Latvia and Lithuania will be interested in maintaining the status quo in relations with Minsk. On the other hand, Belarus in a way also has no other choice but to use the ports in Lithuania and Latvia, and this will prevent it from excessively escalating tension in relations with these two countries.

Simulation Results on the Impact of Changes in the Main EU Policy Tools on Farm Investment Behaviour. Factor Markets Working Document No. 56, June 2013

This paper completes the comparative analysis of the investment demand behaviour, of a sample of specialised arable crop farms, for farm buildings and machinery and equipment, as a function of the different types and levels of Common Agricultural Policy support, in selected European Union Member States. This contribution focuses on their quantitative interdependence calculating the relevant elasticity measures. In turn, they constitute the methodological tool to simulate the percentage expected change in average net investment levels associated to the implementation of the, recently proposed and currently under discussion, reductions in the Pillar I Direct Payments disbursed under the Common Agricultural Policy. Evidence suggests a statistically significant elastic and inelastic relationship between both types of subsidies and the investment levels for both asset classes in Germany and Italy, respectively. An elastic dependence of investment in farm buildings on decoupled subsidies exists in Hungary while changes in the level of coupled payments appear to translate into less than proportional changes in the demand for both farm buildings and machinery and equipment in France. Coupled payments appear to influence the UK demand for both asset classes in an elastic manner while decoupled support seems to induce a similar effect on investment in machinery and equipment. Since the currently discussed Common Agricultural Policy reform options imply, almost exclusively, a reduction in the level of support granted through Direct Payments, simulated effects were expected to reveal a worsening of the farm investment prospects for both asset types (i.e., a larger negative investment or a smaller positive one). The actual evidence largely respects this expectation with the sole exception of investment in machinery and equipment in France and Italy reaching smaller negative or larger positive levels irrespectively of the magnitude of the implemented cuts in Direct Payments.

Between Irrelevance and Integration? New Challenges to Diplomacy in the 21st Century and the Role of the EEAS. EU Diplomacy Paper No. 8, November 2014

The changing nature of diplomacy poses new challenges for diplomatic actors in the 21st century, who have to adapt their structures in order to remain relevant on the international stage. The growing interdependence and complexity of issues necessitate a more networked approach to diplomacy, while states retain their predominance in diplomacy. The main underlying challenge of modern diplomacy therefore requires finding a balance between traditional and new elements. This paper examines to what extent the European External Action Service (EEAS) meets the new challenges of modern diplomacy and copes with the diverse interests of the other stakeholders involved, namely the institutions and Member States of the European Union (EU). On the basis of a conceptual framework of modern diplomacy and an analysis of the different aspects of the EEAS’ structures, the paper argues that the EEAS does not fully meet the new challenges to diplomacy, since the interests of the other stakeholders put constraints on its free development. The latter therefore have to choose between irrelevance and integration with regard to EU foreign policy and the future of the EEAS.

Russia and Turkey - What does their partnership mean for the EU? EPC Policy Brief, 13 February 2015

Russia and Turkey have, over the past two decades, developed a very constructive relationship across a wide variety of policy areas. Imperial rivals during much of the Cold War, both countries have since then found common interests in matters of energy, trade and even defence. Besides their growing interdependence, it is hard not to notice the similarities between the two leaders of these countries, especially when it comes to the conspiracy mind-set of blaming dissent at home on foreign meddling. But does this mean that Turkey is fundamentally realigning its foreign policy strategy, away from the EU and towards Russia? And is the EU facing the emergence of an “axis of the excluded”? Not so according to Dimitar Bechev. In this Policy Brief, he argues that the ties between Russia and Turkey are driven by pragmatism and realpolitik. Contentious issues – such as the war in Syria - may be insulated from areas of overlapping interest, but deeper examination shows the glue holding the two countries together – their energy interdependence – is slowly weakening. Bechev believes the EU should take advantage of this divergence and try to (re-)anchor Turkey to its own initiatives and policies.

In Pursuit of Peace, Prosperity and Power – What ASEAN and EU can learn from each other? EU Centre Singapore Policy Brief No. 7, May 2014

The EU and ASEAN are often compared and seen as relatively successful regional organisations in their respective regions. Yet of late, both regional organisations are under intense scrutiny as they confront challenges posed by the financial crisis and rising geopolitical tensions. Their inability to respond effectively to these challenges has brought about a chorus of criticisms. Noting the current tensions face by both the EU and ASEAN in their respective regions, one could not help but wonder how and if they would be able to deal with the increasing complex security landscape because of a weakened US, and the rise of the rest. This article will compare and contrast the approaches taken by the EU and ASEAN thus far in trying to build peace and prosperity, and how they manage the demands of power politics to distill some lessons on what they can learn from each other in order to navigate an increasingly paradoxical world of economic interdependence but political fragmentation.