The consequences of this standard can be seen in tabular arraies X-XV and figures III-V. Tables X-XV show the per centum of the overall discrepancy of the long-run involvement rates, FDI influxs and FDI outflows that can be explained by the first rule constituent, whereas figures III-V visualize these consequences in several graphs. Tables X and XI show the simple and cumulative moving mean consequences of the rule component analysis of the long-run involvement rates severally, whereas tabular arraies XII and XIII show the simple and cumulative moving mean consequences of the PCA of the inward FDI flows and tabular arraies XIV and XV show the simple and cumulative moving mean consequences of the analysis of the outward FDI flows. Similar to the old standard, the rule constituent analysis for this standard is executed non merely for the whole group of states under probe, but besides for the EMU ‘core ‘ ( Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain ) and the control group ( United Kingdom, Denmark and Sweden ) individually, so as to place any divergency between these two groups of states.
Tables X and XI show PCA values transcending 90 per centum for about all periods, with no important form bespeaking the consequence of the EMU debut, bespeaking a high convergence in long-run involvement rates. When comparing the control group with the EMU ‘core ‘ , it can be seen that the control group has much higher long-run involvement rate convergence than the EMU ‘core ‘ in most of the periods.
When looking at the analysis of the inward FDI flows ( tabular arraies XII and XIII ) , much lower PCA values can be distinguished. Most series have higher values for the last period than for the begin period ( with the exclusion of the cumulative moving mean series of the EMU ‘core ‘ ) , bespeaking an increased convergence. However, when comparing the EMU ‘core ‘ with the control group, it can be seen that the control group has higher convergence than the EMU ‘core ‘ . Furthermore, when the twelvemonth 1999 is included in the moving norms, the control group reaches a extremum, thenceforth swerving downwards. The values of the EMU ‘core ‘ do non look to respond this strongly to the starting of the EMU, as these values reach a ( much lower ) extremum in the periods following this twelvemonth, thenceforth besides swerving downwards.
The FDI outflow tabular arraies ( XIV and XV ) show approximately the same forms as the inflow tabular arraies described above, with low overall convergence degrees and higher convergence for the control group than for the EMU ‘core ‘ . However, the twelvemonth 1999 does non convey a extremum for any of the state groups. If anything, it brings a dip. After the twelvemonth 1999, the PCA values of all state groups addition for one period, thenceforth swerving downwards.
It can be concluded that the long-run involvement rates are integrated, both at the induction of the EMU in 1999 as today. The inward FDI flows increased to values around 70 per centum when 1999 was included in the moving norms, bespeaking integrating at the induction of the EMU. However, when looking at the PCA values of the last period, it can be seen that today merely the states in the control group are integrated with values good above 50 per centum, whereas the EMU ‘core ‘ is non integrated. The outward FDI flows state a somewhat different narrative, with values quickly diminishing when the twelvemonth 1999 is included in the moving norms, and low convergence for the EMU ‘core ‘ combined with high convergence for the control group today. Overall, it can therefore be concluded that the long-run involvement rates are integrated at both times ( 1999 and today ) , whereas the inward FDI flows were integrated in 1999 but are non at the minute, and the outward FDI flows have ne’er been integrated. Therefore, this standard is non satisfied.
5.4 Fiscal market integrating
Tables XVI-XIX and figures VI-VII show the consequences of this standard. The tabular arraies show the per centum of the overall discrepancy of the international fiscal integrating ( IFI ) variable that can be explained by the first rule constituent and the values of the Chinn-Ito index, whereas the figures show these values in a graph. Tables XVI and XVII show the simple and cumulative moving mean consequences of the rule component analysis of IFI severally, while tabular arraies XVIII and XIX show the simple and cumulative moving mean consequences of the Chinn-Ito index. It can be seen that the rule constituent analysis is executed non merely for the whole group of states under probe, but besides for the EMU ‘core ‘ ( Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain ) and the control group ( United Kingdom, Denmark and Sweden ) individually, so as to place any divergency between these two groups of states.
The IFI tabular arraies and figure ( tabular arraies XVI and XVII and figure VI ) show PCA values transcending 90 per centum for about all periods, with the highest values environing the twelvemonth 1999. However, it can besides be seen that today ‘s values are much lower for the EMU ‘core ‘ , although upward swerving. As these values are still above 60 per centum and upward trending, the IFI variable indicates fiscal market integrating both at the inception of the EMU as today.
As a hardiness cheque, the Chinn-Ito index is shown in tabular arraies XVIII-XIX and figure VII. These show that all states except Belgium were financially integrated from 1999 onwards, while Belgium was traveling upward in 1999 and to the full integrated in 2003. This variable therefore besides shows that the EMU was integrated both in 1999 and today.
Overall, it can therefore be said that this standard is fulfilled. The European Monetary Union was financially integrated in 1999 and is even more incorporate today.
5.5 The grade of economic openness
In tabular arraies XX and XXI the time-varying results of equation ( 4 ) can be found. Table Twenty shows the simple moving mean consequences, whereas table Twenty-one shows the cumulative moving mean consequences. Both tabular arraies show chiefly values of above 0,5, nevertheless for the states France, Germany, Italy, Spain and the UK lower values can be found. In these tabular arraies it can besides be seen that the simple moving mean values are lower than the cumulative moving norm values, bespeaking that the openness has increased over the old ages. Furthermore, when looking at the columns ‘1995-1999 ‘ and ‘1990-1999 ‘ it can be seen that all values were about 0,5 and higher ( exclusions are France, Italy and Spain, with values good above 0,4 ) , whereas the columns bespeaking ‘2007-2011 ‘ and ‘1990-2011 ‘ show even higher values. Therefore it can be concluded that the EMU satisfies this standard, both at the induction in 1999 and today.
5.6 The variegation in production and ingestion
As mentioned in subdivision 3.6, an HI of 1/N indicates full variegation ( with N being the entire figure of export/import classs, 1/N indicates that each industry has the same export/import value ) and 1 indicates full specialisation ( as all exports/imports are from the same industry ) . As the dataset used in this thesis consists of seven industries, 1/7=0,1429 indicates full variegation here. In tabular arraies XXII-XXV the time-varying consequences of expression ( 5 ) are shown, with tabular arraies XXII and XXIII demoing the consequences for merchandise variegation and tabular arraies XXIV and XXV demoing the ingestion variegation consequences. All four tabular arraies show virtually the same consequences, with most values between 0,2 and 0,35, bespeaking that there is no full specialisation nor is at that place full variegation. However, since the values are much closer to full variegation ( 0,1429 ) than to full specialisation ( 1 ) , it can be concluded that the EMU states have a high grade of production and ingestion variegation. The same can be concluded for the control group Denmark, Sweden and United Kingdom. Furthermore, this decision holds for both the EMU at its inception and today.
5.7 Similarity of rising prices rates
The consequences of this standard are shown by tabular arraies XXVI-XXVII and figure VIII. Tables XXVI-XXVII study the per centum of the overall discrepancy of the GDP deflator that can be explained by the first rule constituent, whereas figure VI shows these values in a graph. Table Twenty-six shows the simple moving mean consequences of the rule component analysis of the GDP deflator, whereas table Twenty-seven shows the cumulative moving norm PCA consequences. The principle constituent analysis is executed non merely for the whole group of states under probe, but besides for the EMU ‘core ‘ ( Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain ) and the control group ( United Kingdom, Denmark and Sweden ) individually, so as to place any divergency between these two groups of states.
Tables XXVI and XXVII show instead similar forms, with values largely around 50 per centum. The whole group and control group series have lower PCA values for the last period than for the first period, whereas the EMU ‘core ‘ has higher PCA values for the last period than for the first period. The PCA values for the control group are overall higher than the PCA values for the EMU ‘core ‘ , bespeaking more convergence in the control group. After the twelvemonth 1999 is included in the cumulative moving norms, all values decrease, bespeaking less convergence. For the simple moving mean the narrative is somewhat different, as no existent tendency can be distinguished here. Overall, it can be seen that this standard is non satisfied in 1999 ( the simple norms show that inclusion of the twelvemonth 1999 leads to a lessening in the PCA value for the EMU ‘core ‘ , while the period before the PCA values were already reasonably low ) and it is satisfied today ( as the simple moving mean show that over the period 2007-2011 the PCA values were merely below 60 per centum and even higher in old periods ) . However, the downward tendency faced with today and the fact that the PCA values are non truly high, indicates that there still is much work to make for this standard.
5.8 Fiscal integrating
The consequences of this standard are shown by tabular arraies XXVIII-XXXI and figures IX-X. The tabular arraies report the per centum of the overall discrepancy of the factual and primary budget sensitivenesss, explained by the first rule constituent. Tables XXVIII and XXIX show the simple and cumulative moving mean consequences of equation ( 6 ) severally, whereas tabular arraies XXX and XXXI show the simple and cumulative moving mean consequences of equation ( 7 ) . It can be seen that the PCA process is executed non merely for the whole group of states under probe, but besides for the EMU ‘core ‘ ( Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain ) and the control group ( United Kingdom, Denmark and Sweden ) individually.
The simple moving mean tabular arraies ( XXVIII and XXX ) show similar forms: values that are fluctuating over clip, with both the whole group of states and the EMU ‘core ‘ holding higher values today ( 2007-2011 ) than they had in the Begin period ( 1990-1994 ) and the nucleus group holding higher values at the Begin period than today. The cumulative moving norm tabular arraies ( XXIX and XXXI ) show for all three groups lower values today than in the begin period.
When comparing the EMU nucleus with the control group, for the simple moving mean series it can be concluded that the nucleus group series addition ( both primary budget sensitivenesss and factual budget sensitivenesss ) whereas the control group series lessening. This indicates increased convergence between the nucleus EMU states and decreased convergence between the control group states. However, the cumulative moving mean series show a different form, as both the EMU nucleus group and the control group have overall decreasing series.
Remarkable is that all series lessening when the twelvemonth 2002 is included in the norm. However no other consequence of the debut of the euro can be detected. The official start of the EMU ( 1999 ) does non look to hold any existent impact, as no striking tendencies can be discovered environing this twelvemonth.
Overall, it can be seen that the PCA values for the EMU ‘core ‘ were swerving downwards in and environing the twelvemonth 1999, both for the factual authorities budget sensitivenesss as for the primary authorities budget sensitivenesss. As these values were non high to get down with, this downward swerving leads to values below the 50 per centum, bespeaking that this standard was non fulfilled in/surrounding the twelvemonth 1999. Today, the PCA values of the EMU ‘core ‘ are above 60 per centum and traveling upward, therefore it can be concluded that this standard is satisfied, nevertheless still work remains to be done.
5.9 Political integrating
‘A pecuniary brotherhood can merely work if there is a corporate mechanism of common support and control. Such a corporate mechanism exists in a political brotherhood. ‘ ( De Grauwe, 2011, p. 19 ) .
Perfect political integrating takes topographic point when states form a political brotherhood. Simply stated, a political brotherhood is a group of states or provinces that portion one cardinal authorities and that therefore hold given up sovereignty. In pattern, a political brotherhood can take many different steps and dimensions.
When measuring the EMU, it is easy seen that there is no 1 cardinal authorities ; each member province has maintained its sovereignty and has its ain authorities, both in 1999 as today. However, when looking at the institutional degree, the EMU has all the establishments of a modern human ecology: the European Commission and the European Council together form the put to deathing subdivision, the European Council and the European Parliament together form the legislation subdivision, and the European Court of Justice forms the judicial subdivision ( De Grauwe, 2009 ) . The European Central Bank has supranational pecuniary authorization, while at the same clip there is much preponderantly national sovereignty in other policy countries. Member States have given up sovereignty over policy countries such as pecuniary, exchange rate, competition and trade policies. Furthermore, when looking at countries such as agribusiness and external trade policy, the EMU has besides developed some grade of political integrating.
In other countries, such as defence and foreign policies, it is obvious that the EMU has some manner to travel as they are largely domestically regulated. And it has an even longer manner to travel in such countries as societal security, pay and revenue enhancement policies, to call merely a few, as they are wholly domestically regulated. Furthermore, the current European debt crisis is a good illustration of how the deficiency of political integrating ( in this illustration revenue enhancement policy ) can hold terrible effects for the workings of the EMU as a whole.
Overall, the EMU has taken many stairss towards political integrating, and is still taking stairss. However the current European debt crisis is a good illustration of the inadequacy of these stairss ( as an illustration of the deficiency of revenue enhancement policy integrating ) . The EMU is non yet politically incorporate, nor was it politically integrated at its inception. More stairss are needed to accomplish a state of affairs where national policies are replaced by supranational policies, thereby making a stable and incorporate EMU that is equipped to manage all state of affairss possible.
Overall
When taking all the consequences together, it becomes clear that non every standard is met and, as each standard has the same weight in this thesis, the EMU can therefore non be seen as an optimal currency country. Furthermore, it appears most standards are better met by the control group ( Denmark, Sweden and the United Kingdom ) than by the EMU ‘core ‘ states ( Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain ) . For illustration, when looking at the factor market integrating standard ( tables X-XV ) it becomes clear that the states of the control group experience higher integrating than the EMU ‘core ‘ , as indicated by the per centum of the overall discrepancy explained by the first rule constituent. This form can besides be seen when looking at labour market integrating or fiscal market integrating, to call merely a few. On the other manus, the EMU states experienced betterments in many of the OCA standards over the old ages and some of the standards that were non met in 1999, were met in 2012. These consequences are in conformity with the school of idea that promoted the endogeneity of the OCA standards and believed that states automatically go more incorporate when going portion of a currency brotherhood.
Table XXXII below gives an overview of the standards that were tested and indicates whether the standards are met by the EMU ‘core ‘ provinces at the constitution of the EMU ( column labeled ‘1999 ‘ ) and whether the standards are met today ( column labeled ‘2012 ‘ ) . ‘Yes ‘ indicates that the standards is met in that peculiar twelvemonth, whereas ‘No ‘ indicates that the standards is non met in that twelvemonth.
Table XXXII: Overview of the results*
*’No ‘ and ‘Yes ‘ indicate whether the standards is met by the EMU nucleus in that peculiar twelvemonth
1999
2012
Price Flexibility
No
No
Wage Flexibility
Yes
Yes
Labor Market Integration
Yes
Yes
Factor Market Integration
No
No
Fiscal Market Integration
Yes
Yes
Economic Openness
Yes
Yes
Diversification of Production
Yes
Yes
Diversification of Consumption
Yes
Yes
Similarities of Inflation Ratess
No
Yes
Fiscal Integration
No
Yes
Political Integration
No
No
6. Decision
The purpose of this paper was to look into whether the EMU was an optimal currency country at its inception in 1999 and whether it is an OCA presents. This was done by look intoing whether the EMU complies with all nine OCA standards individually. The research was executed by measuring the 11 original EMU member provinces ( Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain ) and three control states ( Denmark, Sweden and the United Kingdom ) over the old ages 1990-2011 and by utilizing the construct of traveling norms, both in its simple signifier and in its cumulative signifier.
The relevant literature was studied and it became clear that many documents were dedicated to the topic, but no paper did what this thesis aimed at making. Many research workers devoted their clip to the OCA theory, its deductions and its empirical effects. Besides the relationship between the OCA theory and the EMU was highlighted by some research workers, nevertheless non all standards were used, nor were they through empirical observation tested.
The nine standards that were tested in this paper were: monetary value and pay flexibleness, labour market integrating, factor market integrating, fiscal market integrating, the grade of economic openness, the variegation in production and ingestion, similarity of rising prices rates, financial integrating, and political integrating. Five of these standards ( labour market integrating, factor market integrating, fiscal market integrating, similarity of rising prices rates and financial integrating ) were tested by using the construct of Principle Component Analysis ( PCA ) to several specifying variables, three standards ( monetary value and pay flexibleness, the grade of economic openness and the variegation in production and ingestion ) were tested by utilizing universally accepted expressions, whereas the last standard ( political integrating ) was evaluated theoretically.
The consequences show that at the constitution of the European Monetary Union, the member provinces did non follow with all the standards as they were brought frontward by the Optimum Currency Area theory, nor do they follow with them today. On the other manus, much advancement has been made in the country of integrating between member provinces and several standards that were non met in 1999 are met today. These consequences are in conformity with the school of idea that promoted the endogeneity of the OCA standards and believed that states automatically go more incorporate when going portion of a currency brotherhood, as explained in paragraph 2.2. It is non to state that the integrating procedure is finished when the standards are fulfilled. Further stairss towards complete integrating are needed for the hereafter EMU to be better equipped when a new daze hits. Furthermore, good monitoring of this integrating procedure is necessary and more research should be devoted to this topic.
This thesis therefore proves the imperfection of the EMU in its current province. It indicates the strong and the weak points of the current EMU and highlights the countries that are in demand of fix. In the hereafter these countries should be taken into history when policies are made. In add-on, more research must be done on this topic. Future research should look into the job countries more deeply to detect how integrating in these countries can be achieved best. In add-on, this paper can be extended by utilizing more or different variables or by utilizing more or different states. Including the new EMU entrants ( Greece, Slovenia, Cyprus, Malta, Slovakia and Estonia ) in this research, to measure the current EMU, is merely one of the suggestions for future work. To forestall European crises, such as the current debt crisis, from go oning and to maintain the euro strong and stable, a strong and stable EMU is needed. And for this to be achieved, European integrating is a requirement.
