Conformación del Equipo de Diseño Curricular

The essential conclusion of the theoretical models is that even without explicit consideration of peripheral and border regions, it can be derived that, in general, border regions benefit from economic integration, and/or labour market effects are especially large there. Border regions reap the benefits of lower transaction costs regarding foreign trade and outsourcing. If transaction costs, i.e. transporta- tion costs as well as other costs like the facilitated formation and maintenance of networks, play a decisive role, after the abolition of trade impediments “[f]ron- tier regions, such as border areas and port cities, have relatively low-cost access to foreign markets and hence are natural production sites” (Hanson 1996: 942). Backward and forward linkages which are relatively strong in an inwardly oriented, closed economy are weakened by the opening of a border and forces strengthen- ing the position of former peripheral regions increase. Borders lose their disruptive function and become contact points between nations.

However, there are no clear-cut predictions with regard to how different skill groups are affected by the opening of a border. It is possible that a specific skill

group will lose out due to integration. The least controversial category is that of high-skilled workers in the country that is relatively well endowed with human capital, i.e. in my case eastern Bavaria. All strands of trade theory, explicitly the model by Feenstra/Hanson and the NEG model by Brülhart et al. forecast gains for this sort of employee. This standpoint is reflected in the European Commission’s report on EU15 border regions (European Commission 2001a: 10): “In general, hu- man capital-intensive and technologically advanced sectors in the border regions are likely to benefit from enlargement, while labour-intensive sectors are likely to face increased competition from cheap labour.” By contrast, according to tradi- tional and new trade theory, low-skilled workers will suffer above-average losses in eastern Bavaria due to their comparative disadvantage and outsourcing, respec-

tively. According to the NEG model, however − assuming that the eastern Bavar-

ian economy is not too small _{−, they can also profit from the generally increasing}

market potential.

Regarding the transition country, i.e. the Czech Republic in my research, the Feenstra-Hanson model clearly stands in opposition to the traditional trade fore- casts. While the Stolper-Samuelson theorem predicts relative gains for low-skilled workers and relative losses for high-skilled workers as a result of the comparative advantage, the Feenstra-Hanson model, in contrast, forecasts a skill upgrading in the transition country as well. If distance matters, the trade effects should work above all in the border region. Assuming that the Czech border region including the cities Pilsen, Budweis and Brno is not too small, the market potential in the districts close to Bavaria and Austria will also increase according to the NEG model. However, with respect to import competition from nearby EU countries, low-skilled workers are in an especially favourable position and high-skilled workers can also lose if the import competition effect is too large.

In a nutshell, which effects dominate and which skill groups benefit from the opening of the border is an empirical question. Nevertheless, I can derive the follow-

ing hypotheses concerning the border region in Bavaria and the Czech Republic:10

(i) Compared to the rest of the country, structural change and specialisation of the

economy should be stronger in both the eastern Bavarian and Czech border region after the fall of the Iron Curtain.

(ii) Similar to the border areas of the USA and Mexico (Hanson 2001), which be-

came more attractive after trade liberalisation, European integration should lead

10 For an overview of the implications of the trade model by Feenstra/Hanson (1996a) and the NEG model by Brülhart et al. (2004) see Table A 2.1 in the appendix.

Empirical Studies on Integration Effects

to an increased market potential in eastern Bavaria and the western and southern parts of the Czech Republic and therefore lead to an increase in the relative em- ployment share of the border regions.

(iii) In eastern Bavaria the demand for more highly skilled labour above all should

increase at an above-average rate. This should be reflected in the shares of skill groups for employed and unemployed people. Moreover, the wages in the border region for more highly skilled employees should also rise at an above-average rate. With respect to low-skilled workers opposing effects exist (international outsourc- ing vs. higher market potential), so that they could gain from integration or lose out.

(iv) In the Czech Republic the border region should also profit from integration.

Which skill group will profit most depends on the strength of the effects (outsourc- ing of intermediate inputs, import competition). According to Feenstra/Hanson the relocation of production activities to the Czech Republic should favour more highly skilled employees. In contrast, according to the Brülhart et al. NEG model the lower import competition should benefit especially unskilled and low-skilled workers.

(v) Additionally, I investigate the effects of Czech commuters on the Bavarian la-

bour market. The employment of Czechs in Bavaria, which was relatively easy in the early 1990s, could have led to a substitution of less productive low-skilled domestic workers.

In order to investigate the changes in the economic structure in Bavaria and the Czech Republic, I calculate indices of structural change and specialisation for both cases. The relative shifts in labour demand with respect to different qualifications should be observable in the distribution of skill groups of both employed and un- employed people and in the spatial wage differentials. Using German and Czech datasets in Chapters 3 and 4 of my thesis, I first take a look at the descriptive figures and then apply different econometric models. Before I come to my own research, however, I give an overview of the most important studies on integration effects in the literature, some of which have a special focus on border regions.