Europe in the Global Economy Paris november 2007 Round table 2: How well does Europe integrate the world markets? Dr Peter Vikström Director Growth Analysis and Statistics ITPS

The internal market in a globalized economy Overall aim: Foster productivity and competetiveness The internal market as a platform for European companies –The internal market as a green house –Lowering transactions costs for expanding beyond national markets The internal market as platform for international companies –Competition, specialization and knowledge spillovers –Attract FDI – single market lowers costs for FDI The diversity of the Union implies different competetive pressure in different parts –New conditions for companies and countries – in an integrated market more companies will be small in an economic sense

Is EU attractive as a destination for FDI? Source: Eurostat (2007) YES: EU has a large share of world FDI inflows, 19% (larger than the US) NO: The share of world FDI has declined since 2003

Where do the FDI go? Extra-EU FDI inflows by economic activity , %GDP Source: Eurostat (2007) Does the mix of inward FDI promote the Lissabon targets?

The importance of the knowledge economy The knowledge economy Source: EU-KLEMS, Note: EU15ex is EU15 excluding Greece, Ireland, Luxembourg, Portugal and Sweden

Investments in intangibles more important Sources of growth in output per hour, in the US, Non-farm business sector Source: Corrado, Hulten and Sichel (2006) The total contribution to labour productivity growth has increased from 0.48% to 0.84% between and It is essential to include intangible investments when discussing FDI performance

Innovation activities are more internationalised Source: OECD, Guellec & Zuniga (2007) Cross-border inventions share of all patented inventions Increased internationalisation of R&D implies that FDI and R&D are complementary activities

Policy issues Importance of continued structural reforms for the internal market –Foster productivity and competetiveness –Committment to openness –Maintain transformation pressure Recognise the diversity between different regions of the union –The impact of globalisation differs across the union –The potential and motives for attracting FDI differs Important to maintain social cohesion –Policies toward globalisation must alleviate structural change and lower the costs for individuals –Maintain an acceptance of the need of structural change and the adaptation to new conditions Investing in the knowledge economy –A more qualified workforce – education and migration –Making EU more attractive for intangible investments –FDI and R&D policies are complementary –Encourage the ambitious entrepreneurship