Hostname: page-component-848d4c4894-x5gtn Total loading time: 0 Render date: 2024-06-02T15:58:36.162Z Has data issue: false hasContentIssue false
  • English
  • Français

The Political Economy of Outsourcing in the European Union and the East-European Enlargement

Published online by Cambridge University Press:  20 January 2017

Boyka M. Stefanova
Boyka M. Stefanova*
Affiliation:
The University of Texas at San Antonio
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper explores the East-West dichotomy of outsourcing in the European Union in the context of its 2004 eastward enlargement. The purpose of the study is to shed light on the connection between outsourcing and the causal logic of regional integration. The conventional view is that the transfer of business operations from Western Europe to low-cost locations to the east represents a process of outsourcing West-European jobs which deprives the EU core of growth opportunities to the exclusive benefit of the new members from Eastern Europe. This analysis posits the systemic functions of EU outsourcing as a mechanism of economic homogenization in the regional market along its three principal dimensions: investment, commodity trade, and labor mobility. At the macro-level, outsourcing complements capital movements and trade, and acts as a substitute for labor mobility. Keeping labor mobility “down” is the main value added of EU outsourcing. Empirically, its relevance to the regional market is established in an input-output framework of relationships with indicators of economic convergence (homogenization effects) and labor mobility (substitution effects) in the EU. Positive correlations with indices of business synchronization and weak negative correlations with measures of labor supply and wages suggest that outsourcing fits well both with strategies fostering market integration and those counterbalancing the politically sensitive labor mobility in the EU. There is no significant evidence to suggest that, at the aggregate level, outsourcing has independent substitution effects with regard to unemployment rates and wages in Western Europe. The geographic expansion of EU integration, therefore, is not a proxy for losses of social welfare in the West. The paper concludes that as the cost efficiency and resource allocation functions of outsourcing facilitate the homogenizing dynamics of regional integration, it is likely to become increasingly subsumed under EU-level regulation and monitoring in a trade-off between the regional interest and domestic sectoral concerns.

Keywords

European Unionoutsourcing
Type
Article
Information
Business and Politics , Volume 8 , Issue 2 , August 2006 , pp. 1 - 43
Copyright
Copyright © V.K. Aggarwal 2006 and published under exclusive license to Cambridge University Press 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Kearney, A.T. 2005. Kearney, A. T. Global Services Location Index. http://www.atkearney.com/shared_res/pdf/GSLI_Figures.pdf (accessed Feb. 19, 2006).Google Scholar
Kearney, A.T. 2004. Where to Locate: Selecting a Country for Offshore Business Processing. http://www.atkearney.com/shared_res/pdf/Where_to_relocate_S.pdf (accessed 10 February 2006).Google Scholar
Anderton, Bob, Brenton, Paul, and Oscarsson, Eva. 2002. “Outsourcing and Inequality.” CEPS Working Document 187 (October 2002). Brussels: Centre for European Policy Studies.Google Scholar
Barysch, Katynka. 2005. “Liberal versus Social Europe.” CER Bulletin 43 (August/September 2005). http://www.cer.org.uk/articles/43_barysch.html.Google Scholar
Boeri, Tito and Brücker, Herbert. 2000. “The Impact of Eastern Enlargement on Employment and Labor Markets in the EU Member States.” Working Paper. Berlin and Milano: European Integration Consortium.Google Scholar
Borrus, Michael and Cohen, Stephen. 1998. “Building China's Information Technology Industry: Tariff Policy and China's Accession to the World Trade Organization.” Asian Survey 38 (11): 1005–1017.CrossRefGoogle Scholar
Brown, Gordon. 2005. Global Europe: Full-Employment Europe. Working Paper. London: HM Treasury.Google Scholar
Chown, John. 2003. A History of Monetary Unions. London and New York: Routledge.Google Scholar
Welle, Deutsche. 2005. “Moving German Service to Foreign Shores,” 15 June. http://www.dw-world.com/dw/article/0,2144,1616775,00.html (accessed 13 February 2006).Google Scholar
Welle, Deutsche. 2006. “Study: Moving Production Abroad Can Have Positive Effect,” 26 January. http://www.dw-world.com/dw/article/0,2144,1872879,00.html (accessed 11 February 2006).Google Scholar
Dibooglu, Selahattin and Horvath, Julius. 1997. “Optimum Currency Areas and European Monetary Unification.” Contemporary Economic Policy 15 (1): 37–49.Google Scholar
European Commission. 2004. “European Economy,” Review 6/2004. Brussels: European Commission, Directorate-General for Economic and Financial Affairs.Google Scholar
European Commission. 2005a. “State Aid: New Commission Regional Aid Guidelines for 2007–2013 - Breakdown by Member States,” Press Release MEMO/05/491 (21 December). Brussels: Commission of the European Communities.Google Scholar
European Commission. 2005b. “Cohesion Policy in Support of Growth and Jobs: Community Strategic Guidelines, 2007–2013, Communication from the Commission, COM (2005) 0299 (5 July). Brussels: Commission of the European Communities.Google Scholar
European Commission. 2005c. “Summary Conclusions of DG-ECFIN Workshop on ‘The Effects of Relocation on Economic Activity: An EU Perspective’,” ECFIN/E (2005) 20 July, REP53517. Brussels: European Commission.Google Scholar
European Commission. 2005d. Working Together for Growth and Jobs-a New Start for the Lisbon Strategy,” Communication from the Commission, COM (2005) 24 (2 February). Brussels: Commission of the European Communities.Google Scholar
European Commission. 2005e. Eurobarometer 63 (Spring).Google Scholar
http://ec.europa.eu/public_opinion/archives/eb/eb63/eb63_en.pdf (accessed 3 March 2006).Google Scholar
European Commission. 2005f. Key Figures 2005 on Science, Technology and Innovation: Towards a European Knowledge Area (19 July).Google Scholar
ftp://ftp.cordis.lu/pub/indicators/docs/kf2005_report.doc (accessed 13 March 2006).Google Scholar
European Commission. 2005g. EU Competitiveness and Industrial Location. Report, Bureau of Economic Policy Advisors. BEPA, (2005) 26 October. Brussels: European Commission.Google Scholar
European Commission. 2006a. “Report on the Functioning of the Transitional Arrangements Set out in the 2003 Accession Treaty (1 May 2004- 30 April 2006).” Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, COM (2006). Brussels: Commission of the European Communities.Google Scholar
European Commission. 2006b. “European Economy.” Special Report 1/2006. Brussels:Google Scholar
European Commission, Directorate-General for Economic and Financial Affairs.Google Scholar
European Commission. 2006c. “Enlargement, Two Years After: An Economic Evaluation.” Occasional Paper No. 24 (May). Brussels: European Commission, Directorate-General for Economic and Financial Affairs.Google Scholar
European Commission. Directorate General for Economic and Financial Affairs and Economic Policy Committee LABREF database.Google Scholar
European Monitoring Centre on Change. 2005. “Offshore Outsourcing of Business Services.”Google Scholar
http://www.emcc.eurofound.eu.int/content/source/tn05001a.html (accessed 15 February 2006).Google Scholar
European Restructuring Monitor Database. 2006.Google Scholar
http://www.emcc.eurofound.eu.int/erm/index.php?template=searchfactsheets.Google Scholar
European Parliament. 2006. “Parliament Has Its Say on Driving Growth and Jobs,” News (31 January 2006).Google Scholar
http://www.europarl.eu.int/news/public/story_page/048-4983-31-1-5-908-20060203STO04982-2006-31-01-2006/default_en.htm (accessed 7 February 2006).Google Scholar
European Policy Centre. 2004. “Ten Do's and Don't-s for Sustainable Growth in Europe,” Issue Paper 18 (27 October). Brussels: EPC. Google Scholar
Eurostat. 2004. Minimum Wages: EU Member States, Candidate Countries and the US. Statistics in Focus 10/2004. KS-NK-04-010-EN-N. Luxembourg: Eurostat.Google Scholar
Eurostat. 2005a. “Regions: Statistical Yearbook 2005.” Eurostat Press Release 129/2005. Luxembourg: Eurostat.Google Scholar
Eurostat. 2005b. “EU25 Foreign Direct Investment.” Eurostat Press Release 88/2005. Luxembourg: Eurostat.Google Scholar
Eurostat. 2005c. European Union Foreign Direct Investment Yearbook 2005: Data 1998–2005. Luxembourg: Eurostat.Google Scholar
Eurostat. 2005d. “Balance of Payments.” Economy and Finance 32/2005. Luxembourg: Eurostat.Google Scholar
Eurostat. 2005e. High Technology, Enterprises and Trade (Issue Number 9/2005). http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-NS-05-009/EN/KS-NS-05-009-EN.PDF (accessed 24 July 2006).Google Scholar
Eurostat. 2006a. European Social Statistics. Data 2004 (2006 edition). http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-DO-06-001/EN/KS-DO-06-001-EN.PDF (accessed 31 July 2006).Google Scholar
Eurostat. 2006b. R & D Expenditure-First Preliminary Data. (Issue Number 6/2006). http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-NS-06-006/EN/KS-NS-06-006-EN.PDF (accessed 31 July 2006).Google Scholar
Eurostat. 2006c. Eurostatistics, Data for Short-term Economic Analysis. (Issues 4 and 5/2005). http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BJ-06-005/EN/KS-BJ-06-005-EN.PDF (accessed 28 July 2006).Google Scholar
Feenstra, Robert. 2004. Advanced International Trade: Theory and Evidence. Princeton and Oxford: Princeton University Press.Google Scholar
Fidrmuc, Jarko. 2004. “The Endogeneity of the Optimum Currency Area Criteria, Intra-Industry Trade.” Contemporary Economic Policy 22 (1): 1–12.Google Scholar
Kaminski, Bartlomiej and Ng, Francis. 2001. “Trade and Production Fragmentation: Central European Economies in EU Networks of Production and Marketing,” Working Paper (DECRG-Trade), Washington, D.C.: World Bank.Google Scholar
Kirkegaard, Jacob. 2005. “Outsourcing and Offshoring: Pushing the European Model over the Hill, Rather Than off the Cliff. Working Paper WP 05–1 (March 2005) Institute for International Economics.Google Scholar
Korhonen, I. 2003. “Some Empirical Tests on the Integration of Economic Activity between the Euro Area and the Accession Countries: A Note,” Economics of Transition 11 (1): 1–20.Google Scholar
Lorentowicz, Andzelika, Marin, Dalia, and Raubold, Alexander. 2005. “Is Human Capital Losing from Outsourcing? Evidence from Poland and Austria,” Centre for Economic Policy Research Discussion Paper DP 5344. London: CEPR.Google Scholar
Marin, Dalia. 2004. “’A Nation of Poets and Thinkers’-Less So with the Eastern Enlargement? Austria and Germany.” Discussion Paper 2004–06. Department of Economics, University of Munich.Google Scholar
Marin, Dalia. 2005. “A New International Division of Labor in Europe: Offshoring and Outsourcing in Europe.” Paper presented at the European Economic Association Congress, August, Amsterdam.Google Scholar
Marin, Dalia, Lorentowitz, Andzelika, and Raubold, Alexander. 2002. “Ownership, Capital or Outsourcing: What Drives German Investment to Eastern Europe?” Discussion Papers in Economics 02–03. http://epub.ub.uni-muenchen.de (accessed 15 February 2006).Google Scholar
McKinnon, Ronald. 1963. “Optimum Currency Area,” American Economic Review 53: 717–725.Google Scholar
Mundell, Robert. 1961. “A Theory of Optimum Currency Areas,” American Economic Review 51: 4, pp. 657–665.Google Scholar
PriceWaterHouseCoopers. 2004. Barometer Surveys, available online at: http://www.barometersurveys.com, accessed Feb. 14, 2006.Google Scholar
Pujals, Georges. 2004. “Offshore Outsourcing in the EU Financial Services Industry,”Google Scholar
http://www.euroframe.org/fileadmin/user_upload/euroframe/efn/spring2005/appendix7_pujals.pdf (accessed 20 February 2006).Google Scholar
Radosevic, Slavo. 2004. “A Two-Tier or Multi-Tier Europe? Assessing the Innovation Capacities of Central and East European Countries in the Enlarged EU,” Journal of Common Market Studies 42 (3): 641–66.Google Scholar
Razin, Assaf and Sadka, Efraim. 2001. Labor, Capital, and Finance: International Flows. Cambridge, UK and Syndicate: Cambridge University Press.Google Scholar
Tavlas, George. 1993. “The Theory of Optimum Currency Areas Revisited.” Finance & Development 30 (2): 32–35.Google Scholar
UNCTAD. 2003. “Electronic Commerce and Information and Communication Technologies for Development: Selected Issues,” Note, TD/B/COM.3/62. Geneva: UNCTAD.Google Scholar
UNCTAD. 2004a. “New Take-off Predicted for FDI,” Press Release UNCTAD/PRESS/PR/2004/005 (14 April). Geneva: UNCTAD.Google Scholar
UNCTAD. 2004b. “Offshoring-at the Tipping Point? Press Release UNCTAD/PRESS/PR/2004/023 (22 September). Geneva: UNCTAD.Google Scholar
UNCTAD. 2005. World Investment Report. Geneva: UNCTAD.Google Scholar