REGIONAL COOPERATION AND ECONOMIC INTEGRATION
REGIONAL COOPERATION AND ECONOMIC INTEGRATION REGIONAL COOPERATION AND ECONOMIC INTEGRATION
contain in every case the necessary length time series, thus making harder the quantification of the long term effects of Structural Funds. 3. The structure of the model ECO-TREND REGIONAL TRADE AGREEMENTS AND REGIONAL COOPERATION The ECO-TREND is a yearly macroeconomic simulation model, frequently used for forecasting and for policy simulation at the ECOSTAT Institute. We also develop complex macroeconomic scenarios regularly with the help of this model. ECO-TREND can be used for analyzing the macroeconomic effects of the EU transfers. First we will show the main characteristics of the ECO-TREND model, then we will focus on the transmission mechanism of the EU transfers (Cserháti et al. 2004, Keresztély 2004). ECO-TREND is a yearly calibrated model, which means that the parameters of the model are determined by a very complex method using stochastic estimation results, experts’ informations and expectations for the future behaviour of the specific equation together. The main exogenous determinants of the model are the items affecting foreign trade turnover (world market prices, the boom of external markets, devaluation) and lending interests in real terms affecting venture investments directly and taxation items (personal income taxes, corporate taxes, taxes related to customs and imports, VAT-rate, etc.). The information system of the model follows the national accounts categories of the ESA95 European Union Statistical standards. ECO-TREND consists of four main blocks such as the demand and supply blocks determining real categories and employment, the block of prices and money and the block of income distribution. The stochastic equations lie in the centre of the model complemented with identities. Additional to employment and wage determination, the supply block provides the potential, theoretical supply by means of a production function. GDP is determined from the supply side, but the final demand components (private and public consumption, investments, exports) are determined by stochastic equations, as well, while imports are calculated as a balancing item of the demand and supply blocks. Real and nominal categories are related by prices determined by stochastic equations. Labor demand is formulated as a function of the capacity utilization rate and real wages whereas labor supply is dominantly determined by demographic factors. Actual values of labor demand and labor supply imply the corresponding rate of unemployment. Domestic prices are represented by the consumer price index (CPI) and the producer price index (PPI) while the effect of world markets are transmitted via export and import prices. CPI strongly follows PPI whereas PPI is dominantly affected by import prices. With respect to the income block, disposable incomes of the corporate sector and households, the general government budget, foreign disposable income and the balance of payments are all determined by means of their income balances and the balance of payments. There are three income balances in the model such as the income balances of the corporate sector, private households and the general government. Profits and savings of the corporate sector are calculated by subtracting wages and taxes from the net GDP. This balance includes both the amounts of wages as input figures to the balance of private incomes and the taxation items of the state budget balance. Disposable income is determined in the balance 49
PART I: of private incomes by adding mixed, proprietor and transfer incomes to the wages paid in the corporate sector and subtracting taxation items. Savings are derived as the difference of disposable income figure and consumption. The balance of the general government is made up of three parts as follows: the central budget and the two social security funds. The revenue side of all sub-balances includes taxes, contributions paid by the corporate sector and households whereas on the expenditure side there are certain benefits and transfer income payments. Aggregation of the balances of the three income proprietors complemented by the balance of payments provides the income distribution matrix of the national economy and the net lending/borrowing positions of the different sectors. The basic structure of the ECO-TREND model can be seen in Figure 1. Figure 1: The structure of the ECO-TREND model Indirect taxes FDI External demand Amortisation Private consumption Public consumption Accumulation Export Import Capital stock TFP Production function Interest rates Demand Supply Exchange rate Labor demand Labor supply Prices Wages (ULC) Unemployment External prices Income - redistribution Productivity Expected prices Ventures Households State Rest of the world Deficit of the current account Public investments Disposable incomes Deficit of the general government EU-transfers Source: ECOSTAT 3.1. Transmission mechanism of the EU transfers in ECO-TREND Transfers from the Cohesion and Structural Funds of the European Union are getting more and more important growth factor in Hungary. The total factor productivity is endogenous in ECO-TREND, so we can analyse the spill-over effects of the EU transfers to the productivity and the long term growth (Cserháti et al. 2007). The functional structure of the EU transfers is the following: infrastructure, human capital and production subsidies. 50
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PART I:<br />
of private incomes by adding mixed, proprietor and transfer incomes to the wages paid in<br />
the corporate sector and subtracting taxation items. Savings are derived as the difference of<br />
disposable income figure and consumption.<br />
The balance of the general government is made up of three parts as follows: the central<br />
budget and the two social security funds. The revenue side of all sub-balances includes taxes,<br />
contributions paid by the corporate sector and households whereas on the expenditure side<br />
there are certain benefits and transfer income payments. Aggregation of the balances of the<br />
three income proprietors complemented by the balance of payments provides the income<br />
distribution matrix of the national economy and the net lending/borrowing positions of the<br />
different sectors.<br />
The basic structure of the ECO-TREND model can be seen in Figure 1.<br />
Figure 1: The structure of the ECO-TREND model<br />
Indirect<br />
taxes<br />
FDI<br />
External demand<br />
Amortisation<br />
Private<br />
consumption<br />
Public<br />
consumption<br />
Accumulation<br />
Export<br />
Import<br />
Capital stock<br />
TFP<br />
Production function<br />
Interest rates<br />
Demand<br />
Supply<br />
Exchange rate<br />
Labor<br />
demand<br />
Labor<br />
supply<br />
Prices<br />
Wages<br />
(ULC)<br />
Unemployment<br />
External<br />
prices<br />
Income - redistribution<br />
Productivity<br />
Expected<br />
prices<br />
Ventures<br />
Households<br />
State<br />
Rest of the<br />
world<br />
Deficit of the<br />
current<br />
account<br />
Public<br />
investments<br />
Disposable<br />
incomes<br />
Deficit of the<br />
general<br />
government<br />
EU-transfers<br />
Source: ECOSTAT<br />
3.1. Transmission mechanism of the EU transfers in ECO-TREND<br />
Transfers from the Cohesion and Structural Funds of the European Union are getting more<br />
and more important growth factor in Hungary. The total factor productivity is endogenous<br />
in ECO-TREND, so we can analyse the spill-over effects of the EU transfers to the<br />
productivity and the long term growth (Cserháti et al. 2007). The functional structure of<br />
the EU transfers is the following: infrastructure, human capital and production subsidies.<br />
50
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