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This report informs the debate on Europe’s economic competitiveness and how it can be sustained under the pressures of globalisation. It presents a series of research findings from different areas of analytical work carried out at the ‘Growth and Innovation’ Directorate of the Joint Research Centre. The focus is on current challenges, with topics ranging from global value chains analysis to competition policy, and from the possible reasons for the recent EU productivity stagnation to the economic damage implied by FDI restrictions. The common denominator of all contributions is their aim to inform discussions on competitiveness and their relevance for EU economic policy., JRC.B.5-Circular Economy and Industrial Leadership

We study the impact of service trade restrictions on bilateral greenfield FDI projects in four different business services sectors within a gravity model framework. Project level FDI data for 42 destination countries and up to 41 source countries spanning the years 2014 to 2018 is taken from the fDi Markets database, and restrictions from the OECD’s Service Trade Restrictiveness Index (STRI). Using a negative binomial estimator to explain the number of bilateral FDI projects, we find that service trade restrictions represent a significant barrier for greenfield FDI. In 3 out of 4 business services we obtain statistically significant evidence of a negative impact. Furthermore, the explanatory power of the models generally improves when using the sub-components of the STRI (restrictions to foreign entry, restrictions to the movement of people and other service trade restrictions), instead of the single aggregated index value. Based on the estimated impacts of the different restrictions, we carry out a series of simple simulations of how the number of expected FDI projects would increase in response to a hypothetical policy reform, and propose some sector-specific policy recommendations., JRC.B.5-Circular Economy and Industrial Leadership

There are marked differences in productivity dynamics between countries as well as industries, often leading to substantial performance gaps, such as the gap in labour productivity between the EU and the US. In this article, we use the 2019 release of the EU KLEMS database to look into the drivers of productivity. In particular, we analyse how different types of capital (including intangible capital), foreign direct investment, integration into global value chains and EU integration affect labour productivity. Key findings are that intangible Information and Communication Technology (ICT) capital is a strong driver of productivity both at sectoral and aggregate levels, even more so than tangible ICT capital. Furthermore, backward global value chain integration and EU integration are positively associated with labour productivity. Contrary to expectations, we do not find evidence of a productivity-enhancing effect of foreign direct investment. Finally, we estimate by how much the productivity gap between the EU and the US could be reduced through different ICT investment policies., JRC.B.5-Circular Economy and Industrial Leadership

This report aims to shed light on some of the key drivers which are worth taking into account when assessing the effect of new technologies on the future of work and skills. It combines a synthesis of the most recent and robust scientific evidence available with original JRC research on issues which have been often overlooked by existing studies. In particular, the report provides new insights on the interplay between automation and work organisation, the extent and nature of platform work, and the patterns of occupational changes across EU regions. The first chapter discusses the impact of technology on employment. It overviews the most recent estimates on technology-induced job creation and destruction, and provides new insights on the role of workplace organisation in shaping the effect of new technologies on labour markets. The second chapter discusses how skills needs are shifting towards digital and non-cognitive skills, showing evidence of an increasing shortage of these skills in the EU, which education systems are not fully tackling yet. The third chapter reviews the opportunities and challenges related to the recent upwards trend in new forms of employment in the EU, focusing on the results of the second wave of the COLLEEM survey on platform work in the EU. The final chapter presents results from a new JRC-Eurofound study on the patterns of occupational change in EU regions in the last 15 years which shows that low-wage jobs have increasingly concentrated in peripheral regions while higher-wage jobs are becoming more and more concentrated in capital regions, leading to increasing territorial disparities, both across and within EU Member States., JRC.B.7-Knowledge for Finance, Innovation and Growth

This report presents the results of the quantitative assessment of the impact on the petroleum refining sector of legislative measures, identified in the process of European Commission's analysis and stakeholder consultations as being of significant relevance for petroleum refineries, and as such included in the mandate of the fitness check. This quantitative assessment took into account the impact of the legislation on costs and revenues of the EU petroleum refining industry and therefore on its capacity to remain internationally competitive. This analysis, mostly of a quantitative nature, was accompanied where possible and relevant by a qualitative assessment in accordance with the Commission's general approach to fitness checks . In particular, the report analysed how coherently and consistently the EU legislation, identified as relevant for the sector, works together, whether it is effective and efficient, and whether it is associated with excessive regulatory burdens, overlaps, gaps, inconsistencies or obsolete measures. Since this fitness check addressed a specific industry sector rather than a policy area, it had a specific focus on the cumulative impact, effectiveness, efficiency and coherence of the measures with respect to the oil refining sector. As stated in the mandate of the fitness check, the analysis in this report was retrospective and concentrated on the impact of the relevant legislation on the petroleum refining sector in the period between 2000 and 2012., JRC.J.5-Sustainable Production and Consumption

We investigate how different designs of carbon offset mechanisms, like the Kyoto Protocol's Clean Development Mechanism (CDM), affect the success of self-enforcing climate treaties. In a game-theoretic numerical model of coalition formation we find that participation in the agreement is negatively affected when strategic behavior and free-rider incentives matter. This does not change when selling targets restrict credit supply. Substantially higher participation emerges when the treaty restricts its signatories not to use the gains from credit trading to lower their emission caps. Despite the high sensitivity of participation to different CDM design, we find that global welfare levels achieved in various equilibria are remarkably similar.

We study the performance under uncertainty of three renewable energy policy instruments: Tradable Renewable Quota (TRQ), Feed-In-Tariff (FIT), and Feed-In-Premium (FIP). We develop a stylized model of the electricity market, where renewables are characterized by a positive learning externality, which the regulator aims to internalize. Assuming shocks on the fossil-based electricity supply, renewables supply, or on total electricity demand, we analytically derive the conditions determining the instruments’ relative welfare ranking. Although we generally confirm the key role of the slopes of marginal benefits and costs associated with the policy, the specific ranking depends on which type of uncertainty is considered, and whether shocks are permanent or transitory. However, a high learning rate generally favours the FIT, while TRQ is mostly dominated by the other two instruments. These results are confirmed in a numerical application to the US electricity market, in which the FIP emerges as the most and TRQ as the least robust overall choice.

Ausgehend von der Annahme dass Klimapolitik unter hoher Unsicherheit operiert und dass - unter den derzeit gegebenen politischen Umständen - die Umsetzung einer global optimalen Klimapolitik sehr unwahrscheinlich erscheint, erkundet die vorliegende Arbeit mögliche ‚zweitbeste’ Optionen und vergleicht verschiedene Politikinstrumente ihrer Umsetzung. In einer Welt begrenzter internationaler Zusammenarbeit stellen sich in Bezug auf zweitbeste Optionen folgende Fragen: (i) Wie können bereits kooperierende Länder sicherstellen, dass ihre Klimaschutzmassnahmen wirksam und kosteneffizient sind? (ii) Wie kann ein höchstmögliches Maß an Kooperation erreicht werden? Bezüglich dieser Punkte werden in dieser Arbeit zum einen verschiedene institutionelle Formen des Emissionshandels – insbesondere das ‚Linking’ von Zertifikatsmärkten – analysiert. Zum anderen wird aus einer spieltheoretischen Perspektive untersucht, inwieweit Handelssanktionen zu einer Verstärkung von internationaler Klimakooperation beitragen können. Die Ergebnisse zeigen (a) wie institutionelle Unverträglichkeiten und allgemeine Gleichgewichtseffekte den Nutzen eines Linking-Abkommens verringern können, und (b) dass die Anzahl der Beitrittsländer eines Klimaabkommens durch die Anwendung von Handelszöllen signifikant erhöht werden könnte. Als weiteres Anwendungsfeld von zweitbesten Optionen widmet sich die Arbeit dem Thema Unsicherheit, speziell dem Einfluss von Unsicherheit auf verschiedene Politikinstrumente. Dazu werden sogenannte Intensitätsziele – die die Emissionsobergrenze an die Wirtschaftsleistung (BSP) koppeln – untersucht, sowohl in Hinblick auf ihre Auswirkung auf Kostenunsicherheit als auch auf ihre Anschlussfähigkeit an den internationalen Emissionshandel. Im Ergebnis erscheinen Intensitätsziele aufgrund ihrer höheren Komplexität sowie ihres potentiell recht geringen Nutzenvorteils gegenüber konventionellen absoluten Emissionszielen als weniger robuste Wahl. Starting from the premise that climate change policy-making takes place under considerable uncertainty and suffers from a lack of international cooperation, and that this prevents the implementation of a global first-best policy, the present thesis poses the second-best question of what can be done despite these constraints and compares different policy options. Under conditions of partial cooperation, two questions of the second-best type arise: (i) What can already cooperating countries do to ensure their climate policies are effective and cost-efficient? (ii) How can the highest possible level of international cooperation be achieved? In this thesis, these issues are treated by assessing different institutional forms of emissions trading, in particular the ‘linking’ of permit markets, and, also, by adopting a game-theoretic view to analyze in how far trade sanctions can help to broaden international cooperation. The results show (a) how institutional incompatibilities and general equilibrium effects could reduce the benefits of a linking agreement, and (b) that tariffs have a significant potential to increase participation in a climate agreement. Uncertainty, and how it affects different policy instruments, is the other second-best aspect investigated. So-called intensity targets, which index emission targets on GDP, are analyzed with regard to their effect on cost-uncertainty, and their compatibility with international emissions trading. The results suggest that due to the increased complexity and the potentially only modest benefits of an intensity target, conventional absolute targets remain a robust choice for a cautious policy-maker.

Among policy instruments to control future greenhouse gas emissions, well-calibrated general intensity targets are known to lead to lower uncertainty on the amount of abatement than emissions quotas (Jotzo and Pezzey 2004). The authors test whether this result holds in a broader framework, and whether it applies to other policy-relevant variables as well. To do so, they provide a general representation of the uncertainty on future GDP, future business-as-usual emissions, and future abatement costs. The authors derive the variances of four variables, namely (effective) emissions, abatement effort, marginal abatement costs, and total abatement costs over GDP under a quota, a linear (LIT) and a general intensity target (GIT)-where the emissions ceiling is a power-law function of GDP. They confirm that GITs can yield a lower variance than a quota for marginal costs, but find that this is not true for total costs over GDP. Using economic and emissions scenarios and forecast errors of past projections, the authors estimate ranges of values for key parameters in their model. They find that quotas dominate LITs over most of this range, that calibrating GITs over this wide range is difficult, and that GITs would yield only modest reductions in uncertainty relative to quotas.

In this paper we want to discuss macroscopic and microscopic properties of financial markets. By analyzing quantitatively a database consisting of 13 minute per minute recorded financial time series, we identify some macroscopic statistical properties of the corresponding markets, with a special emphasize on temporal correlations. These analysis are performed by using both linear and nonlinear tools. Multivariate correlations are also tested for, which leads to the identification of a global coupling mechanism between the considered stock markets. The application of a new formalism, called transfer entropy, allows to measure the information flow between some financial time series. We then discuss some key aspects of recent attemps to model financial markets from a microscopic point of view. One model, that is based on the simulation of the order book, is described more in detail, and the results of its practical implementation are presented. We finally address some general aspects of forecasting and modeling, in particular the role of stochastic and nonlinear deterministic processes.