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Evaluation of the impact of economic openness on labour productivity in EU countries

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Cibulskene D., Maciulyte-Sniukiene A.

Central and Eastern European Journal of Management and Economics (CEEJME)

2014

vol. 2

issue 4

225-253

With the growing economic integration, globalization, international openness and regionalization, more and more significance is given to competitiveness improvements not only of individual countries but also of groups of countries as a unit. Ability to identify issues of competitiveness improvement in a country or group of countries, approaches of solving such issues and a level of settlement of these issues contribute in the social and economic rate of a region and living standards of its population. One of the most relevant indicators reflecting competitiveness of national or regional economy is productivity. However, labour productivity is among those quantities that have a negative impact on the competitiveness of the EU as a group of countries. To ensure the growth of average labour productivity in EU, it is essential to look for methods and tools helping to prompt productivity in the countries demonstrating low labour productivity. In the light of globalization, one of the factors causing changes in labour productivity of both EU and other countries could be economic openness. Therefore, the aim of the study is to evaluate the impact of economic openness on labour productivity of EU-28 countries. To achieve the objective, this article reveals the concept of economic openness, identifies indices reflecting economic openness at the theoretical level, and presents the theoretical model of the impact of economic openness on productivity. Having analysed the existing approaches to economic openness, the study is conducted from the perspective of the most popular one stating that economic openness involves trade openness and financial openness. If the presumption that the impact of economic openness on labour productivity may differ in countries of different productivity is accepted, then EU countries can be distributed into two clusters: relatively high and relatively low labour productivity. Afterwards, EU countries are divided into clusters based on indices of trade intensity and FDI intensity. The comparison of the countries falling into the clusters revealed denies the presumption that the countries with higher economic openness are more open. This theory also fails when the countries are ranked according to indicators of labour productivity and economic openness; however, after composing the multiple regression model and introducing pseudo variables, it is established that the impact of FDI intensity on labour productivity is statistically significant, and is observed both in the cluster of relatively high labour productivity and in the cluster of relatively low labour productivity. The impact of trade openness on labour productivity of EU countries has not been confirmed; thus, to achieve growth of labour productivity, financial openness shall be prompted in EU countries.

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1 Central and Eastern European Journal of Management and Economics (CEEJME)

1 Cibulskene D.

1 Maciulyte-Sniukiene A.

1 2014

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Evaluation of the impact of economic openness on labour productivity in EU countries