Abstract:

The long term dynamics of growth and structural change in open economies are discussed where integration aspects are included. Taking a closer look at basic economic dynamics, in terms of developments in the areas of sustainable growth and international interdependencies, the theoretical section emphasizes international links to the demand as well as (within a theoretical innovation) supply side. The latter basically means the production function where a broader range of inputs, including technology effects and aspects of foreign direct investment are considered. For the first time, the distinction between efficient international specialization and golden efficient international specialization are discussed. Moreover, the new medium term macroeconomic model presented suggests that the signs of the impact multipliers for monetary policy and fiscal policy are much more uncertain than the short term Mundell Fleming model suggests; this finding points to the need for more empirical research. Moreover, a two country growth model with FDI is discussed and comparative aspects of sustainable growth – that is cross–country differences in true net savings rate – are discussed with favourablefindings for major EU countries. With respect to the EU, the Lisbon Agenda is discussed and various policy conclusions are drawn. The Euro area has considerable strong points in terms of a high potential for sustained growth; at the same time, one cannot overlook that ageing and partly weak prudential supervision represent serious challenges. EU eastern enlargement should favourably contribute to long term EU growth. If the Euro area can achieve sustained growth and restore full employment, one may anticipate that ASEAN countries will more closely consider EU integration as a blueprint for deeper regional integration in Asia. The transatlantic banking crisis has negatively affected the US and the UK while the euro zone has suffered only to a smaller extent, however, the Baltic countries face a serious problem as they have fixed exchange rates vis–à–vis the Euro and high current account deficits plus high external debt–GDP ratios. The switch from G8 to G20 – in the context of fighting the transatlantic banking crisis – means a weakening of the EU which is not represented at the G20.