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1. Raising EU productivity through innovation

Author:
Reinhilde Veugelers and Frederic Warzynski
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Research and development is seen as a key contributor to growth because it generates knowledge, leading to new or improved products through product innovation, and makes firms more efficient at producing goods through process innovation. Firm level studies generally find evidence of strong positive productivity effects for firms that invest in R&D. In this context, digital systems could be an important driver of productivity growth, particularly in combination with investments in R&D. But there has been little hard evidence of a significant productivity boost from digital technologies. How the relationship between productivity growth, innovation and digital technology adoption plays out is particularly important for the European Union, where productivity growth has long been weak. Researchers from the MICROPROD project have assessed the effect of technology investment on productivity and performance. Combining recent unique firm-level data and state-of-the art research methodologies, MICROPROD research provides a better overview of which firms are most likely to adopt digital technologies and to innovate, and to turn these investments into productivity growth.
Topic:
European Union, Investment, Innovation, and Productivity
Political Geography:
Europe

2. Commercialisation contracts: European support for low-carbon technology deployment

Author:
Ben McWilliams and Georg Zachmann
Publication Date:
07-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Many of the technologies that can help the European Union become a net-zero emissions economy by 2050 have been shown to work but are not yet commercially competitive with incumbent fossil-fuel technologies. There is not enough private investment to drive the deployment of new low-carbon alternatives. This is primarily because carbon prices are neither high enough nor stable. There are a number of benefits from the deployment of low-carbon technologies that private firms do not factor in. These include the benefits of decreasing industry-wide costs over time, and the global climate benefits from the development of low-carbon technologies within the EU that can subsequently be exported. The result is an investment level below the socially optimal value in the EU. Commercialisation contracts could be implemented as a temporary measure to remove the risk associated with uncertain carbon prices for ambitious low-carbon projects. The aim of the contracts would be to increase private investment to the socially optimal level. Contracts would be allocated through auctions in which fixed prices for abated emissions over a fixed duration would be agreed on a project-by-project basis. On an annual basis, public subsidies amounting to the difference between the agreed carbon price and the actual EU carbon price would be provided to investors, depending on the total carbon emissions abated. As long as EU carbon prices are low, investors would receive larger subsidies to ensure their competitiveness. Contracts would be auctioned at EU level. This would generate increased competition compared to national auctions, leading to more efficient outcomes and preventing fragmentation of the single market. From about €3 billion to €6 billion would be provided to the main industrial emitting sectors annually, with the amount reducing as the EU carbon price rises and low-carbon technologies become competitive without subsidy.
Topic:
Climate Change, Energy Policy, Science and Technology, Investment, Trade, Carbon Emissions, and Decarbonization
Political Geography:
Europe

3. How difficult is China’s business environment for European and American companies?

Author:
Uri Dadush and Pauline Weil
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Despite tensions over China’s discriminatory business practices, China’s trade continues to thrive, and the country has taken over from the United States as the first destination for foreign investment. American and European businesses continue to be engaged in China’s large and growing market, even amid a trade war between China and the United States. Drawing on surveys of companies and international comparisons, we show that – contrary to the prevailing narrative – China’s business practices have improved significantly in recent years. China’s business environment is today generally more favourable than that in other large countries at similar levels of development and, in some though certainly not all aspects, is in line with the Organisation for Economic Co-operation and Development average. Differences over geopolitics and human rights must be addressed, but it is clear that trade and investment agreements conditioned on accelerated reforms in China would yield substantial dividends. The benefits of such deals would accrue not only to foreign investors in China and exporters to China, but also to consumers and importers in the European Union and, especially, in the US, where punitive tariffs on China remain in effect. Critical aspects in the negotiations would include better access for American and European investors to China’s market for services and improved enforcement of rules and regulations in China. As in many middle-income countries, uneven enforcement of the law (rather than the law itself) remains a critical problem in China.
Topic:
Development, Bilateral Relations, European Union, Business, and Investment
Political Geography:
China, Europe, Asia, North America, and United States of America

4. Is the European Union’s investment agreement with China underrated?

Author:
Uri Dadush and André Sapir
Publication Date:
04-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The European Union is very open to foreign direct investment. By comparison, despite considerable liberalisation in the past two decades, foreign investors in China’s markets still face significant restrictions, especially in services sectors. Given this imbalance, the EU has long sought to improve the situation for its companies operating or wanting to operate in China. After eight years of negotiations, the EU and China concluded in December 2020 a bilateral Comprehensive Agreement on Investment (CAI). The text awaiting ratification aims to give foreign investors greater market access, enforceable via state-to-state dispute settlement. It does not yet, however, cover investor protection (such as against expropriation). Meanwhile, investor protection is covered by bilateral investment treaties between EU countries and China, which remain in force. The CAI has been met in some quarters with scepticism on economic and geopolitical grounds. The main criticism is that it provides little new market access in China, and that this small economic gain for the EU comes at the price of breaking ranks with its main political ally, the United States. Our assessment, which focuses on the economic implications, is different. It is true the CAI provides only modest new market access in China, but this is because China has already made progress in recent years in liberalising its foreign investment regulations unilaterally. The CAI binds this progress under an international treaty, marking an improvement for EU firms insofar as their market access rights can be effectively enforced. Most important, the CAI includes new rules on subsidies, state-owned enterprises, technology transfer and transparency, which will improve effective market access for EU firms operating in China. These bilateral new rules could also pave the way for reform of the multilateral rules under the World Trade Organisation, with the aim of better integrating China into the international trading and investment system – a goal shared by the EU, the United States and other like-minded countries. From an economic viewpoint therefore, the CAI is an important agreement, and one worth having. However, its ratification by the European Parliament is unlikely while China continues to apply sanctions against some members of the European Parliament and other critics of China’s human rights record.
Topic:
Science and Technology, Bilateral Relations, European Union, Investment, and Liberalization
Political Geography:
China and Europe

5. The state of China-European Union economic relations

Author:
Uri Dadush, Marta Dominguez-Jimenez, and Tianlang Gao
Publication Date:
11-2019
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
China and the European Union have an extensive and growing economic relationship. The relationship is problematic because of the distortions caused by China’s state capitalist system and the diversity of interests within the EU’s incomplete federation. More can be done to capture the untapped trade and investment opportunities that exist between the parties. China’s size and dynamism, and its recent shift from an export-led to a domestic demand-led growth model, mean that these opportunities are likely to grow with time. As the Chinese economy matures, provided appropriate policy steps are taken, it is likely to become a less disruptive force in world markets than during its extraordinary breakout period.
Topic:
Economics, Governance, European Union, Investment, and Trade
Political Geography:
China, Europe, and Asia

6. How does China fare on the Russian market? Implications for the European Union

Author:
Alicia Garcia-Herrero and Jianwei Xu
Publication Date:
11-2019
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
China’s economic ties with Russia are deepening. Meanwhile, Europe remains Russia’s largest trading partner, lender and investor. An analysis of China’s ties with Russia, indicate that China seems to have become more of a competitor to the European Union on Russia’s market. Competition over investment and lending is more limited, but the situation could change rapidly with China and Russia giving clear signs of a stronger than ever strategic partnership.
Topic:
Economics, Markets, Bilateral Relations, Governance, Investment, and Exports
Political Geography:
Russia, China, Europe, Eurasia, and Asia