How to Finance Cohesion in Europe?
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How to Finance Cohesion in Europe?

Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth

Amid formidable challenges, Europe’s future depends not least on the capacity of its economies to converge toward their better performing peers. Dissecting the complexity of cohesion, this book analyzes which dimensions matter most for the smooth functioning of Economic and Monetary Union (EMU) and for the (income) convergence of Central, Eastern and Southeastern European (CESEE) countries. Central bankers, policy-makers and academics discuss how to best advance the catching-up process and look into EU structural and cohesion policies, critically assessing their contribution to economic and social development.
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Chapter 13: Improving host countries’ investment environment: is the national supply side really the right focus?

Andrew Watt


After a brief review of the empirics of investment in Europe, this chapter seeks to accomplish four tasks, thereby focusing on the countries that are members of Economic and Monetary Union (EMU). First, it assesses the validity of the standard view that supply-side inadequacies and rigidities at Member State level are to blame for weak investment performance and that market-oriented structural reforms are the solution. Finding that view wanting, it then considers some reasons why touted supply-side reforms may not have substantial positive effects. Following a review of other explanations for weak investment, the chapter concludes that economic governance reform at EMU level is crucial. This is because stable and balanced demand growth that sustains - but also limits - pressure on the supply side is critical for keeping investment at elevated levels.

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