Inter-regional Capital and Labour Flows Across an …...1 Inter-regional Capital and Labour Flows Across an International Border: a European Case Study William Collier & Roger Vickerman

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Inter-regional Capital and Labour Flows Across an International Border: a European Case Study

William Collier & Roger Vickerman

Centre for European, Regional and Transport Economics University of Kent at Canterbury

October 2001

Keywords: Capital Mobility, Labour Mobility, Regional Markets, Border Regions Acknowledgements: Financial support from the European Regional Development Fund INTERREG II Community Initiative is gratefully acknowledged. Correspondence Address: Professor Roger Vickerman, Centre for European, Regional and Transport Economics, Keynes College, University of Kent at Canterbury, Canterbury, Kent CT2 7NP, UK; Tel: +44 (0)1227 823495; Fax: +44 (0)1227 827784; email: [email protected]

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1. Introduction The mobility of labour across European borders is an issue of increasing importance. Labour mobility and the generation of a flexible European Labour Market are often considered a necessity to further European integration and a sustainable Economic Union. Factor mobility plays a vital role in the economic process. It permits capital and labour to be allocated to their highest valued uses and ensures that economic performance transcends regional and national constraints. The issue of labour mobility is, however, a discerning one. Recent concerns emphasise the growing movement of so-called “economic migrants”, asylum seekers and illegal migrants from outside the EU. There is also the perceived threat of potential mass migrations from future enlargement of the EU. Most Western European countries are concerned that they should not be exposed to a major increase in labour flows from Central and Eastern European Countries (CEEC’s): the influx of typically unskilled workers is perceived to yield negative impacts on both wages and productivity. This conclusion is difficult, however, to justify for a number of reasons. First, previous enlargements have not provoked a mass exodus from poorer countries. Hence, there is little reason to suggest that the latest expansion will be any different. Second, the estimated impact of unskilled immigrants on recipient country wages has been shown to be very small (Zimmerman, 1996). Thus, the threat to the welfare of indigenous workers has not been realised. Third, unskilled immigrants increasingly occupy employment opportunities that the indigenous workforce is no longer willing to fill. In this regard, the ingress of unskilled immigrants actually raises EU welfare probably by more than trade (Haisken De New and Zimmermann, 1999). Finally, increased immigration from outside the EU may provide a valid short-term role to future EU development. Most of the existing EU member countries exhibit a significant threat to sustained economic performance: an ageing population and shrinking workforce (Economist, 9/5/2000). This demographic imbalance requires structural changes that can only be accommodated over the long-run. In this regard, the opportunity for sustained immigration could provide western economies with a period of short but prolonged relief.1 If the movement of “economic migrants” from outside the EU is not the problem that it is perceived to be, the low level of intra-EU mobility required to support the needs of economic integration certainly is. In the absence of independent monetary policy or exchange rate adjustment, low levels of intra-national & intra-EU labour mobility significantly prevents the efficient adjustment to asymmetric shocks within a single currency zone (Mundell, 1961). It also hinders the convergence of regional income and economic performance across what is otherwise a disparate set of national economies. The impact on cross-border flows is of particular relevance here. Borders provide breaks in the economic landscape. They restrict the boundaries of local labour markets and impose implicit and explicit barriers that constrain opportunities for exchange. The completion of the Single European Market (SEM) via the removal of physical and transport barriers should have removed many of these constraints. Regions adjacent to 1 For a detailed analysis see Boeri, Brücker et al (2000)

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internal border crossings should thus have been presented with an increased opportunity for rapid and sustained development. To date, there is little indication to support this claim. Furthermore, there is strong evidence to suggest that the constraints imposed by borders remain remarkably strong even within the Euro-Zone. The Anglo-French border regions of Kent and Nord-Pas de Calais provide a useful focal point in this regard. These 2 regions are well located in the core of the European economy between the major conurbations of the Paris, London, Randstad Holland and Rhein-Ruhr metropolotan regions, an area of Europe that contains over 25% of the EU population and accounts for over 30% of the EU GDP. Completion of the Single European Market should thus yield high rates of economic growth. Instead, these regions continue to exhibit a stubbornly low rate of economic growth. The major barrier to growth appears to be the proximity to a number of national borders and the existence of a number of hard and soft factors that inhibit location decisions and hence the desired movement of both capital and labour across regional boundaries (Vickerman, 1998, 2000). Many of these factors are disparate in nature and range from social, cultural and linguistic differences to skills and qualification issues, the accessibility and transparency of economic and social information, and the more widely recognised economic constraints of pensions, tax benefit systems, wages, and the portability and accumulation of rights. Such barriers restrict opportunities and limit cooperation. They are also recognised as frustrating the emergence of efficient labour markets that offer access and availability for all. Nowhere is this more widely reflected that The Commission of the European Communities recent decision to identify the opening up of European labour markets as one of ten key areas for policy action in realising the European Union’s full potential.2 This paper forms part of a larger programme of INTERREG funded research that seeks to identify the opportunities and constraints on cross-border labour flows in the aforementioned regions. The advantage of the INTERREG link is that it is enabling, through the work of our partners in the Laboratoire RII at the Université du Littoral Côte d’Opale (ULCO), a simultaneous comparison of the equivalent experiences on the Franco-Belgian border around Dunkerque. Surprisingly, a number of interesting parallels are already beginning to appear that suggest that there are common themes influenced by the changing process of European integration at work. The remainder of the paper proceeds as follows. Section 2 presents an overview of the role of labour mobility in the integration process and the particular constraints that are presented by border regions themselves. Section 3 reviews recent trends in international migration between the UK and France and considers whether increases in cross-channel traffic and improved opportunities for cross-border commuting have had a significant impact on the Kent Economy. Section 4 extends this evidence to examine the impact on foreign direct investment. Finally, section 5 concludes. 2 Spring European Council (Stockholm, 2001).

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2. Cross-Border Activity and Economic integration Border regions and the implications for their development have become a subject of considerable interest (Ratti & Reichman, 1993; Capellin & Batey, 1993; van der Velde & van Houtum, 2000). The ongoing process of European integration has driven much of this interest. The rapid growth in “new trade theory” and “new economic geography” accounts for the remainder. The removal of national barriers and the development of greater economic and political transborder co-operation has resulted in a new geo-economic order in Europe that requires a reconsideration of spatial identity and the role of those factors deemed important to the success of future socio-economic and monetary union. Increased labour mobility and the integration of European labour markets are often considered prerequisites in this regard. Much of this analysis is derived from the consideration of macroeconomic integration. Recent analyses, in contrast, emphasise microeconomic integration. This approach provides consideration of economic agents and their strategies in the context of well-defined spatial territories. Redefining these territories yields behavioural implications that transcend the traditional core-periphery approach of accessibility and distance, and instead relies on the availability of information and degree of interregional co-operation. Research on border regions epitomises this latter concern. It recognises that the success of wider European integration necessitates a growing degree of transnational co-operation and cross-border exchange. In the context of a Single European Market and the removal of physical and institutional barriers to free trade and factor mobility, border regions present a contact zone where national communication and distribution networks integrate to form part of a trans-European hub of connectivity that underpins the new economic heartland of Europe. This hub of connectivity forms an integral part of the wider process of globalisation and internationalisation (Patrella, 1991). In this regard, the future of border regions presents the greatest challenge to the long-term success of sustained economic and monetary union. Economic theory provides no clear indication as to whether continued integration will result in a convergence or divergence of economic performance. Competitive theory built on the Marshallian principles of constant returns to scale and diminishing returns predicts that the removal of restrictions on trade and factor mobility will force rapid economic convergence. Clustering of activities depends on the existence of external economies of agglomeration. New models of economic geography and theories of endogenous growth, in contrast, identify agglomeration synergies that arise from the presence of increasing returns and imperfectly competitive markets within industries, and are uncertain in their prediction of convergence or divergence between European regions.3 Such disparity ensures that concerns regarding income inequality remain a contentious issue.4

3 See Fujita et al (1999) for a summary of this literature. 4 Empirical measures of convergence indicate per capita GDP of EU members has converged over the post-war period. However, convergence is a long-run process. The full impact of economic union alongside continued globalisation and internationalisation may thus not be observed for another twenty or thirty years.

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Perhaps of more interest, however, is the realisation that both sets of predictions rely on some degree of labour market integration and the mobility of labour. The competitive story is driven by the equalisation of relative factor costs that occurs through the migration of capital and labour to areas of ‘best’ use. New economic geography models, in contrast, are driven by the recursive nature of labour migration and ‘home’ demand. The migration of labour into a region constitutes additional ‘home’ demand for a regions industry that, in the presence of imperfect markets, sustains the continuing development of the region’s income and thus the attraction of labour from outside. These two viewpoints suggest that restrictions on mobility must be inefficient when one considers the European economy as a whole. Removing barriers to mobility should thus take priority in the development of further economic union. The removal of such barriers need not necessarily, however, result in significantly increased migration (Seccombe et al, 1993). The freedom of movement has, of course, existed since 1968. The Single European Act (1986) extends this, however, to create a European migratory space where EU born workers retain the right to trade freely and migrate to and work in any EU country. Neither of these legislative processes appears to have had a considerable impact in developing a European labour market. Evidence to date suggests that intra-EU mobility is relatively low and is likely to remain limited in the near future (Adnett, 1996; Tassinopolous, 1999). One possible reason for this low level of migration may be that, despite the removal of physical and legal barriers to migration, the associated costs of migration remain high. Another reason is that the social, cultural and historical barriers to migration remain relatively strong. Nowhere is this more evident than at the border regions themselves. Implicit barriers associated with borders restrict market areas and impose additional costs on communities that may not be as prevalent elsewhere. These costs hinder the economic performance of regions alongside those borders and restrict co-operation between socio-economic agents and institutions on either side. Borders naturally affect the economic performance of border regions. They provide breaks in the economic landscape and generate barriers that raise the costs of cross-border movement and restrict flows of communication and information. Legal and physical barriers to cross-border mobility have been removed by the creation of a Single European Market. Many implicit barriers still, however, remain. Most of these barriers may be categorised into what are termed ‘hard’ and ‘soft’ factors. Hard factors consist of transport infrastructure, administrative procedure, and fiscal incentives to firms. Soft factors, in contrast, consist of social, psychological, cultural and/or linguistic differences (van der Velde, 1999; Vickerman, 1998, 2000). The role of transport infrastructure as a facilitator of movement between regions has long been recognised. Social and psychological barrier effects may also, however, be of considerable importance (de Gijsel et al, 1999; van Houtem, 1999). The use of language epitomises many of these concerns. Crossing a border in Europe often means crossing a linguistic frontier. Linguistic differences entail additional costs to cross-border movements. Their impact is not, however, solely pecuniary in nature.5 Language preserves the psychological and

5 Shields & Wheatley-Price (1999a,b) report a large reward to language fluency in the UK labour market. They report that English fluency is associated with a 30% increase in employment probability and a 10%-20% wage advantage when one compares similar fluent and non-fluent ethnic minority workers.

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sociological perception of borders. It embodies the cultural and historical precedents that define the extent of transcooperation and ensures that the attitudes of border populations remain important. Some border regions are well equipped to participate in the integration process. Regions with good accessibility and reputable foreign relations reduce the impact of border frontiers and their associated barriers to trade. Other border regions, in contrast, are not so well suited. Here, implicit barrier effects yield certain disadvantages that constrain the degree of cross-border interaction and ensure that relationships with foreign neighbours remain relatively poor. This is particularly evident where border regions are coastal regions (Rietveld & Boomstra, 1993). Coastal regions yield certain advantages in terms of natural resources and opportunities for sea transport. They also impose a disadvantage in that communication networks across the border are often virtually non-existent. The Anglo-French border separating the English County of Kent from the Nord-Pas de Calais region of Northern France provides a useful example here. Kent and the Nord-Pas de Calais present two very different regions in terms of economic experience, structure and culture but which have certain similarities and dissimilarities. Both regions are well situated within the heartland of the Euro Zone. Both are characterised as regions where GDP per capita falls below the national average and economic growth is less than that of the ‘Euroland’ single currency area (European Commission, 1999). Both also yield pockets of unemployment and deprivation that rank amongst the highest in their respective nation (Kent Economic Report, 1999). Nord-Pas de Calais is characterised by its range and concentration of older industries, many of which have been in decline for a number of years. The region consists of a major urban conurbation around Lille, an area of smaller industrial centres in the mining basin, and a coastal area centred on the ports of Calais, Boulogne and Dunkerque. Substantial parts of the region are eligible for assistance under the EU Structural Funds, mainly in Objective 2, but also a small area has been eligible for Objective 1 assistance, close to a similarly aided region in Belgium. Parts of the Dunkerque area have been eligible for Enterprise Zone status benefits since the closure of the Normed shipyards in the 1980s. The region therefore presents all the characteristics of an old industrial region6. However, the Lille area has shown considerable signs of growth based on its effective crossroads location between the major European conurbations of London, Paris, Brussels, the Randstad and the Rhine-Ruhr areas, boosted by its junction position on the still developing North European High Speed Rail Network. Kent has traditionally been an agricultural region with a range of light and heavy industries concentrated across various parts of the county. The demise of the Kent coalfields and the closure of related heavy industries during the 1980’s resulted in significant economic slowdown, particularly across the East and North of the county. Long-term restructuring has resulted, however, in transport and communications now providing the prominent business activity. The completion of the Channel Tunnel alongside the existing array of East and North Kent seaports has borne witness to rapid growth in both tourist and freight cross-channel transport. Growth in local knowledge based sectors such as chemicals and pharmaceuticals and business services is also 6 For a more detailed analysis of the regional economy see, Holliday et al, 1991

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higher than the UK as a whole. The banking and finance sector remains, however, largely underrepresented. This industrial heritage is reflected in Kent’s business structure. Kent economic activity is polarised between a few large firms and a large number of Small to Medium Enterprises (SME’s). The largest 1% of firms account for over 28% of employment in the county. In contrast, 80% (40,000) of establishments employ less than ten people. This structure reflects flexible relationships between small and large firms. Unemployment in Kent (Figure 1) had tended to mirror that of the South East region and the UK as a whole, with a clear cyclical pattern reflecting th national cycle and little evidence of the sort of re-positioning which had been argued in connection with the completion of the Channel Tunnel and the Single European Market. Considerable variation exists between different districts and travel to work areas in Kent, but there has been little change in the ranking. There is a general perception that skill levels in Kent have remained low relative to other parts of the South East and that occupational change has not shown such a strong movement towards modern industries and skills7. It does, however, have wider implications with regard to the European integration process.

Figure 1 Unemployment in Kent Travel to Work Areas

On the face of it, the economies of Nord-Pas de Calais and Kent should benefit greatly from the process of European Integration. Both regions have under-performed at the national and EU level. The completion of the Single European Market, the Channel Tunnel and the associated road and rail infrastructures ensure, however, that both regions now have direct access to each other’s markets. One might expect the removal of physical and legal barriers alongside inter-regional transport developments to have a significant impact on border regions. Vickerman (1993) points out, however, that

7 See Appendix Tables A1-A3 for further detail

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improved access can be to the detriment of such regions. Concerns here centre on the loss of business associated with the crossing itself and the prospect of becoming simply corridors between larger economic regions that stand at either end. The development of intra-regional transport infrastructure provides an important difference here. Nord-Pas de Calais has taken the opportunity to use the Channel Tunnel in order to develop a coastal corridor that links the three major seaports and provides alternative routes into Belgium, Rouen and Paris. Kent, in contrast, has undertaken no such development. The completion and upgrading of the M20 Motorway that connects Kent to London and the London Orbital M25 motorway has provided a degree of inter-regional connectivity. Road and rail accessibility along the coastal route and across the East and West of the County remains, however, poor. This lack of intra-regional infrastructure combined with poor inter-modality of transport severely restricts the opportunities that may be gained by access to the Euro Zone. It also impinges on the free flow of information that small to medium enterprises rely on but cannot afford to obtain. Recent evidence from other internal borders suggests that cross-border activity remains small even where barriers to such movement are not large. The question that arises in the context of the Anglo-French border and the presence of large barriers to mobility is thus whether any such movement is observed at all. 3. Labour Mobility and International Migration Table 1 provides estimates of UK international migration by country of last or next residence. The last decade has witnessed a significant net inflow of international migration in total with a marked increase from 1994 onwards, and a record high in 1998. This influx of international migrants is similarly reflected in estimates of international migrants from the EU. The UK’s migration links with the EU have grown stronger than international migration from other parts of the world. 1998 witnessed the highest net flow of migration from the EU in the last ten years. This increase in net flows has arisen predominantly from growth in inflows over and above changes in outflows. Significantly, this growth has resulted in the share of EU immigration rising from approximately one quarter to one third of all migration. The changing pattern of UK international migration is also reflected in an analysis of trends by citizenship. The proportion of EU nationals as a per centage of all foreign citizenships has increased from just over 20 per cent between 1989 and 1993 to a little over 30 per cent between 1994 and 1998. This increase has again occurred from an increase in EU inflows rather than a decline in outflows. As such, it has also resulted in the UK becoming the second most important destination country (after Germany) for EU state nationals (Eurostat, 2000). This change in the pattern of international migration has raised concern about the potential benefits and/or losses to the native population. This concern depends primarily on whether perceived migration is skilled or unskilled by nature. If the majority of immigrants compete with domestic unskilled workers then there is an increased likelihood that increased competition for jobs will lower wages and induce a negative impact on economic welfare brought about by job displacement and increased poverty. Two pieces of evidence suggest that this outcome is unlikely. First, despite recent increases in levels of intra-EU migration, the proportion of EU nationals working in other member states as a proportion of total workers in those states remains

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relatively low (Eurostat, op.cit). Second, Straubhaar & Wolburg (1998) suggest that immigration is predominantly self-selective with highly skilled workers being internationally more mobile. The mobility of skilled labour has been part of international migration for some considerable period of time (Kofman 1999, 2000). The importance of international recruitment and the movement of highly skilled workers for high-tech industries and related services ensure, however, that this type of migration is a pre-requisite for future success in the global economy (Home Office, 2000). Despite sustained increases in inflows of UK international migration from the EU, there is little evidence to suggest significant increases at both the national and regional level for international migration emanating from France. Table 1 reveals that, with a few exceptions, there has been a net inflow of migrants to the UK from France and Corsica. This pattern of migration is consistent with the trend reported for the EU as a whole. The per centage of EU net inflows that are French in origin reveals, however, considerable variability. Similar patterns are found in the respective analysis by citizenship. French citizens account for about one-third of EU migrants into the UK, by

Table 1 International Migration: estimates from the International Passenger Survey with standard error country of last or next residence, 1989 to 1998 United Kingdom Grossed in thousands ALL COUNTRIES EUROPEAN UNION France and Corsica est % est % est % inflow 1989 249.8 4 57.2 12 15.1 24 1990 266.8 4 70.6 12 19.2 25 1991 266.5 5 75.6 12 14.8 27 1992 215.9 5 72.2 12 14.6 27 1993 213.4 5 56.2 11 4.7 35 1994 253.2 5 78.1 11 10.9 31 1995 245.5 5 71.3 11 19.1 22 1996 272.2 5 82.3 11 11.0 25 1997 284.6 5 91.9 12 26.3 28 1998 332.4 4 96.2 10 16.8 24 outflow 1989 -205.4 -4 -47.6 -13 -7.4 -33 1990 -230.8 -5 -60.0 -12 -16.4 -25 1991 -238.9 -5 -71.7 -11 -20.4 -25 1992 -227.0 -5 -59.8 -11 -10.5 -32 1993 -215.9 -5 -67.4 -11 -14.8 -23 1994 -190.8 -5 -55.2 -12 -11.9 -25 1995 -191.6 -5 -54.8 -12 -12.5 -27 1996 -216.1 -6 -71.8 -16 -14.6 -24 1997 -224.5 -5 -69.6 -13 -17.5 -31 1998 -198.9 -6 -60.0 -14 -11.7 -30 balance 1989 44.3 - 9.5 - 7.7 - 1990 36.0 - 10.6 - 2.8 - 1991 27.6 - 3.9 - -5.6 - 1992 -11.1 - 12.5 - 4.1 - 1993 -2.5 - -11.2 - -10.1 - 1994 62.4 - 22.9 - -1.0 - 1995 53.9 - 16.4 - 6.6 - 1996 56.0 - 10.5 - -3.7 - 1997 60.1 - 22.4 - 8.8 - 1998 133.5 - 36.2 - 5.1 -

Source: Crown Copyright standard error

Note: %= 100grossed

×

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far the largest group. Unfortunately, further disaggregation of the data is prevented by standard errors that are far too high to be considered reliable.8 Estimates of the regional impact of such migration may thus only be made by inference. In 1998, 34,000 of the 96,200 EU migrants entering the UK had a destination of London while 17,500 headed for the remainder of the South-East. The South-East comprises of an area that stretches west of Kent as far as Southampton and the County of Hampshire, and North-West of London as far as Buckinghamshire and Oxfordshire. Given the small number of EU migrants entering this region, and accounting for the proportion of such migrants that originate from France, then the implications of such migration between the two border regions themselves is likely to be negligible. Of course, cross-border labour mobility may be accommodated via commuting flows rather than flows in migration. In principal, commuting between border-regions should not be any different from commuting between places of residence and places of work within a region. However, in reality, the existence of a border generates additional factors that also need to be considered when an individual makes the decision whether or not to commute (Hansen & Nahrstedt, 2000). Kent has traditionally been a commuting area, with approximately one fifth of employed residents commuting to London or the Rest of the South East. The completion of the Channel Tunnel and development of an International Station at Ashford provides Kent with an opportunity to extend this pattern of commuting to Nord-Pas de Calais. Despite substantial reductions in journey times between the major centres on both sides there has, however, been little evidence to suggest that this has occurred. One reason for the low growth in cross-border commuting is undoubtedly the financial cost associated with the crossing. A second involves the lack of intra-regional transport infrastructure. The lack of intra-regional infrastructure has meant that improved cross-border transportation has primarily served to promote accessibility between the metropolitan regions of London and Lille. Thus, a significant increase in commuting between the border regions is unlikely to be observed. Distinguishing between migration and commuting is, of course, a somewhat arduous task. Migration is often considered to be a long-term phenomenon, which entails a relocation of residence that incurs both pecuniary and non-pecuniary costs. Commuting, in contrast, is often considered as a short-term daily activity. This activity also yields explicit costs; these costs are compensated, however, by the prospect of higher wages. Weekly commuting presents a dilemma in this regard: it entails both regular cross-border trips and a relocation of residence. The inability to define such movements suggests that inferences made with regard to cross-border migration and commuting may thus be affected by survey measurement error.

8 International migration data for the UK is collated from the International Passenger Survey (IPS), a continuous voluntary sample survey conducted by the Office of National Statistics (ONS) which covers the principle air, sea and Channel Tunnel routes between the UK and countries outside the British Isles. The IPS currently samples between 0.2 and 5 per cent of passengers depending on route and time of year. Figures obtained from the IPS are therefore subject to both sampling and non-sampling errors. Sampling errors are relatively large where the estimates are based on a small number of contacts. The standard error for an estimate of 1,000 migrants is around 40% whilst that for an estimate of 40,000 is around 1%. Further disaggregation of residence/citizenship data by Government Office Region (GOR), usual occupation and/or reason for migration would thus entail standard errors that are far too large.

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The completion of the Channel Tunnel and development of an International Station at Ashford provides the Kent and Nord-Pas de Calais border regions with a unique opportunity to extend traditional patterns of commuting. Despite substantial reductions in journey times between the major centres on both sides there has, however, been little evidence to suggest that this has occurred. A recent Cross Channel Tourism Study (2000) identified that only three per cent (0.43m) of cross-channel travellers were visiting Kent as their final destination. Forty-three per cent (0.20m) of these visitors stayed one or more nights; only eight per cent of those staying lived, however, in Nord-Pas de Calais. The survey also revealed that 20 per cent of visiting trips to the regions were made for business purposes. Seven per cent of this total indicated that they had made 50 or more cross-channel trips in the past year (i.e. at least once a week). All of these travellers lived in Nord-Pas de Calais and came to work in Kent several times a week. The degree and impact of cross-border mobility may thus be greater than previously suggested. The observation of increased cross-border movements (while limited) on business grounds raises important issues concerning the extent to which both the employed and unemployed search for new employment opportunities and take advantage of these in the adjacent cross-border region. The EURopean Employment Services (EURES) plays a vital role in this regard. The service aims to facilitate the free movement of workers within the EU and provides information not only on how to find employment opportunities in another country, but also the living and working conditions in the 17 countries of the European Economic Area. This process is delivered via a network of partners that include Public Employment Services, Trade Unions and Employer Organisations. Special structures have additionally been set up to deal with the specific needs of cross-border regions. These structures provide a unique point of contact among both regional and national employment administrations and social partners, and, as such, provide an important means to evaluate the "employment areas" which form the basis of European integration. The EURES structure for the cross-border region H.N.F.K. (Hainaut/Nord-Pas de Calais/Western Flanders/Kent) is able to identify a significant number of cross-border workers between the regions of Nord-Pas de Calais, Hainaut and Western Flanders. Unfortunately, there is no reliable data for Nord-Pas de Calais and Kent although several hundred cross-border workers appear to travel between the two regions.9 4. Inward Investment The contribution of the labour market to economic integration is not derived purely through the movement of workers. Firms also seek to move in order to take advantage of labour market opportunities, the availability of skills, and different labour market practices in other regions. Regional theories typically assume that the removal of barriers to mobility and trade will result in an influx of capital into border regions

9 Data concerning enquiries to work in each neighbouring region and the successful take up of work following such enquiries are available. We are currently in the process of obtaining the latest release of this data and will include the appropriate statistical analysis in a revised version of the paper.

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(Rauch, 1991) that raises capital spending and thus improves regional development and economic performance. This assumption is not without criticism. Movement of capital across border regions depends on the profitability of investment locations that may be prospected on either side. The removal of formal borders and the expansion of market areas may serve to encourage capital into a border region. While lower labour costs and higher working hours may appeal to inward investment, the decision to locate also rests, however, on a number of other factors. The degree of transcooperation and transport infrastructure plays a vital role in this regard. Preferences and attitudes to location formed prior to the removal of the border frontier must also be considered. Such factors slow down and/or inhibit the adjustment of capital stock. As such, they form a vital part in the regions continued development. The increasing globalisation of business alongside European integration and increases in transcooperation have led to new trends in inward investment across Europe. The extent to which cross-border activity has been affected remains, however, difficult to discern. Barriers to Foreign Direct Investment (FDI) and other capital movements have certainly been largely removed in recent years. There has also been a modest increase in French investment in Kent in recent years. However, this influx is nowhere near the scale of the “French invasion” reported by the UK media.10 With the assistance of the regional inward investment agency (Locate in Kent), we have managed to identify only around 40 French firms who are actually employing staff in the county.11 This evidence is summarised in Table 2. Although French investment is the joint second largest national grouping, it is less than half the number of US-owned companies and, excluding Eurotunnel, has a total employment effect of around only 1500 jobs.12 This employment effect is smaller than has been previously anticipated and ranks below that of firms with origins in the US, Germany and the Netherlands.

10 The UK media suggests that there has been a “French invasion” in the Kent border region with “hundreds” of French firms setting up establishments. 11 Evidence for manufacturing industries supplied by the Annual Business Inquiry indicates between 5 and 7 French firms were located in the county between 1993 and 1997. This evidence conforms to the pattern of investment identified in Table 2. 12 For more detailed analysis of Kent and a comparison with the South East region see Appendix Tables A4-A7

Table 2

Foreign Investment in Kent at July 2000

Origin Stock of Foreign Firms % of Foreign Stock Total Employment France 39 13.5 3108 Germany 39 13.5 2290 Netherlands 27 9.4 2323 Switzerland 13 4.5 512 Sweden 10 3.5 617 Belgium 5 1.7 404 Denmark 5 1.7 80 Finland 5 1.7 140 Austria 4 1.4 94 Rest of Europe 6 2.1 822 North America 85 29.5 12698 Japan 23 8.0 1425 Australasia 8 2.4 1454 Canada 7 2.4 416 South Africa 6 2.1 442 Other 6 2.4 460 Total 288 100 27285

Source: Locate in Kent

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As mentioned, US based companies dominate foreign direct investment in Kent. There is evidence to suggest, however, that other non-European firms take an active interest in this location. Recent years have witnessed a marked increase in the existing stock of foreign companies from Japan, Australia, Canada and South Africa. This growth reflects the pattern of inward investment to the UK. It also indicates the growing importance of non-European firms attempting to gain access to the Single European Market. FDI from France, Germany and the Netherlands has also shown increases in recent years. This growth again suggests that there are distinct advantages in moving to a border region. The distribution of these firms around the county remains an issue of concern. Most of the recent investment has occurred from Ashford to the west of the county. Thus, the associated income and employment effects of relocation have had little impact on the more deprived areas to the East and the North. This pattern of investment may reflect both a lack of intra-regional transport and stigma effects associated with low levels of economic growth. It could, however, additionally reflect economic and social factors (hard and soft) that are not otherwise recognised by strategic planners and those involved in facilitating economic development. Identifying the motives and reasons that underpin inward investment decisions and the successful relocation of foreign firms within the county is of particular importance for future economic integration and co-operation between the two border regions. For this purpose, we are currently undertaking a survey of those French firms identified earlier. The survey aims to explore both the reasons for these firms locating in Kent and their experiences within the county. In particular, the survey addresses how far firms have explored alternative labour markets, both for location and for recruitment, and what are perceived as the main advantages and disadvantages of the local area. This survey is currently close to completion. Analysis of the survey findings will be included in the final version of this paper. 5. Conclusion This paper has addressed the role of border regions in the integration process and the degree to which these regions are constrained by factors other than those physical and legal barriers that have been removed by the completion of the Single European Market. Evidence for the Anglo-French border region suggests that there has been some increase in both labour and capital mobility across the border, the effects of such movement remain, however, relatively small. The lack of intra-regional infrastructure is identified as one possible constraint operating within the Kent economy. Historical and cultural differences and low levels of transcooperation are identified as others. The lack of factor mobility has not gone unnoticed at the national level. In September 2000, the Department for Education and Employment launched two schemes widely recognised to promote both FDI and labour mobility. The first scheme involves modernising the work permit system to enable a greater and easier transfer of skilled labour to the UK from around the world. The second scheme enables foreign entrepreneurs to move to the UK with nothing to declare other than a good business plan (formerly required £200k). Both of these initiatives should serve to reduce the

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effects of remaining barriers on economic performance. They are also consistent with the Commission of the European Communities desire to promote a new strategy for ensuring that the New European Labour Markets are open and accessible to all by 2005. Improved initiatives to ensure the free movement of people, increases in the level of skills, and their transferability across countries, are designed not only to promote the creation of more genuine European Labour Markets but also to reflect both the complex pattern of migration movements between different urban and industrial/service centres, and the changing nature of location and skill requirements induced by increased competitiveness and the widespread process of globalisation. Border regions lie in the centre of this process of change. They are both the regions where we might expect the pressures to be most acutely felt, but they are also the ones potentially missed out by the increasing concentration of both skilled labour and capital, especially that associated with the new knowledge economy, into the major metropolitan regions. This paper has identified some of the dynamics of this process.

15

References Adnett, N. (1996), European Labour Markets, Longman, London. Boeri, T., Brücker, H. and others (2000) The Impact of Eastern Enlargement on Employment and Labour Markets in the EU Member States, Report to European Commission, DG Employment and Social Affairs, DIW, CEPR, FIEF, IAS, IGIER, Berlin and Milan. Cappelin, R. and Batey, P.W.J. (Eds.) (1991), Regional Networks, Border Regions and European Integration, European Research in Regional Science No. 3, Pion, London. de Gijsel, P., Janssen, M., Wenzel, H-J. and Woltering, M. (1999), Concepts and Issues in European Cross-border Economics: An Introduction, in P. de Gijsel & M.Janssen (Eds) Understanding European Cross-border Labour Markets: Issues in Cross-border Relations, Metropolis-Verlag, Marburg. DETR (1999), National Travel Survey: 1996/98 Update, Transport Statistics Bulletin, HMSO. European Commission (2001) New European Labour Markets, Open to All, with Access to All, Communication from the Commission to the Council, Brussels. European Commission (1999) Sixth Periodic Report on the Social and Economic Situation and Development of the Regions of the European Union, Office for Official Publications of the European Communities, Luxembourg. Eurostat (2000), Patterns and Trends in International Migration in Western Europe, Studies and Research, Theme 3, European Commission, Luxembourg. Fujita, M., Krugman, P.R. and Venables, A.J. (1999), The Spatial Economy: Cities, Regions and International Trade, MIT Press, Cambridge. Haisken De New, J. and Zimmermann, K.F. (1999) Wage and mobility effects of trade and migration, in M. Dewatripont, A Sapir and K Sekkat (Eds) Trade and Jobs in Europe: Much Ado about Nothing? Oxford University Press, Oxford. Hansen, C.L. and Nahrstedt, B. (2000), Cross-Border Commuting: Research Issues, and a Case Study for the Danish-German Border Region, in M.van der Velde & H.van Houtem (Eds.), Borders, Regions, and People, European Research in Regional Science No. 10, Pion, London. Holliday, I., Langrand, M. and Vickerman R. (1991) Nord-Pas de Calais in the 1990s, Special Report No 601, EIU European Investment Series, The Economist Intelligence Unit, London. Home Office (2000), UK Migration in a Global Economy, Draft Speech by Barbara Roche MP, Immigration Minister, 11/09/00, London.

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Kent County Council and Comité Régional de Tourisme Nord-Pas de Calais (2000) Trasnmanche Tourism Facts 2000 Maidstone and Lille Kent Economic Report (1999), report published by Kent County Council and The Learning and Business Link Company Limited on behalf of the Kent Economic Forum. Krugman, P.R. (1993), Lessons of Massachusetts for EMU in F.Torres & F.Giavazzi (Eds) Adjustment and Growth in the European Monetary Union, Cambridge University Press, Cambridge. Mundell, R.A. (1961), The Theory of Optimal Currency Areas, American Economic Review, 51, pp. 657-665. ONS (1999), International Migration, Series MN no.25, HMSO. Patrella, R.D. (1991), Four Analyses of Globalisation of Technology and Economy, Commission of the European Communities, Brussels. Ratti, R. and Reichman S. (Eds) (1991), Theory and Practice of Transborder Cooperation, Helbing & Lichtenhahn, Basel. Rietvield, P. and Boomstra, J. (1993), On the Supply of Network Infrastructure, Niewe Ideen in Nederlands Ruimtelijk Onderzoek, 3. Seccombe, I., Buchan, J. and Ball, J. (1993), Nurse mobility in Europe: Implications for the United Kingdom, International Migration, 31, pp. 125-148. Shields, M.A. and Wheatley Price, S. (1999a), The English Language Fluency and Occupational Success of Ethnic Minority Immigrant Men Living in English Metropolitan Area, Discussion Paper in Public Sector Economics, 99/4, University of Leicester. Shields, M.A. and Wheatley Price, S. (1999b), Language Fluency and Employment Prospects: Evidence from Britain’s Ethnic Minorities, mimeo, University of Leicester. Straubhaar, T. and Wolburg, M. (1998), Brain Drain and Brain Gain in Europe – An Evaluation of the East-European Migration to Germany, paper presented at Winter 1998 Workshop on Managing Migration in the 21st Century: CIIP and Institute on Global Conflict and Co-operation at Centre for US-Mexican Studies, University of California, San Diego. Tassinopolous, A. (1999), Migration of Labour in the European Union, in P. de Gijsel & M.Janssen (Eds) Understanding European Cross-border Labour Markets: Issues in Cross-border Relations, Metropolis-Verlag, Marburg. van der Velde, M. (1999), Searching for Jobs in a Border Area: The Influence of Borders in a Dutch Euregion, in P. de Gijsel & M.Janssen (Eds) Understanding

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European Cross-border Labour Markets: Issues in Cross-border Relations, Metropolis-Verlag, Marburg. van der Velde, M. and van Houtem, H. (Eds.) (2000), Borders, Regions and People, European Research in Regional Science No. 10, Pion, London. van Houtem, H. (1999), What is the Influence of Borders on Economic Internationalisations?, in P. de Gijsel & M.Janssen (Eds) Understanding European Cross-border Labour Markets: Issues in Cross-border Relations, Metropolis-Verlag, Marburg. Vickerman, R.W. (1993), The Channel Tunnel and Transfrontier Cooperation in R.Cappelin & P.W.J.Batey (Eds.), Regional Networks, Border Regions and European Integration, European Research in Regional Science No. 3, Pion, London. Vickerman, R.W. (1998), Language and Location. An Analysis of Inward Investment and Regional Development in Europe, Paper for the 45th North American Meetings, Regional Science Association, November 1998. Vickerman, R.W. (2000), But they all speak English don’t they? An analysis of investment and regional development with particular reference to the Franco-British border, in W Rothengatter and J Kowalski (Eds) Soft Factors in Spatial Dynamics, Karlsruer Beiträge zur Wirtschaftspolitischen Forschung, Band 7, Nomos, Baden-Baden. Zimmerman, K.F. (1996), ‘European Migration: Push and Pull’, International Regional Science Review, 19, pp. 95-128.

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APPENDIX

Table A1

Training and Qualifications in Kent, August 2000

Per centage with Qualification GB South

East All Kent Medway UA

North Kent

East Kent

Mid & West Kent

All 16-19 in full-time education 54.6 58.4 54.5 n/a 43.2 59.8 69.1

All working age with NVQ level 3+ 41.6 45.2 39.0 33.2 32.4 42.4 42.9

All working age with NVQ level 4+ 23.5 26.2 20.4 13.8 14.5 21.8 26.0

All working age receiving job related training 12.7 13.6 12.3 7.8 10.9 14.1 11.6

All males of working age receiving job related training 12.1 12.9 11.2 n/a 9.3 12.1 12.5

All females of working age receiving job related training 13.3 14.4 13.4 n/a 12.7 16.4 10.6

All 25-60/65 receiving job related training 11.2 12.4 11.4 n/a 10.2 13.2 10.6

Source: Labour Force Survey

Table A2

Skills that Kent Companies Feel Need Improving Among Existing Employees

Company Status Size of Organisation Per centage of Type of Skill Total Private

Sector Public Sector 1-9 10-49 50-99 100-199 200+

Practical Skills 28 27 28 25 32 38 38 45

Basic Ability that can Build Upon 31 31 32 27 41 37 38 45

Literacy & Numeracy Skills 20 19 24 18 25 27 24 29

Management Skills 34 32 51 29 47 56 58 62

General Communication 39 38 48 35 48 56 52 62

Computer Literacy or Knowledge of IT 40 37 56 37 45 54 53 54

Personal Skills 36 34 46 31 47 44 47 59

Foreign Language 14 13 13 14 13 12 14 13

Source: Kent Annual Business Survey 1998

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Table A3

Kent Employment: Change in Occupations 1992-1999

SOC Division

1992

1994

1996

1998

1999

1992-1999

Total employment 739,000 746,000 778,000 752,000 766,000 27,000 Managers and administrators 119,000 114,000 121,000 123,000 121,000 2,000

Professional Occupations 66,000 73,000 71,000 66,000 78,000 12,000

Associate professional and technical 61,000 66,000 63,000 66,000 74,000 13,000

Clerical and secretarial 120,000 121,000 107,000 102,000 112,000 -8000

Craft and related 92,000 89,000 90,000 93,000 81,000 -11,000

Personal and protective services 70,000 73,000 87,000 90,000 78,000 8,000

Sales occupations 62,000 58,000 61,000 61,000 59,000 -3,000

Plant and machine operatives 62,000 58,000 71,000 64,000 65,000 3,000

Other Occupations 56,000 57,000 66,000 55,000 63,000 7,000

Unskilled Occupations 31,000 37,000 41,000 32,000 35,000 4,000

Source: Labour Force Survey

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Table A4

Total Kent Businesses in Mining/Quarrying and Manufacturing, by Country of Ownership

Section Country 1993

1994

1995

1996

1997

C Total 28 29 36 38 36 D France 5 7 7 5 6 D Netherlands 9 10 13 14 13 D Sweden - 10 4 7 11 D United Kingdom 3,627 3,865 4,251 4,129 4,258 D Rest of EU 16 13 16 17 16 D EU (Total) 3,657 3,905 4,291 4,172 4,304 D United States of America 23 33 33 35 31 D Rest of the World 13 17 18 18 20 C/D Total 3,721 3,984 4,378 4,263 4,391

Source: Annual Business Inquiry

Table A5

Total SEEDA Businesses in Mining/Quarrying and Manufacturing, by Country of Ownership

Section Country

1993

1994

1995

1996

1997 C Total 207 173 216 303 492 D Belgium 8 10 11 10 8 D Denmark 22 29 23 24 26 D Finland 17 21 15 11 10 D France 58 78 66 71 70 D Germany 87 115 106 124 132 D Italy 6 12 15 15 - D Republic of Ireland - 30 23 45 41 D Netherlands 43 55 64 69 61 D Sweden 45 57 43 56 57 D United Kingdom 48,167 52,446 57,489 61,526 63,714 D Rest of EU 25 7 6 8 20 D EU (Total) 48,478 52,860 57,861 61,959 64,139 D Australia 18 29 23 - 30 D Canada 46 60 52 44 49 D Japan 35 49 59 58 55 D Switzerland 50 55 62 73 64 D United States of America 342 439 415 493 439 D Rest of the World 32 33 42 89 51 D Total 49,001 53,525 58,514 62,716 64,823 C/D Total 49,208 53,698 58,730 63,019 65,387

Source: Annual Business Inquiry

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Table A6

Total Kent Employment in Mining/Quarrying and Manufacturing, by Country of Ownership

Section Country

1993

1994

1995

1996

1997 C Total 766 788 828 1,138 776 D France 252 304 364 299 784 D Netherlands 983 1,917 1092 1,887 1,632 D Sweden - 1,452 672 694 979 D United Kingdom 67,180 65,850 71,940 67,327 71,292 D Rest of EU 2,056 752 589 853 888 D EU (Total) 70,471 70,275 74,657 71,060 75,575 D United States of America 7,114 7,829 7,811 7,595 7,946 D Rest of the World 2,857 3,496 3,028 3,392 3,347 C/D Total 81,208 82,388 86,324 83,185 87,644

Source: Annual Business Inquiry

Table A7

Total SEEDA Employment in Mining/Quarrying and Manufacturing, by Country of Ownership

Section Country

1993

1994

1995

1996

1997 C Total 6,642 4,222 4,259 7,050 12,283 D Belgium 337 412 687 1,254 931 D Denmark 2,920 5,108 1,774 3,917 4,299 D Finland 1,724 1,663 1,410 2,702 3,119 D France 13,173 11,562 12,352 14,334 14,458 D Germany 12,261 15,637 19,786 18,804 18,733 D Italy 1,890 1,599 3,185 4,443 - D Republic of Ireland - 2,765 2,042 3,744 2,891 D Netherlands 6,680 7,945 7,205 9,578 6,625 D Sweden 6,923 7,688 5,875 7,690 8,975 D United Kingdom 777,089 763,048 832,687 894,113 922,398 D Rest of EU 2,125 230 240 148 3,067 D EU (Total) 825,122 817,658 887,243 960,727 985,495 D Australia 5,527 7,968 7,191 - 5,421 D Canada 7,683 6,730 7.639 8,247 10,684 D Japan 10,912 13,458 7,448 8,201 9,273 D Switzerland 9,663 8,890 9,076 10,717 8,660 D United States of America 119,098 112,650 105,495 125,397 113,593 D Rest of the World 3,096 2,370 3,577 10,616 5,230 D Total 981,101 969,726 1,027,669 1,123,905 1,138,355 C/D Total 987,742 973,948 1,031,928 1,130,956 1,153,518

Source: Annual Business Inquiry