nep-eec New Economics Papers
on European Economics
Issue of 2007‒03‒10
34 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Fiscal policies and business cycles in an enlarged euro area By Karsten Staehr
  2. Knowledge diffusion from university and public research. A comparison between US, Japan and Europe using patent citations. By Emanuele Bacchiocchi; Fabio Montobbio
  3. The “deeper” and the “wider” EU strategies of trade integration.An empirical evaluation of EU Common Commercial Policy effects. By Roberta De Santis; Claudio Vicarelli
  4. Market discipline and the use of government bonds as collateral in the EMU By Ullrich, Katrin
  5. The European Port Industry: An Analysis of its Economic Efficiency By Lourdes Trujillo; Beatriz Tovar
  6. Preconditions for a successful implementation of supervisors' Prompt Corrective Action: Is there a case for a banking standard in the EU? By María J. Nieto; Larry D. Wall
  7. Analysing the contribution of business services to European economic growth By Kox, Henk L.M.; Rubalcaba, Luis
  8. Why is Europe lagging behind? By Pyyhtiä, Ilmo
  9. Financial Stability in European Banking: The Role of Common Factors By Clemens Kool
  10. Income and Body Mass Index in Europe By Jaume Garcia Villar; Climent Quintana-Domeque
  11. Housing tenure and labour mobility: a comparison across European countries By Cristina Barceló
  12. Accounting for financial instruments: A comparison of European companies’ practices with IAS 32 and IAS 39 By Patrícia Teixeira Lopes; Lúcia Lima Rodrigues
  13. IFRS Introduction And Its Effect On Listed Companies in Spain By Jordi Perramon; Oriol Amat
  14. The economic effects of exogenous fiscal shocks in Spain: a SVAR approach By Francisco de Castro; Pablo Hernández de Cos
  15. House prices and rents in Spain: does the discount factor matter? By Juan Ayuso; Fernando Restoy
  16. Globalisation of production and innovation: how outsourcing is reshaping an advanced manufacturing area. By Lucia Cusmano; Maria Luisa Mancusi; Andrea Morrison
  17. A Comparison of Methods for the Construction of Composite Coincident and Leading Indexes for the UK By Andrea Carriero; Massimiliano Marcellino
  18. Macroeconomic uncertainty and banks' lending decisions: The case of Italy By Mario Quagliariello
  19. The Design and Effects of Collectively Agreed Minimum Wages: Evidence from Sweden By Skedinger, Per
  20. Fertility and Women’s Education in the UK: A Cohort Analysis By Anita Ratcliffe; Sarah Smith
  21. Wage inequality in Spain: recent developments By Mario Izquierdo; Aitor Lacuesta
  22. International Success of British Companies By George S. Yip; Alan M. Rugman; Alina Kudina
  23. Outward FDI and local employment growth in Italy By Stefano Federico; Gaetano Alfredo Minerva
  24. Entry barriers in Italian retail trade By Fabiano Schivardi; Eliana Viviano
  25. Business demography in Spain: determinants of firm survival By Paloma López-García; Sergio Puente
  26. The Use of Derivatives in the Spanish Mutual Fund Industry By José M. Marín; Thomas A. Rangel
  27. Labor market outcomes, capital accumulation, and return migration: Evidence from immigrants in Germany By Kirdar, Murat
  28. WHY DO INDIVIDUALS EVADE PAYROLL AND INCOME TAXATION IN ESTONIA? By Kenneth A. Kriz Author-Name: Jaanika Meriküll Author-Name: Alari Paulus Author-Name: Karsten Staehr
  29. Evaluating conditional asset pricing models for the German stock market By Schrimpf, Andreas; Schröder, Michael; Stehle, Richard
  30. Have real interest rates really fallen that much in Spain? By Roberto Blanco; Fernando Restoy
  31. Earnings and capital management in alternative loan loss provision regulatory regimes By Daniel Pérez; Vicente Salas-Fumás; Jesús Saurina
  32. The interaction between house prices and loans for house purchase. The Spanish case By Ricardo Gimeno; Carmen Martínez-Carrascal
  33. A Profit Efficiency Perspective on the Future Strategic Positioning of the Portuguese Banks By Joana Resende; Elvira Silva
  34. The use of derivatives to hedge embedded options : the case of pension institutions in Denmark By Ladekarl, Jeppe; Ladekarl, Regitze; Andersen, Erik Brink; Vittas, Dimitri

  1. By: Karsten Staehr
    Abstract: This paper compares the cyclical properties of fiscal policies across the 12 original eurozone countries and the future members from Central and Eastern Europe. For the sample period 1995-2005, the fiscal balance exhibits less inertia and is more counter-cyclical in Central and Eastern European countries than in members of the eurozone. The main differences arise from the revenue side. Differences in the formation of fiscal policy between current and future eurozone countries decrease over time. Autonomous fiscal policy has little or no effect on cyclical variability in either of the two groups of countries. Counter-cyclical fiscal policy appears to be effective in Central and Eastern European countries, but largely ineffective in eurozone countries
    Keywords: fiscla policy determinants, fiscal policy effects, eurozone expansion
    JEL: E62 E63 E32
    Date: 2007–03–08
  2. By: Emanuele Bacchiocchi (University of Milan, Italy.); Fabio Montobbio (University of Insubria, Varese and CESPRI - Bocconi University, Milan, Italy.)
    Abstract: This paper estimates the process of diffusion and decay of knowledge from university, public laboratories and corporate patents in six countries and tests the differences across countries and across technological fields using data from the European Patent Office. It finds that university and public research patents are more cited relatively to companies’ patents. However these results are mainly driven by the Chemical, and Drugs & Medical fields and US universities. In Europe and Japan, where the great majority of patents from public reserach comes from national agencies, there is no evidence of a superior fertility of university and public laboratories patents vis `a vis corporate patents. The distribution of the citations lags shows that knowledge embedded in university and public research patents tends to diffuse more rapidly relatively to corporate ones in particular in US, Germany, France and Japan.
    Keywords: University patents, Citations, Spillovers, Knowledge Diffusion, Public Research.
    JEL: O30 O33 O34
    Date: 2007–03
  3. By: Roberta De Santis (ISAE - Institute for Studies and Economic Analyses); Claudio Vicarelli (ISAE - Institute for Studies and Economic Analyses)
    Abstract: Since the post war period, the EU Common Commercial Policy (CCP) has moved in two directions mainly through of Preferential Trade agreements (PTAs): a “deeper” (internal) trade integration process intended to reinforce trade relations among European countries (i.e. Custom Union, Single Market, European Monetary Union, Enlargement Process), and a “wider” (external) integration process intended to reinforce trade relations with third countries.Surprisingly, there are very few empirical studies in the literature which specifically quantify the effects of “all” EU PTAs on the European countries’ trade flows. This paper seeks to fill this gap by conducting an empirical investigation on whether and how the CCP has had a significant impact on European countries’ imports. It adopts an extended version of the gravity model. In line with recent studies, it also controls for heterogeneity and bilateral trends, and includes a set of variables to proxy for the “multilateral resistance index”. According to our results, the EU “free trade area” has been a successful experiment in trade liberalisation. However, the positive and significant coefficient of PTAs signed by EU with third countries may somehow have limited the occurrence of trade diversion effects. Indeed the coefficient of trade diversion dummy is small and significant.
    Keywords: trade flows, regional integration, gravity model, panel data
    JEL: F13 F15 C13 C23
    Date: 2007–03
  4. By: Ullrich, Katrin
    Abstract: The confidence that financial markets are able to discipline the debt behaviour of governments is not very high. Therefore, the Stability and Growth Pact has been implemented as an institutional constraint to substitute for the market mechanism. With the weakening of the Pact, market discipline could gain importance again. To strengthen market discipline, reasons for its failure in the euro area have to be analysed. One possible reason could be that the European Central Bank accepts all European government bonds without distinction in its monetary policy auctions as collateral. This could provide the financial market with a signal that these government securities are equally (non-)risky and that a differentiation with respect to risk premia is not needed.
    Keywords: Stability and Growth Pact, Market Discipline, Collateral, Repo
    JEL: E51 E52 G12 H63
    Date: 2006
  5. By: Lourdes Trujillo (Department of Economics, City University, London and DAEA, Universidad de Las Palmas de Gran Canaria); Beatriz Tovar
    Abstract: Because of their critical strategic role, ports have all traditionally been subject to some form of government control even if the legal form and the intensity of this control have varied across countries. The member countries of the European Union have not been different from the rest of the world in this respect. A significant difference however is the recurrent effort to integrate, in a coordinated way, the port sector in a transeuropean transport network (TEN-T) through the adoption of a common legal framework. In this context, if the objective of the reforms is to ensure that port networks, integrated in combined transport networks, become competitors of the road network, the concept of port efficiency becomes central. This paper provides an overview of the evolution of the European Port Legislation and shows how comparative economic measures can be used to highlight the scope for port efficiency improvements, essential to allow short sea shipping transport to compete with road transport in Europe. To our knowledge, this paper is also the first effort of estimating technical efficiency of European Port Authorities. The average port efficiency in 2002 was estimated to be around 60%, denoting that ports could have handled 40% more traffic with the same resources.
    Keywords: Technical efficiency, European ports regulation, Trans-European transport networks, motorways of the sea
    JEL: C6 L9
    Date: 2007–03
  6. By: María J. Nieto (Banco de España); Larry D. Wall (Federal Reserve Bank of Atlanta)
    Abstract: Over the past years, several countries around the world have adopted a system of prudential prompt corrective action (PCA). The European Union countries are being encouraged to adopt PCA by policy analysts who explicitly call for its adoption. To date, most of the discussion on PCA has focused on its overall merits. This paper focuses on the preconditions needed for the adoption of an effective PCA. These preconditions include conceptual elements such as a prudential supervisory focus on minimizing deposit insurance losses and mandating supervisory action as capital declines. These preconditions also include institutional aspects such as greater supervisory independence and authority, more effective resolution mechanisms and better methods of measuring capital.
    Keywords: bank, supervision, european union, pca
    JEL: G28 K23 F20
    Date: 2007–02
  7. By: Kox, Henk L.M.; Rubalcaba, Luis
    Abstract: The sector business services contributes directly and indirectly to aggregate economic growth in Europe. The direct contribution comes from the sector’s own dynamism. Though the business-services industry appears to be characterised by strong cyclical volatility, there was also a strong structural growth. Business services actually generated more than half of total net employment growth in the European Union since the second half of the 1990s. Apart from this direct growth contribution, the sector also contributed in an indirect way to economic growth by generating knowledge and productivity spill-overs for other industries. The knowledge role of business services is reflected in its employment characteristics. The business-services industry created spill-overs in three ways: original innovations, knowledge diffusion, and the reduction of human capital indivisibilities at firm level. The share of knowledge-intensive business services in the intermediate inputs of the total economy has risen sharply in the last decade. Firm-level scale diseconomies with regard to knowledge and skill inputs are reduced by external deliveries of such inputs, thereby exploiting positive external scale economies. The process goes along with an increasingly complex social division of labour between economic sectors. The European business-services industry itself is characterised by a relatively weak productivity growth. Does this contribute to growth stagnation tendencies à la the so-called “Baumol disease”? The paper argues that there is no reason to expect this as long as the productivity and growth spill-overs from business services to other sectors are large enough. Finally, the paper concludes by suggesting several policy elements that could boost the role of business services in European economic growth. This might to achieve some of the ambitious Lisbon goals with respect to employment, productivity and innovation.
    Keywords: business services; structural change; economic growth; Europe; services; productivity
    JEL: E32 O4 O52 L2 L84 O3 L8
    Date: 2007–02
  8. By: Pyyhtiä, Ilmo (Bank of Finland Research)
    Abstract: This paper builds on the literature on growth in searching for explanations for the divergent growth performance between the EU countries and the United States. We emphasise the role of R&D investment and perhaps different degrees of elasticity of substitution between capital and labour. We estimate two different production functions, namely Cobb-Douglas and CES specifications, with physical capital, a measure of labour, and residual ‘technical trend’ as inputs. <p> Our first finding is that in many ICT-producing and using countries such as Denmark, Finland, Ireland, Sweden and the United States technical progress has been accelerating during the past decade. Secondly, this speeding up of technical progress has been associated with R&D investment and perhaps with increasing elasticity of substitution between capital and labour. Hence, our results suggest that there is no growth paradox in Europe: the R&D factor and the elasticity of substitution between capital and labour which have been known to be important factors of economies’ growth potential, actually explain a significant part of the divergent growth performance of the European economies as well.
    Keywords: endogenous growth; panel data estimation; production function; R&D; technical progress; elasticity of substitution
    JEL: E22 E23 O51 O52
    Date: 2007–02–28
  9. By: Clemens Kool
    Abstract: In this paper, I investigate the development and determinants of CDS spreads for 18 major European banks between December 2001 and January 2004 applying factor analysis to daily data. Two clear-cut conclusions can be drawn. First, the dominating first common factor that explains 88 percent of all variation in the system, impacts on all banks in a similar direction. This suggests a strong market integration. However the size of the response of each bankÕs CDS spread to the first common factor differs substantially, probably reflecting differences in individual bankÕs exposure and riskiness. Second, the first common factor appears significantly related to the European P/E ratio and the European-wide 2-year nominal interest rate. This finding suggests that the common factor may be interpreted as a general indicator of market conditions.
    Keywords: Credit Default Swap Spreads, Risk Premium, Financial Integration
    JEL: G12 G15 G21 C30
    Date: 2006–06
  10. By: Jaume Garcia Villar; Climent Quintana-Domeque
    Abstract: Obesity is alarming public health authorities around the world. Given this situation it is important to study its determinants. This paper focuses on the economic determinants of obesity. More specifically, we explore the empirical relationship between lifetime income and body mass index (BMI) in seven European Union countries in the short run. To study such a relationship, we make use of an accounting identity that relates current BMI to last year's BMI and current levels of both food consumption and physical activity. We estimate a reduced-form version of such an identity which relates current BMI to last year's BMI and lifetime income. Theoretically, lifetime income should affect contemporaneous BMI through its effect on both current consumption of food and current physical activity. Our results indicate that, once last year BMI's is taken into account, the relationship between lifetime income and BMI is at most weak. Such a finding suggests that income-based public policies are not likely to be effective in the fight against obesity in the short run.
    Keywords: Europe, obesity, permanent income, short run
    JEL: I12 I18
    Date: 2006–12
  11. By: Cristina Barceló (Banco de España)
    Abstract: This paper studies housing tenure and labour mobility using individual data from the ECHP for five European countries. First, the effect of housing tenure on the unemployed workers' labour mobility is studied using a discrete unemployment duration model with two alternative exits to employment, depending on whether they are associated with a residential change or not. Ownership is found to affect geographical mobility negatively. Second, the results are robust to potential endogeneity of the ownership status and institutional differences across countries. Third, post-unemployment wages are studied. We do not find any effects of the unemployment spell duration and the geographical mobility on wages after controlling for the self-selection bias.
    Keywords: labour mobility, housing tenure, duration models, self-selection bias, wage equation
    JEL: J61 R20 J31
    Date: 2006–02
  12. By: Patrícia Teixeira Lopes (University of Porto, Faculty of Economics, Portugal); Lúcia Lima Rodrigues (School of Management and Economics, University of Minho, Portugal)
    Abstract: This paper analyses accounting for financial instruments of STOXX 50 companies and compare them to the requirements of IAS 32 and IAS 39, before IFRS are mandatory in the European Union. We use a list of 120 categories of inquiry and 370 possible responses and analyse companies’ annual reports. The results show that the majority of companies disclose the fair value amounts and methods of calculation but the information is neither clear nor objective, preventing the fair value information from being relevant and useful. We conclude that companies have a long way to go in terms of accounting and disclosure of financial instruments, namely derivatives. The mandatory adoption of more stringent standards such as the IAS 32 and IAS 39 may improve the information disclosed by companies. Doubts about the compliance degree and the usefulness of the information still remain. This paper brings new perspectives to the challenges of IAS/IFRS adoption, namely to what relates to fair value measurement.
    Keywords: Accounting for financial instruments, Fair value accounting, International Accounting, Accounting harmonisation, IAS/IFRS, STOXX 50
    JEL: M41
    Date: 2007–03
  13. By: Jordi Perramon; Oriol Amat
    Abstract: From the beginning of January 2005 publicly traded companies in the European Union have to comply with the International Financial Reporting Standards (IFRS) for their consolidated accounts, as required by 1606/2002 European Commission Regulation. It had been suggested that the new accounting rules will facilitate not only the process of international harmonization of financial statements, but also efficient performance of financial markets and capital flows worldwide. This study analyzes the first results of IFRS implementation by Spanish non-financial listed companies.
    Keywords: IFRS, IAS, Accounting harmonization
    JEL: M41 N24
    Date: 2006–07
  14. By: Francisco de Castro (Banco de España); Pablo Hernández de Cos (European Central Bank)
    Abstract: This paper estimates the effects of exogenous fiscal policy shocks in Spain in a VAR framework. Government expenditure expansionary shocks are found to have a positive impact on output in the short term at the cost of higher inflation and public deficits and lower output in the medium and long term. Tax increases are found to have a negative impact on economic activity in the medium term while having only a temporary effect on the improvement of the public deficit. The application of these results to the analysis of fiscal policy in Spain since the mid nineties point to the conclusion that the consolidation process does not seem to have involved costs in terms of output growth and the stance of fiscal policy has become more counter cyclical.
    Keywords: var, fiscal shocks, fiscal multipliers
    JEL: E62 H30
    Date: 2006–02
  15. By: Juan Ayuso (Banco de España); Fernando Restoy (Banco de España)
    Abstract: We estimate alternative price to rent ratios in the Spanish housing market by considering different stochastic discount factors in present value models similar to those used in the financial literature but where the higher rigidity that characterises this market is taken into account. We identify three robust across model regularities: i) the increase in the price to rent ratio since the late nineties helped at first to restore equilibrium, ii) further increases in house prices raised the ratio between 24% and 32% above equilibrium by 2004, although iii) at that time the ratio was only around 2% above its short term adjustment path towards a (new) long run equilibrium.
    Keywords: housing, price-to-rent ratio, overvaluation
    JEL: G12 R21 R31
    Date: 2006–04
  16. By: Lucia Cusmano (CESPRI – Bocconi University, Milano, Italy and Insubria University, Varese, Italy); Maria Luisa Mancusi (Bocconi University, Milan, Italy.); Andrea Morrison (Università del Piemonte Orientale, Novara, Italy.)
    Abstract: Pervasive outsourcing is transforming business models and productive relations in advanced manufacturing areas. In particular, the international dimension of outsourcing, off-shoring, has been attracting great attention, as it leads to the emergence of global value chains and internationally distributed innovation processes, affecting the position of regions and countries in the international division of labour. The present paper investigates the diversified patterns of outsourcing and off-shoring across industries which have been characterising the recent dynamics of Lombardy, the Italian leading economic region. Based on a large firm-level survey, the work investigates extent, depth, regional embeddedness and degree of internationalisation of outsourcing processes, differentiating between stages of production, research and service activities. The evidence suggests that fragmentation is remarkably wide and interests all the industrial sectors to a similar extent. However, outsourcing has a clear regional dimension, concerning services at most, and taking the form of extended producer-driven chains, highly embedded in the regional system. Regionally confined fragmentation is driven by final producers of relatively small size, which nevertheless exhibit high skill intensity. Off-shoring is still, on the other hand, a limited phenomenon, encompassing only a minor fraction of the process of deverticalisation. The evidence depicts off-shoring as part of a wider process of internationalisation by mostly large firms or group subsidiaries at intermediate stages of the value chain, which increasingly rely on international intra-industry trade. The international outsourcing trend appears to be strongly driven by export-oriented firms, whereas foreign direct investment per se seems to play a minor role.
    Keywords: Outsourcing, Offshoring, R&D, Regional system.
    JEL: D21 F23 L22 L23 O32
    Date: 2007–03
  17. By: Andrea Carriero (Queen Mary, University of London); Massimiliano Marcellino (IEP-Bocconi University, IGIER and CEPR)
    Abstract: In this paper we provide an overview of recent developments in the methodology for the construction of composite coincident and leading indexes, and apply them to the UK. In particular, we evaluate the relative merits of factor based models and Markov switching specifications for the construction of coincident and leading indexes. For the leading indexes we also evaluate the performance of probit models and pooling. The results indicate that alternative methods produce similar coincident indexes, while there are more marked di.erences in the leading indexes.
    Keywords: Forecasting, Business cycles, Leading indicators, Coincident indicators, Turning points
    JEL: E32 E37 C53
    Date: 2007–03
  18. By: Mario Quagliariello (Banca d’Italia)
    Abstract: This paper discusses the role that macroeconomic uncertainty plays in banks’ decisions on the optimal asset allocation. Using a portfolio model recently proposed in the literature, the paper aims at disentangling how Italian banks choose between loans and risk-free assets when uncertainty on macroeconomic conditions increases. The econometric results confirm that macroeconomic uncertainty is a significant determinant of banks’ investment decisions, also after controlling for other factors. In periods of increasing turmoil, banks’ ability to accurately forecast future returns is hindered and herding behaviour tends to emerge, as witnessed by the reduction of the cross-sectional variance of the share of loans held in portfolio.
    Keywords: bank, business cycle, uncertainty, lending decisions, GARCH
    JEL: E44 G21 G28
  19. By: Skedinger, Per (Research Institute of Industrial Economics)
    Abstract: Minimum wages in Sweden are collectively agreed and differ by industry. Within agreements, the rates are also highly differentiated. Minimum wages are higher in Sweden than in any of the countries with statutory rates considered in this study. This is line with the view that minimum wages are higher than otherwise when unions are involved in minimum wage setting. The reported results for Sweden do no support the suggestion that adverse employment effects are modest in systems with collectively agreed rates. This runs counter to the hypothesis that unions and employers have a good sense of what constitutes a relevant market wage for unskilled workers and use this information to set minimum wages at appropriate levels.
    Keywords: Minimum Wages; Collective Bargaining
    JEL: J31 J51 J52
    Date: 2007–03–01
  20. By: Anita Ratcliffe; Sarah Smith
    Abstract: Against a background of falling and low fertility, this paper presents an analysis of trends in fertility in the UK across cohorts born between 1935 and 1975. The decline in fertility is shown to have two distinct phases – first, a fall in third and higher-order births (affecting cohorts born 1935-45) and second, a delay in childbearing and a rise in childlessness (affecting cohorts born since 1945). The delay in childbearing and rise in childlessness cannot all be explained by the rise in female participation in higher education, rather there has been increasing polarization in fertility and employment by education.
    Keywords: cohort fertility trends, education
    JEL: J13
    Date: 2006–12
  21. By: Mario Izquierdo (Banco de España); Aitor Lacuesta (Banco de España)
    Abstract: This paper analyses wage inequality in Spain from 1995 to 2002. Inequality has decreased slightly in this period although the fall has not been constant over the whole distribution. We use non parametric techniques to distinguish the effect on inequality of changes in the composition of the labour force and changes in relative returns. We focus mainly on three factors that have varied substantially between 1995 and 2002: female participation, educational attainment and changes in the tenure level. On one hand, changes in the composition of the labour force would have increased inequality had the structure of wages not changed in relation to the 1995 level. Changes in education and especially tenure would have been responsible for most of the higher dispersion. On the other, changes in relative returns between 1995 and 2002 are predominant and are responsible for the lower dispersion observed in the latter year. Changes in the returns to education and age are important factors underlying this decrease in inequality.
    Keywords: wage inequality, labour force
    JEL: J30 J00
    Date: 2006–06
  22. By: George S. Yip (London Business School); Alan M. Rugman (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Alina Kudina (University College London)
    Abstract: This paper examines the international success of British companies in a matrix combining global market share and international revenues. We identify those industry segments in which British companies are most successful internationally, and also investigate whether these are attractive industries in terms of profitability and growth. We find that the industries with the largest global market shares for British companies are Mining, Casinos (and Gaming), Oil Companies (Major), Distillers & Brewers, and Water Utilities. Four of the top ten might be considered to be “sin” industries. The industries with the highest international revenues are Precious Metals, Pharmaceuticals, Industrial (Diversified), Oil Companies (Secondary), and Mining. We also find that virtually all of the largest British firms average over a 10% global market share, in the “British Winners” segment of our matrix. However, we find the second measure, the extent of internationalization, to be ambiguous. The manufacturing (product-based) firms tried to be highly internationalized, as they compete globally, but the largest British services firms (financials, retailers) tend to have low internationalization, and therefore appear to benefit from a still somewhat regulated home market. In addition, British companies have done a good job of building up global market shares in higher growth industries. We provide recommendations for managers as to how British companies with different combinations of global market share and extent of internationalisation can improve their positions. Our methodology can also be applied to analyzing companies from other nations.
    Date: 2006
  23. By: Stefano Federico (Bank of Italy); Gaetano Alfredo Minerva (Universita' di Bologna)
    Abstract: Using several data sources, we assess the impact of Italy's outward foreign direct investment (FDI) on local employment growth between 1996 and 2001 for 12 manufacturing industries and 103 administrative provinces. Our main result is that, controlling for the local industrial structure and area fixed effects, FDI is associated with faster local employment growth, relatively to the national industry average. We also find that employment in small plants is not negatively influenced by higher levels of FDI. Our findings do not support therefore the idea that FDI is detrimental to local employment growth in the home country.
    Keywords: Foreign direct investment, agglomeration, employment growth
    JEL: C21 F21 F23
  24. By: Fabiano Schivardi (Universita' di Cagliari); Eliana Viviano (Banca d’Italia)
    Abstract: The 1998 reform of the Italian retail trade sector delegated to the regional governments the regulation of entry of large retail shops. We use the local variation in regulation to determine the effects of entry barriers on firm performance for a representative sample of medium and large retail outlets. Using a diff-in-diff approach, we find that entry barriers are associated with substantially higher profit margins and substantially lower productivity of incumbent firms. We also find that liberalizing entry has a positive effect on investment in ICT, which the recent literature has shown to be the main driver of the remarkable sectoral productivity growth in the US. Finally, in the most liberal regions yearly inflation in the CPI component “food and beverages” was approximately half a percentage point lower than in the other regions: higher productivity coupled with lower margins resulted in lower consumer prices.
    Keywords: entry barriers, productivity growth, technology adoption, retail trade
    JEL: L5 L11 L81
  25. By: Paloma López-García (Banco de España); Sergio Puente (Banco de España)
    Abstract: The impact of entry upon market performance depends not only on the number of entries and their size, but also on how long do the firms last. Consequently, there are an increasing number of papers, most of them focused on the United States and restricted to the manufacturing sector, aimed at analysing the post entry performance of firms. Unfortunately, there is not much about this important topic in Spain due to the lack of appropriate longitudinal micro data on firms. The current paper aims to fill this gap by means of a new database covering all sectors of the business economy constructed at the Bank of Spain. We study the determinants of new firm survival using non parametric and parametric procedures especially designed to analyse duration phenomena. We find that larger start ups survive longer and that the probability of exit is larger in sectors with high entry rates and low concentration. One of the contributions of the paper is the inclusion of the initial firm's financial structure among the determinants of survival. Our results suggest that holding debt, instead of equity, has positive and important effects on survival up to some point. Beyond this point, further debt increments have a negative impact on survival, and this effect is more important the higher is the corresponding debt ratio or indebtness of the firm.
    Keywords: firm survival, entry and exit, micro-data
    JEL: L11 L25 G33 M13
    Date: 2006–04
  26. By: José M. Marín; Thomas A. Rangel
    Abstract: We study the use of derivatives in the Spanish mutual fund industry. The picture that emerges from our analysis is rather negative. In general, the use of derivatives does not improve the performance of the funds. In only one out of eight categories we find some (very weak and not robust) evidence of superior performance. In most of the cases users significantly underperform non users. Furthermore, users do not seem to exhibit superior timing or selectivity skills either, but rather the contrary. This bad performance is only partially explained by the larger fees funds using derivatives charge. Moreover, we do not find evidence of derivatives being used for hedging purposes. We do find evidence of derivatives being used for speculation. But users in only one category exhibit skills as speculators. Finally, we find evidence of derivatives being used to manage the funds’ cash inflows and outflows more efficiently.
    Keywords: Mutual Funds, Derivative use, Risk Management
    JEL: G11 G2
    Date: 2006–11
  27. By: Kirdar, Murat
    Abstract: In this paper I test the capital accumulation conjecture that is used to rationalize return migration decisions in the context of immigrants in Germany and examine how labor market outcomes influence return migration decisions, with particular attention to selection in these outcomes in return migration. I characterize the level and timing of return migration as well as the selection in it and derive a number of implications of these on the impact of immigrants on the host as well as source countries. Using a rich longitudinal dataset that has an over-sampled group of immigrants (German Socioeconomic Panel), I conduct a Cox proportional hazard analysis with alternative waiting-time concepts. That the sample contains immigrants from four different source countries allows me to utilize the variation in the source country characteristics as well as the time variation in them to identify the parameters of interest. I find evidence for the savings accumulation conjecture, in which return is motivated by higher purchasing power of accumulated savings in the home country. On the other hand, human capital accumulation conjecture is rejected. In the framework of savings accumulation, I examine the impact of an increase in German earnings whose theoretical impact on the return migration decision is ambiguous. In terms of labor market outcomes, both retirement and unemployment emerge as important determinants of return migration choices. Unemployment spell length determines the direction of selection with respect to unemployment in return migration. The data also reveal that the level of return migration is high and varies considerably across the source countries. The hazard function of Turkish immigrants displays a hump-shaped profile that peaks between the ages of 45 and 54 whereas EU immigrants are more likely to return at earlier ages and after retirement.
    Keywords: International Migration; Capital Accumulation; Unemployment; Duration Analysis
    JEL: F22 C41 J61
    Date: 2007–01
  28. By: Kenneth A. Kriz Author-Name: Jaanika Meriküll Author-Name: Alari Paulus Author-Name: Karsten Staehr
    Abstract: This paper employs micro-level data to determine the factors characterizing individuals who evade payroll and income taxation in Estonia. Using logit estimation on three different cross-sectional datasets, we estimate the marginal effects of different individual characteristics on tax evasion. The three datasets give broadly analogous results. Payroll and income tax evasion is most prevalent in small firms and in the construction and agricultural sectors. Evasion is more common among individuals who work part-time, are of non-Estonian ethnicity, have relatively short education, earn a low income and are men. Tax evasion is more frequent among the young and the elderly than among the middle-aged. There are clear regional differences. The overall picture is that the relatively disenfranchised are most likely to evade payroll and income taxation in Estonia.
    Keywords: Tax evasion, unreported work, incentives, tax system
    JEL: H26 H24 D19
    Date: 2007
  29. By: Schrimpf, Andreas; Schröder, Michael; Stehle, Richard
    Abstract: We study the performance of conditional asset pricing models in explaining the German cross-section of stock returns. Our test assets are portfolios sorted by size and book-to-market as in the paper by Fama and French (1993). Our results show that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved substantially when allowing for time-varying parameters of the stochastic discount factor. A conditional CAPM with the term spread as a conditioning variable is able to explain the cross-section of German stock returns about as well as the Fama-French model. Structural break tests do not indicate parameter instability of the model - whereas the reverse is found for the Fama-French model. Unconditional model specifications however do a better job than conditional ones at capturing time-series predictability of the test portfolio returns.
    Keywords: Asset Pricing, Conditioning Information, Hansen-Jagannathan Distance, Multifactor Models
    JEL: G12
    Date: 2006
  30. By: Roberto Blanco (Banco de España); Fernando Restoy (Banco de España)
    Abstract: This paper analyses the behaviour of real interest rates in the Spanish economy over the last 15 years. Since inflation-indexed-bonds are not available, changes in implicit real interest rates are estimated using several approaches suggested by macroeconomic and financial theory. In particular, we employ equilibrium conditions of a representative agent under several specifications of preferences. Moreover, we exploit no-arbitrage conditions in securities markets. The evidence we report indicates that inflation uncertainty could account for a notable part of the observed decrease in nominal rates. Consequently, the actual real cost of financing might have decreased significantly less than what the course of ex-post real rates would suggest.
    Keywords: real interest rates, intertemporal marginal rate of substitution
    JEL: E43 G12
    Date: 2007–02
  31. By: Daniel Pérez (Banco de España); Vicente Salas-Fumás (Banco de España; Universidad de Zaragoza); Jesús Saurina (Banco de España)
    Abstract: The paper sets an accounting and behavioral framework from which we derive a reduced form equation to test income smoothing and capital management practices through loan loss provisions (PLL) by Spanish banks. Spain offers a unique environment to perform those tests because there are very detailed rules to set aside loan loss provisions and they are not counted as regulatory capital. Using panel data econometric techniques, we find evidence of income smoothing through PLL but not of capital management. The paper draws some lessons for accounting rule setters and banking regulators regarding the current changes in the accounting framework (introduction of IFRS/IAS in Europe) as well as the new capital framework (Basel II). In particular, a very detailed set of rules to set aside loan loss provisions does not prevent managers from decreasing earnings volatility, similarly to what happens in a more principles oriented accounting framework.
    Keywords: income smoothing, capital management, ifrs/ias, basel ii
    JEL: G18 G21
    Date: 2006–06
  32. By: Ricardo Gimeno (Banco de España); Carmen Martínez-Carrascal (Banco de España)
    Abstract: The aim of this paper is to analyse, using a vector error-correction model (VECM), the dynamic interaction between house prices and loans for house purchase in Spain. The results show that both variables are interdependent in the long run: loans for house purchase depend positively on house prices, while house prices adjust when this credit aggregate departs from the level implied by its long-run determinants. In contrast, disequilibria in house prices are corrected only through changes in this variable. As for short-run dynamics, the results show that the two variables have a positive contemporaneous impact on each other, indicating the existence of mutally reinforcing cycles in both variables.
    Keywords: mortgage debt, housing prices, error correction
    JEL: E32 G21 R21
    Date: 2006–02
  33. By: Joana Resende (CETE, Faculdade de Economia, Universidade do Porto); Elvira Silva (CETE, Faculdade de Economia, Universidade do Porto)
    Abstract: The Portuguese banking sector has been recently subjected to important structural changes. The diversification of the supply of financial services, the specialization phenomena and the growing importance of new technologies are changing the sector dramatically. A profit perspective is used to investigate the efficiency performance of the commercial banking sector in Portugal in the period 2000-2004 and infer some implications for the banks´ management strategic orientation. The Nerlovian and an alternative profit efficiency measures are used, illustrating the potentialities of the directional distance functions to the profit efficiency analysis. A decomposition of the alternative profit efficiency measure is also proposed.
    Keywords: Banking; Nerlovian profit efficiency; alternative profit efficiency; directional distance functions
    JEL: C61 G21 L11
    Date: 2007–03
  34. By: Ladekarl, Jeppe; Ladekarl, Regitze; Andersen, Erik Brink; Vittas, Dimitri
    Abstract: The main purpose of this paper is to examine the growing use of derivatives by Danish pension institutions as a risk management tool to hedge embedded options on their balance sheets. Throughout the 1980s and 1990s it was a widespread practice for Danish pension institutions to guarantee a minimum interest rate on new pension policies. With the new millennium global interest rates declined steeply and equity markets came crashing down. Suddenly the guarantees on pension contracts were in the money. The policies already written could not be changed, leaving liabilities and assets mismatched, profits in the red, and capital reserves drained. Out of necessity, and in some cases virtue, Danish pension institutions turned in scale to derivatives, allowing for a more active approach to hedging, asset and liability management, and even profit generation. Through the use of derivatives, pension institutions have avoided the need to renegotiate their guaranteed contracts with policy holders. They have succeeded as an industry in transforming their pay-off curves and have emerged with better matched asset/liability positions and lower exposure to interest rate risk. But the expanded use of derivatives also raises some risk management and regulatory issues, such as operational and counterparty risks as well as effective internal control systems and regulatory oversight.
    Keywords: Investment and Investment Climate,Economic Theory & Research,Insurance & Risk Mitigation,Non Bank Financial Institutions,Settlement of Investment Disputes
    Date: 2007–03–01

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