nep-eec New Economics Papers
on European Economics
Issue of 2008‒06‒13
24 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Inflation Persistence in New EU Member States: Is It Different Than in the Euro Area Members? By Michal Franta; Branislav Saxa; Katerina Smidkova
  3. Wide and Narrow Approaches in Climate Change Policies: The Case of Spain By Miguel Rodríguez; Xavier Labandeira
  4. An Economic Analysis of Obesity in Europe: Health, Medical Care and Absenteeism Costs By Anna Sanz de Galdeano
  5. Should we care for structural breaks when assessing fiscal sustainability? By António Afonso; Christophe Rault
  6. MARKET RISK DYNAMICS AND COMPETITIVENESS AFTER THE EURO: Evidence from EMU Members By Juan Piñeiro Chousa,; Artur Tamazian,; Davit N. Melikyan,
  7. Structural breaks and Purchasing Power Parity in the CEE and Post-War former Yugoslav States By Robert J. Sonora; Josip Tica
  9. EU cohesion policy and “conditional” effectiveness: What do cross-section regressions tell us? By John Bradley; Gerhard Untiedt
  10. The Promotion of Employment and Earning Opportunity of Women in Europe through Gender Mainstreaming. With Special Emphasis on Austria By Gudrun Biffl
  11. How to Determine whether Regional Markets are Integrated? Theory and Evidence from European Electricity Markets By Georg Gebhardt; Felix Höffler
  12. Electrifying Integration: Electricity Production And The South-East Europe Regional Energy Market By Hooper, E.; Medvedev, A.
  13. Estimating Union Wage Effects in Great Britain During 1991-2003 By Georgios Marios Chrysanthou
  14. Horizontal Inequity and Vertical Redistribution with Indirect Taxes: the Greek Case By Kaplanoglou, G.; Newbery , D.M.
  15. The Labour Market Impact of Immigration in Western Germany in the 1990's By Francesco D'Amuri; Gianmarco Ottaviano; Giovanni Peri
  16. Assessing household credit risk: evidence from a household survey By Dániel Holló; Mónika Papp
  17. Corporate Governance and the Value of Excess Cash Holdings of Large European Firms By Schauten, M.B.J.; Dijk, D.J.C. van; Waal, J-P. van der
  18. Wage Convergence and Inequality after Unification : (East) Germany in Transition By Johannes Gernandt; Friedhelm Pfeiffer
  19. A Decomposition of Austria's General Government Budget into Structural and Cyclical Components By Serguei Kaniovski; Hans Pitlik; Sandra Steindl; Thomas Url
  20. Transmission of Exchange Rate Shocks into Domestic Inflation: The Case of the Czech Republic By Oxana Babetskaia-Kukharchuk
  21. The Joint Distribution of Household Income and Wealth: Evidence from the Luxembourg Wealth Study By Markus Jantti; Eva Sierminska; Tim Smeeding
  22. Price and Non - Price Competitiveness of Exports of Manufactures By Panayiotis P. Athanasoglou; Ioanna C. Bardaka
  23. A VECX* Model of the Swiss Economy By Assenmacher-Wesche, K.; Pesaran, M.H.
  24. Large Corporations in the Finnish Economy By Mika Pajarinen; Pekka Ylä-Anttila

  1. By: Michal Franta; Branislav Saxa; Katerina Smidkova
    Abstract: Is inflation persistence in the new EU Member States (NMS) comparable to that in the euro area countries? We argue that persistence may not be as different between the two country groups as one might expect. We confirm that one should work carefully with the usual estimation methods when analyzing the NMS, given the scope of the convergence process they went through. We show that due to frequent breaks in inflation time series in the NMS, parametric statistical measures assuming a constant mean deliver substantially higher persistence estimates for the NMS than for the euro area countries. Employing a time-varying mean leads to the reversal of this result and suggests similar or lower inflation persistence for the NMS compared to euro area countries. Structural measures show that backward-looking behavior may be a more important component in explaining inflation dynamics in the NMS than in the euro area countries.
    Keywords: Inflation persistence, new hybrid Phillips curve, new member states, timevarying mean.
    JEL: E31 C22 C11 C32
    Date: 2007–12
  2. By: Guglielmo Maria CAPORALE,; Christophe Rault; Robert SOVA; Ana Maria SOVA
    Abstract: The expansion of regionalism has spawned an extensive theoretical literature analyzing the effects of Free Trade Agreements (FTAs) on trade flows. In this paper we focus on FTAs (also called European agreements) between the European Union (EU-15) and the Central and Eastern European countries (CEEC-4, i.e. Bulgaria, Hungary, Poland and Romania) and model their effects on trade flows by treating the agreement variable as endogenous. Our theoretical framework is the gravity model, and the econometric method used to isolate and eliminate the potential endogeneity bias of the agreement variable is the fixed effect vector decomposition (FEVD) technique.
    Keywords: Regionalisation, European integration, Panel data methods.
    JEL: E61 F13 F15 C25
    Date: 2008–03–01
  3. By: Miguel Rodríguez; Xavier Labandeira
    Abstract: This paper deals with the effects of emissions trading, a standard economic instrument to control greenhouse gas emissions, in a particular country. After distributing the Kyoto-mandated allocation among member states, the European Commission introduced a rather conventional emissions trading scheme in 2005. The extent of application of the market is limited, with only certain sectors being subject to it (mostly industries), and tradable permits are freely allocated. Both facts have important consequences in efficiency and distributional terms, also raising (normative) concerns on the actual and desirable regulatory approximation. The paper mainly focuses on the (positive) efficiency and distributional effects of the EU emissions trading system, with the use of a static general equilibrium model for the Spanish economy, also incorporating some hypothetical simulations (broader scope of the market, carbon taxation). The results indicate that the narrow scope of the EU emission trading market generates efficiency costs and relevant distributional effects.
    Date: 2007–12
  4. By: Anna Sanz de Galdeano
    Abstract: Obesity is not only a health but also an economic phenomenon with potentially important direct and indirect economic costs that are unlikely to be fully internalized by the obese. In the US, obesity prevalence is the highest among OECD countries and the issue has long been the focus of policy debate and academic research. However, European obesity rates are rising and there is still a lack of economic analysis of the obesity phenomenon in Europe. This paper attempts to fill in this gap by using longitudinal micro-evidence from the European Community Household Panel to assess the importance of several costs of obesity in nine EU countries. The analysis provides nationally comparable estimates of the costs of obesity in terms of health, use of health care services and absenteeism.
    Date: 2007–12
  5. By: António Afonso; Christophe Rault
    Abstract: We apply recent panel cointegration methods to a structural equation between government expenditure and revenue. Allowing for multiple endogenous breaks and after computing appropriate bootstrap critical values, we conclude for fiscal sustainability in the overall EU15 panel.
    Keywords: fiscal sustainability, EU, panel cointegration.
    JEL: C23 E62 H62
    Date: 2008–11–01
  6. By: Juan Piñeiro Chousa,; Artur Tamazian,; Davit N. Melikyan,
    Abstract: In this paper we propose an empirical model that considers theoretical facts on the relationship between real exchange rates and the net exports of the economy to supplement the interaction of a number of financial and economic factors with the stock market. We discuss the impact of exchange rate fluctuations on market risk in terms of Value at Risk (VaR). Our empirical findings show that common currency introduction produced increments in VaR whereas European stock returns are more sensitive to changes in competitiveness regarding the EMU rather than national exports. Finally, we show that the synchronisation of variation in competitiveness through the introduction of a single currency has made these changes more decisive in explaining financial market fluctuations.
    Keywords: Euro, Competitiveness, Market Risk, Net Export, Value-at-Risk, Volatility
    JEL: F33 G24 G28 O24
    Date: 2008–02–01
  7. By: Robert J. Sonora (Department of Economics, School of Business Administration, Fort Lewis College); Josip Tica (Faculty of Economics and Business, University of Zagreb)
    Abstract: In this paper we investigate purchasing power parity in the CEE and post-War former-Yugoslav states during EU integration process 1994-2006. This work stems from longer term tests of real exchange rate convergence in the former Yugoslavia. This period is of interest on two fronts: First, it investigates real exchange dynamics in the aftermath of war financed in part through seignorage; and second, we investigate the level of economic integration with the European Union following the break up of the former Yugoslavia. Given the short run nature of the available data we use panel unit root tests with and without structural breaks. Preliminary results suggest that real exchange rates between the former Yugoslav states and Germany are stationary when breaks are accounted for. Given the size of nominal shocks in the region, particularly in the early 1990s, preliminary results indicate that convergence to the long run equilibrium is relatively quick.
    Keywords: purchasing power parity, Economic Integration, panel unit root tests
    JEL: E31 F22
    Date: 2008–06–05
  8. By: Irene Andreou; Gilles Dufrenot; Alain Sand-Zantman; Aleksandra Zdzienicka-Durand
    Abstract: We propose a measure of the probability of crises associated with an aggregate indicator, where the percentage of false alarms and the proportion of missed signals can be combined to give an appreciation of the vulnerability of an economy. In this perspective, the important issue is not only to determine whether a system produces true predictions of a crisis, but also whether there are forewarning signs of a forthcoming crisis prior to its actual occurrence. To this end, we adopt the approach initiated by Kaminsky, Lizondo and Reinhart (1998), analyzing each indicator and calculating each threshold separately. We depart from this approach in that each country is also analyzed separately, permitting the creation of a more “custom-made” early warning system for each one.
    Keywords: Currency Crisis, Early Warning System, Composite Indicator, Eastern Europe.
    JEL: F31 F47
    Date: 2007–05–01
  9. By: John Bradley (EMDS - Economic Modelling and Development Strategies); Gerhard Untiedt (GEFRA - Gesellschaft fuer Finanz- und Regionalanalysen)
    Abstract: About one third of total EU budgetary resources are spent on implementing cohesion policy. Therefore, it is understandable that the European Commission and especially donor states (acting for the taxpayers) need to be reassured that their contributions are spent wisely and are being used effectively in achieving their stated goal of promoting growth and thereby reducing welfare differences throughout the Union. Different evaluation methods have been proposed to look at the likely impact of Structural Funds interventions ranging from macroeconometric models to case studies. Recently, evaluation results based on enhanced growth rate regressions with panel data have received wide interest. Ederveen et al. (2006, 2002) are two widely cited works that address the evaluation of the effectiveness of cohesion policy using the single equation, panel dataset approach. The results support a serious critique of cohesion policy, asserting that its effectiveness is conditional on country characteristics that may be in short supply in many poorer member states (e.g., the quality of public institutions), and that cohesion policies should not be implemented in the new member states unless the institutional capacities are installed. This paper takes a closer look at the Ederveen et al. results, mainly from three directions. Firstly, we discuss some issues concerning the general set-up of the database and the time period that was used, secondly show that their preferred regression seems mis-specified and instable concerning the countries included and the time period used and thirdly discuss in more general terms that the use of this methodology in the whole area of policy evaluation has been shown to be deeply flawed and to tell us nothing about the effectiveness of public policy. Our analysis of the methodology and results of Ederveen et al. drive us to the conclusions that the policy recommendations derived from this work are unsound, unwise and without merit. In particular, the recommendations concerning the new EU member states should not be based on an appeal to the cross-section regressions that are presented in their 2006 paper. In contrast, we propose two other approaches – the macroeconometric modelling approach and the microeconomic approach - which, if developed together, hold out the possibility of more robust and insightful analysis and conclusions. Only by looking deeper into the manner in which EU Cohesion Policy is actually designed and implemented, the manner in which national governments operate parallel regional policies with no reference to Brussels, and by making use of more searching and holistic models is it likely to be possible to deliver verdicts on whether or not the EU has a role in this important area of integration, and if the answer is “yes”, how that policy can be modified in light of the recent enlargements. Dogmatic conclusions reached in the literature, mainly negative, but the point also applies to supportive conclusions, are premature and almost certainly wrong.
    Date: 2008–05
  10. By: Gudrun Biffl (WIFO)
    Abstract: The European Union has developed a complex strategy and policy coordination process to promote gender equality in all community policies through "gender mainstreaming". While every member country has to promote the policy objective of gender equality, the instruments implemented to that end may differ. Different institutional structures and gender roles in the society may result in different outcomes of the same policy measure. Therefore every country has to choose those instruments best fitted to achieve gender equality. This paper outlines the various positions of the individual member countries relative to gender relations, with a special emphasis on Austria. Overall, it is the state and public sector institutions which tend to take a lead in implementing affirmative action programmes, in the main positive discrimination of women (quota regulations, targets) and enforcement of antidiscrimination legislation. Affirmative action programmes in private industry are not a universal feature in all EU countries. While gender equality is pursued as a moral issue in its own right, it is also an instrument to combat the negative impact of ageing of the European populations on welfare budgets and economic growth.
    Keywords: Gender Mainstreaming, equal opportunity, gender gap, models of social organisation, outsourcing of household production, gender segregation.
    Date: 2008–05–21
  11. By: Georg Gebhardt; Felix Höffler (Department of Econmics, University of Munich, Ludwigstr. 28 (Rgb), D-80539 Munich; Chair of Regulatory Economics, WHU - Otto Beisheim School of Management - Burgplatz 2, 56179 Vallendar , Germany)
    Abstract: Prices may differ between regional markets if transport capacities are limited. We develop a new approach to determine to which extent such differences stem from limited participation in cross-border trader rather than from bottlenecks. We derive a theoretical integration benchmark for the typical case where transportation markets clear before the product markets, using Grossman's (1976) notion of a rational expectations equilibrium. We compare the benchmark to data from European electricity markets. The data reject the integration hypothesis: Capacity prices contain too little information about spot price dierential; this indicates that well informed traders do not engage in cross-border trade.
    Keywords: Market integration, electricity markets, interconnector, competition policy, rational expectations equilibrium
    JEL: G14 D84 L94
    Date: 2008–05
  12. By: Hooper, E.; Medvedev, A.
    Abstract: The paper provides an overview of the generation of electricity in 10 countries in South East Europe during 1995-2004. Using the latest available statistics the potential of the nascent integration of the electricity markets in South East Europe is explored. We conduct a cross-country analysis of electricity production based on different types of fuel used. The region has a low level of gasification combined with few nuclear power generation facilities, while some countries heavily rely on hydro electric generation. Differences in countries’ resource endowment and the possibility of intertemporaral substitution between electricity generated from various fuels could stimulate a regional trade in electricity. Such trade could displace a proportion of the required investment in the construction of generation facilities, as an alternative to nationally independent energy policies. Finally, we consider the environmental impact of electricity generation, and identify some of the key trade-offs between different policy objectives.
    Keywords: Electricity, Generation, ECSEE
    JEL: L94 Q40 R12
    Date: 2008–01
  13. By: Georgios Marios Chrysanthou
    Abstract: Using a dynamic model of unionism and wage determination we find that the unobserved factors that influence union membership also affect wages. The estimates suggest that UK trade unions still play a non-negligible, albeit diminishing, role in wage formation. It appears that the greater impact of unobservables in determining individual union propensity concerning the second period under analysis, versus past unionisation experience, implies that those remaining in unions during (1997-2002) gain most from their sorting decision. The significant contribution of unobserved heterogeneity renders the total union wage differential highly variable across individuals. The endogeneity correction procedure employed yields a discernible pattern of the estimated union wage effect relative to OLS and Fixed effects. This is in line with Robinson (1989a) and Vella and Verbeek (1998) and refutes the pessimistic conclusions reached by Freeman and Medoff (1982) and Lewis (1986) that endogeneity correction methodologies do not contribute to our understanding of the union wage effect puzzle.
    Keywords: union status, union wage effects, unobserved heterogeneity, dynamic model of unionism and wage determination
    JEL: C33 J31 J51
    Date: 2008–05
  14. By: Kaplanoglou, G.; Newbery , D.M.
    Abstract: Non-uniform indirect taxes treat equals and those unequal differently (horizontal inequity and vertical redistribution). Horizontal inequity is caused by taste differences among similar households, but some excises are designed to reflect social, not revealed, preferences. We apply two methodologies for decomposing the overall redistributive effect of the present and three alternative indirect tax structures into vertical and horizontal effects for Greece, using the Household Expenditure Survey micro-database. In all cases the taste component is considerable, even when we allow for social preferences, while improvements in vertical redistribution can be achieved, albeit at the cost of increased horizontal inequity.
    Keywords: distributional effect of taxes, horizontal inequality, vertical redistribution, indirect tax reform, Greece.
    JEL: D63 H23 D30
    Date: 2008–01
  15. By: Francesco D'Amuri (Institute for Social and Economic Research); Gianmarco Ottaviano (Università di Bologna); Giovanni Peri (University of California)
    Abstract: We adopt a general equilibrium approach in order to measure the effects of recent immigration on the Western German labour market, looking at both wage and employment effects. Using the Regional File of the IAB Employment Subsample for the period 1987-2001, we find that the substantial immigration of the 1990’s had no adverse effects on native wages and employment levels. It had instead adverse employment and wage effects on previous waves of immigrants. This stems from the fact that, after controlling for education and experience levels, native and migrant workers appear to be imperfect substitutes whereas new and old immigrants exhibit perfect substitutability. Our analysis suggests that if the German labour market were as ‘flexible’ as the UK labour market, it would be more efficient in dealing with the effects of immigration.
    Keywords: employment, immigration, wages
    Date: 2008–04
  16. By: Dániel Holló (Magyar Nemzeti Bank); Mónika Papp (Magyar Nemzeti Bank)
    Abstract: This paper investigates the main individual driving forces of Hungarian household credit risk and measures the shockabsorbing capacity of the banking system in relation to adverse macroeconomic events. The analysis relies on survey evidence gathered by the Magyar Nemzeti Bank (MNB) in January 2007. Our study presents three alternative ways of modelling household credit risk, namely the financial margin, the logit and the neural network approaches, and uses these methods for stress testing. Our results suggest that the main individual factors affecting household credit risk are disposable income, the income share of monthly debt servicing costs, the number of dependants and the employment status of the head of the household. The findings also indicate that the current state of indebtedness is unfavourable from a financial stability point of view, as a relatively high proportion of debt is concentrated in the group of risky households. However, risks are somewhat mitigated by the fact that a substantial part of risky debt is comprised of mortgage loans, which are able to provide considerable security for banks in the case of default. Finally, our findings reveal that the shock-absorbing capacity of the banking sector, as well as individual banks, is sufficient under the given loss rate (LGD) assumptions (i.e. the capital adequacy ratio would not fall below the current regulatory minimum of 8 per cent) even if the most extreme stress scenarios were to occur.
    Keywords: financing stability, financial margin, logit model, neural network, stress test.
    JEL: C45 D14 E47 G21
    Date: 2008
  17. By: Schauten, M.B.J.; Dijk, D.J.C. van; Waal, J-P. van der (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: We examine the relation between the quality of corporate governance and the value of excess cash for large European firms (FTSEurofirst 300 Index). We use Deminor ratings for Shareholder rights, Takeover defences, Disclosure and Board as proxies for the quality of corporate governance. We find that the value of excess cash is positively related to the Takeover defences score only. It seems that governance mechanisms—except the market for corporate control—are not strong enough to prevent managers from wasting excess cash. For non-UK firms we find that the value of €1 of excess cash in a poorly governed firm is valued at only €0.89 while the value is €1.45 for a good governed firm. We show that poorly governed firms dissipate excess cash relatively quickly with a negative impact on their operating performance as a result.
    Keywords: corporate governance;excess cash;take-over defences
    Date: 2008–05–20
  18. By: Johannes Gernandt; Friedhelm Pfeiffer
    Abstract: This paper investigates the wage convergence between East German workers and their West German counterparts after reunification. Our research is based on a comparison of three groups of workers defined as stayers, migrants and commuters to West Germany, who lived in East Germany in 1989, with groups of West German statistical twin workers, all taken from the Socio-Economic Panel (SOEP). According to our findings, wage convergence for stayers is roughly 75 percent and for commuters 85 percent. Wages of migrants to West Germany equal the ones of their West German statistical twins. We conclude that labor markets in East and West Germany are still characterized by wage differences but that the degree of inequality in both regions converged.
    Keywords: Wage convergence, wage inequality, German unification, migration, commuting
    JEL: J31 J30 J61
    Date: 2008
  19. By: Serguei Kaniovski (WIFO); Hans Pitlik (WIFO); Sandra Steindl (WIFO); Thomas Url (WIFO)
    Abstract: The paper describes a model for the computation of trend output and the structural budget deficit in Austria. The calculation of trend output is based on a production function approach within a small macroeconomic model of the Austrian economy. A decomposition of public budgets into cyclical and structural components shows responsiveness to business cycle variations, and allows a better assessment of the sustainability of the budget balance. The model will be used in future forecasting rounds and links macroeconomic and budgetary variables of the WIFO Economic Outlook to estimates for trend output and the structural budget deficit. Until now, such decomposition has not been part of the regular WIFO forecast.
    Keywords: Austria, WIFO forecast, WIFO Economic Outlook, trend output, structual budget balance
    Date: 2008–04–11
  20. By: Oxana Babetskaia-Kukharchuk
    Abstract: This paper aims at estimating the exchange rate pass-through (ERPT) for the Czech Republic. The existing empirical literature does not come to a consensus about the degree of pass-through to Czech inflation. Since there is no unique approach regarding how to measure ERPT, we use various specifications found in the pass-through literature for the Czech Republic. In addition, we estimate the pass-through along the distribution chain in the spirit of McCarthy (2007). We try to explore the properties of exchange rate shock transmission into Czech consumer prices by comparing impulse responses among 11 specifications estimated on data transformed in monthly differences and in annual rates. Equilibrium pass-through is estimated with the help of the VEC model. In addition, we try to account for possible variation in time. The simplest approach is a re-estimation of VAR models on two sub-periods. Our second strategy is the estimation of the error correction equation with the Kalman filter. Finally, we explore how the pass-through differs between tradable (3 sub-groups) and non-tradable goods. We find that the speed of exchange rate shock transmission to all prices is quite high. However, in absolute terms, ERPT does not exceed 25 – 30%.
    Keywords: Exchange rate pass-through, inflation, Kalman filter, VAR, VECM.
    JEL: E31 E52 E58 F31
    Date: 2007–12
  21. By: Markus Jantti; Eva Sierminska; Tim Smeeding
    Abstract: This report looks at the extent to which household net worth and disposable income are correlated across individuals. After having briefly discussed the importance of better information on household wealth for social policies, the paper describes the main features of the Luxembourg Wealth Study – a collaborative project to assemble existing micro-data on household wealth into a coherent database that aims to do for wealth what the Luxembourg Income Study has achieved for income– and some of the basic patterns highlighted by these data, while noting the important methodological features that affect comparability. The main bulk of the report focuses on the joint distribution of income and wealth. While the comprehensive definition of wealth used (i.e. including business equity) allows covering only five OECD countries, the analysis uncovers a number of patterns. In particular, household net worth and disposable income are highly, but not perfectly correlated across people within each country. Many of the people classified as income poor do have some assets, although both the prevalence of holding and the amounts are clearly lower than among the general population. While part of the positive association between disposable income and net worth reflects observable characteristics of households, such as age and education of the household head, a sizeable correlation remains even after controlling for these characteristics. <BR>Ce rapport examine la corrélation entre le patrimoine des ménages et leur revenu disponible. Après avoir brièvement évoqué l’importance d’une meilleure information sur les patrimoines pour les politiques sociales, le document décrit les principales caractéristiques du Luxembourg Wealth Study (LWS) – un projet mené pour réunir les micro-données existantes sur le patrimoine des ménages dans une base de données cohérente, visant à accomplir pour les patrimoines ce que le Luxembourg Income Study (LIS) a réussi pour les revenus. Le rapport décrit quelques aspects fondamentaux mis en relief par ces données, tout en notant les caractéristiques méthodologiques qui ont un effet sur la comparabilité internationale. La partie centrale du rapport se concentre sur la distribution conjointe du patrimoine et du revenu. Alors que la définition du patrimoine utilisée (incluant les actifs professionnels) permet de couvrir seulement cinq pays de l’OCDE, l’analyse révèle un nombre d’éléments. La corrélation entre patrimoine et revenu disponible des individus dans chaque pays est élevée mais pas pour autant parfaite. Beaucoup de personnes ayant un revenu inférieur au seuil de pauvreté ont un patrimoine positif, bien que les personnes dans cette situation et les montants détenus soient clairement plus faibles que pour la population dans son ensemble. Si une partie de la corrélation positive entre revenu et patrimoine révèle des caractéristiques observables des ménages, telles que l’âge et l’éducation des chefs de famille, il n’en demeure pas moins qu’une corrélation non négligeable subsiste même après avoir contrôlé l’effet de ces caractéristiques.
    JEL: D3 I3
    Date: 2008–05–28
  22. By: Panayiotis P. Athanasoglou (Bank of Greece); Ioanna C. Bardaka (Bank of Greece)
    Abstract: This paper develops a demand function for Greece’s exports of manufactures according to New Trade Theory. The sample covers a rather long period of four decades with exports aggregated based on industrial rather than on trade classification. The study contributes to a better understanding of the effects of export prices, domestic and competitors’, as well as of non-price competitiveness approximated with capital stock, on export performance. The empirical estimation uses the Johansen maximum likelihood approach in the long run and a dynamic errorcorrection equation in the short run. The estimated long-run and short-run relationships follow the economic theory and are remarkably stable. It is shown that non-price competitiveness plays a vital role in explaining export performance in the long run as well as in the short run and that failure to include it in the export equation may lead to mis-specification error. As opposed to conventional models of export demand where income effects are very high, in the present study foreign income has a moderately high effect on exports in the long run and no effect in the short run. Exports are also sensitive to domestic and competitors’ prices in the long run, but cost and price competitiveness elasticities are close to one, indicating that Greek exporters have some ability to compete on the basis of prices.
    Keywords: Export demand; price and non-price competitiveness; new trade theory; vector autoregressive error correction model
    JEL: C22 F12
    Date: 2008–04
  23. By: Assenmacher-Wesche, K.; Pesaran, M.H.
    Abstract: This paper applies the modelling strategy of Garratt, Lee, Pesaran and Shin (2003) to the estimation of a structural cointegrated VAR model that relates the core macroeconomic variables of the Swiss economy to current and lagged values of a number of key foreign variables. We identify and test a long-run structure between the variables. Moreover, we analyse the dynamic properties of the model using Generalised Impulse Response Functions. In its current form the model can be used to produce forecasts for the endogenous variables either under alternative specifications of the marginal model for the exogenous variables, or conditional on some pre-specified path of those variables (for scenario forecasting). In due course the Swiss VECX* model can also be integrated within a Global VAR (GVAR) model where the foreign variables of the model are determined endogenously.
    Keywords: Long-run structural vector autoregression.
    JEL: C53 C32
    Date: 2008–02
  24. By: Mika Pajarinen; Pekka Ylä-Anttila
    Abstract: ABSTRACT : This paper is a part of larger research project on the role of the 30 largest firms in the Nordic countries. By examining the changes in the role of top 30 firms in the Finnish economy we aim to reveal some essential features of the structural transformation in the economy. From the national economy point of view these firms are in a crucial position. Almost all of them are multinationals, operate in several countries, and make influential decisions on trade and location of production. The analysis suggests that top 30 firms account for a substantial portion of business sector employment and value added in Finland. Moreover, the role of these large companies is particularly significant in foreign direct investment and in research and development. Our data however indicate that their role in the Finnish economy in terms of output and employment shares seems to have decreased during the recent decades. Yet, it is an open question to what extent large firms have reorganized their operations in such a way that they do not directly show up in their own output and employment data.
    Keywords: multinational firms, international business, structural change
    JEL: F23 L25 O12
    Date: 2008–06–05

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