nep-eec New Economics Papers
on European Economics
Issue of 2009‒05‒02
23 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Inflation Differentials in the Euro Area and Their Determinants - An Empirical View By Václav Zdárek; Juan Ignacio Aldasoro
  2. Corporate Effective Tax Rates in an Enlarged European Union By Christina Elschner; Werner Vanborren
  3. From Subprime Loans to Subprime Growth? Evidence for the Euro Area By Martin Cihák; Petya Koeva Brooks
  4. Fiscal Behaviour in the European Union: Rules, Fiscal Decentralization and Government Indebtedness By António Afonso and Sebastian Hauptmeier
  5. Global Imbalances: The Role of Non-TradableTotal Factor Productivity in Advanced Economies By Nicoletta Batini; Pietro Cova; Massimiliano Pisani; Alessandro Rebucci
  6. Business Cycles in the Euro Area Defined with Coincident Economic Indicators and Predicted with Leading Economic Indicators By Ataman Ozyildirim; Brian Schaitkin; Victor Zarnowitz
  7. Structural Reforms and the Benefits of the Enlarged EU Internal Market: Much Achieved and Much to Do By Jens Arnold; Peter Hoeller; Margaret Morgan; Andreas Wörgötter
  8. Geographic Mobility in the European Union: Optimising its Economic and Social Benefits By Holger Bonin; Werner Eichhorst; Christer Florman; Mette Okkels Hansen; Lena Skiöld; Jan Stuhler; Konstantinos Tatsiramos; Henrik Thomasen; Klaus F. Zimmermann
  9. The two sides of a ghost: Twenty years without the wall By Migheli, Matteo
  10. International Taxation and Multinational Firm Location Decisions By Salvador Barrios; Luc Laeven; Harry Huizinga; Gaetan Nicodeme
  11. Composition of government investment in Europe: Some forensic evidence By Gonzalez Alegre, Juan; Kappeler, Andreas; Kolev, Atanas; Valila, Timo
  12. Fiscal and Monetary Policy During Downturns: Evidence from the G7 By Daniel Leigh; Sven Jari Stehn
  13. Five Years After: European Union Membership and Macro-Financial Stability in the New Member States By Martin Cihák; Wim Fonteyne
  14. The Second Transition: Eastern Europe in Perspective By Ashoka Mody; Daniel Leigh; Stefania Fabrizio
  15. Forces Driving Inflation in the New EU10 Members By Emil Stavrev
  16. Commodity Price Volatility, Cyclical Fluctuations, and Convergence: What is Ahead for Inflation in Emerging Europe? By Edda Zoli
  17. Foreign Banks in the CESE Countries: In for a Penny, in for a Pound? By Andrea M. Maechler; Li L. Ong
  18. Performance and Merton-Type Default Risk of Listed Banks in EU: a panel VAR approach By Anastasia Koutsomanoli-Filippaki; Emmanuel Mamatzakis
  19. Behavioral and Permanent Zloty/Euro Equilibrium By Joanna Beza-Bojanowska
  20. The Italian Labor Market: Recent Trends, Institutions, and Reform Options By Martin Schindler
  21. Report on trends in the Italian productive system By Andrea Brandolini; Matteo Bugamelli; Guglielmo Barone; Antonio Bassanetti; Magda Bianco; Emanuele Breda; Emanuela Ciapanna; Federico Cingano; Francesco D’Amuri; Leandro D’Aurizio; Virginia Di Nino; Stefano Federico; Andrea Generale; Federica Lagna; Francesca Lotti; Giuliana Palumbo; Enrico Sette; Bruna Szego; Alessandra Staderini; Roberto Torrini; Roberta Zizza; Francesco Zollino; Stefania Zotteri
  22. Outward FDI Effects on the Portuguese Trade Balance 1996-2007 By Miguel Fonseca, António Mendonça and José Passos
  23. The Macroeconomic Effects of Fiscal Policy in Portugal: a Bayesian SVAR Analysis By António Afonso and Ricardo M. Sousa

  1. By: Václav Zdárek; Juan Ignacio Aldasoro
    Abstract: In this paper, we present evidence on the statistical features of observed dispersion in HICP inflation rates in the Euro area. Our descriptive exercise shows that there is still a remarkable dispersion of HICP inflation rates across the member countries. We find that most of dispersion originates in the non-traded categories of the HICP. This suggests that the main source of dispersion in countries’ headline inflation rates is in those components of the HICP where non-traded goods (services, (public) goods with regulated and administered prices) are more intensely represented. We then examine the determinants of inflation differentials in a panel of the states of the Euro area in 1999–2007 using alternative classifications of this group and three different datasets. The evidence presented shows that output gaps and a proxy for price level convergence were statistically significant. On the other hand, some determinants that were found significant in previous studies (for example Honohan and Lane 2003, 2004; ECB, 2003) has no impact on inflation in our expanded time span (e.g. exchange rate movements) The dispersion of HICP inflation is expected to increase in the coming years as the new EU member states will join the Euro area. There are some risks for these countries connected with the common monetary policy, which is adjusted more to the conditions of stabilized advanced economies forming the core of the Euro area. This creates potential problems for the EU common monetary policy (ECB), in particular negative (positive) interest rates, their repercussions on investment processes, consumption and the possibility of creating asset bubbles.
    Keywords: inflation differentials, price convergence, exchange rate, panel data
    JEL: C23 E31 F15 F41
    Date: 2009–03
  2. By: Christina Elschner (University of Mannheim, Germany); Werner Vanborren (European Commission)
    Abstract: This paper offers an assessment of European corporate tax regimes using forward-looking indicators for corporate investment based on the Devereux-Griffith methodology. It draws on time series of average effective tax rates (EATR) using a detailed set of tax parameters for 27 EU Member States as well as some important non-EU countries. The analysis shows that over time the reduction in the corporate effective average tax rates (EATR) was lower than for the corporate statutory rates and the figures suggest that simple corporate tax base broadening by means of less generous capital allowances is not a sufficient explanation for this phenomenon. Finally, it is shown that the tax gap between the old and new EU Member States has grown over time and even accelerated after accession.
    Keywords: European Union, effective tax rate, effective tax burden, corporate taxation, company taxation.
    JEL: H25
    Date: 2009–04
  3. By: Martin Cihák; Petya Koeva Brooks
    Abstract: The global financial crisis has highlighted the potential of financial conditions for influencing real economic activity. We examine the linkages between the financial and real sectors in the euro area, finding that (i) bank loan supply responds negatively to declines in bank soundness; (ii) a cutback in bank loan supply has a negative impact on economic activity; (iii) a positive shock to the corporate bond spread lowers industrial output; and (iv) risk indicators for the banking, corporate, and public sectors show an improvement beginning in 2002–03, followed by a major deterioration since 2007. These estimates imply that the currently estimated bank losses would subtract some 2 percentage points from the euro area output (but with considerable uncertainty around the estimates).
    Keywords: Credit risk , Euro Area , Financial sector , Real sector , Banking , Demand for money , Interest rates , Financial risk , Economic models ,
    Date: 2009–03–27
  4. By: António Afonso and Sebastian Hauptmeier
    Abstract: We assess the fiscal behaviour in the European Union countries for the period 1990- 2005 via the responsiveness of budget balances to several determinants. The results show that the existence of effective fiscal rules, the degree of public spending decentralization, and the electoral cycle can impinge on the country’s fiscal position. Furthermore, the results also support the responsiveness of primary balances to government indebtedness. Key words: fiscal regimes, fiscal rules, fiscal decentralization, European Union, panel data
    JEL: C23 E62 H62
    Date: 2009–03
  5. By: Nicoletta Batini; Pietro Cova; Massimiliano Pisani; Alessandro Rebucci
    Abstract: This paper investigates the role played by total factor productivity (TFP) in the tradable and nontradable sectors of the United States, the euro area, and Japan in the emergence and evolution of today's global trade imbalances. Simulation results based on a dynamic general equilibrium model of the world economy, and using the EU KLEMS database, indicate that TFP developments in these economies can account for a significant fraction of the total deterioration in the U.S. trade balance since 1999, as well as account for some the surpluses in the euro area and Japan. Differences in TFP developments across sectors can also partially explain the evolution of the real effective value of the U.S. dollar during this period.
    Keywords: Payments imbalances , United States , European Union , Japan , Developed countries , Productivity , Balance of trade , Economic models , Time series , Cross country analysis ,
    Date: 2009–03–24
  6. By: Ataman Ozyildirim (The Conference Board); Brian Schaitkin (The Conference Board); Victor Zarnowitz (The Conference Board)
    Abstract: Clusters of cyclical turning points in the coincident indicators help us identify and date Euro Area recessions and recoveries in the past several decades. In the U.S. and some other countries, composite indexes of coincident indicators (CEI) are used to date classical business cycle turning points; also indexes of leading indicators (LEI) are used to help in the difficult task of predicting these turning points. This paper reviews a selection of the available data for monthly and quarterly Euro Area coincident and leading indicators. From these data, we develop composite indexes using methods analogous to those tested in the U.S. CEI and LEI published by The Conference Board. We compare the resulting business cycle chronology with the existing alternatives and evaluate our selection of leading indicators in the context of how well they predict current economic activity and its major fluctuations for the Euro Area.
    Keywords: Business Cycle; Indicators; Leading Index; Times Series; Forecasting
    JEL: E32 C52 C53 C22
    Date: 2008–11
  7. By: Jens Arnold; Peter Hoeller; Margaret Morgan; Andreas Wörgötter
    Abstract: High expectations surrounded the two waves of eastward EU enlargement in 2004 and 2007, with the extension of the EU Internal Market being expected to deliver a substantial boost to economic growth in new and old member States alike. Indeed, considerable progress has been made, with existing evidence pointing to increased trade and FDI flows, enhanced east-west migration and a more stable macroeconomic environment. However, completion of the internal market is progressing at an uneven pace, and comparatively less progress can be seen in services industries, which provide over two-thirds of jobs and value added in the economy. Empirical estimates suggest that competition and trade-enhancing reforms in services industries could generate substantial productivity improvements across EU member economies. Over a period of 10 years, the predicted increase in labour productivity resulting from a bold reform package is around 10% for the average EU country, and new member States stand to gain even more. In addition to service-sector reform, priorities towards a more integrated EU internal market should include removing remaining barriers to labour mobility, improving transport infrastructure, mutual recognition of qualifications, and enhanced market integration of network industries. Finally, a more explicit use of benchmarking may help to enhance the momentum of future internal market reforms.<P>Les réformes structurelles et les avantages du marché intérieur élargi de l’UE : Beaucoup a été fait, mais beaucoup reste à faire<BR>On attendait beaucoup des deux vagues d’élargissement de l’UE à l’est en 2004 et 2007, et le développement du marché intérieur de l’UE devait grandement dynamiser la croissance économique dans les nouveaux et dans les anciens États membres. Effectivement, d’énormes progrès ont été accomplis, les données actuelles indiquant une intensification des échanges et des flux d’IDE, un renforcement des migrations est-ouest et un environnement macroéconomique plus stable. Mais l’achèvement du marché intérieur progresse à un rythme inégal et on a comparativement moins avancé dans les activités de services, qui représentent plus des deux tiers des emplois et de la valeur ajoutée dans l’économie. Les simulations effectuées à partir d’un modèle empirique montrent que des réformes qui amélioreraient la concurrence et renforceraient les échanges dans les activités de services pourraient se traduire par des gains substantiels de productivité dans les États membres de l’UE. Sur une période de dix ans, la croissance prédite de la productivité du travail qui résulterait d’un ambitieux programme de réformes est de l’ordre de 10 % pour le pays moyen de l’UE, et les nouveaux États membres tireraient encore davantage profit de ces réformes. De plus, les priorités de la réforme structurelle en vue d’un marché intérieur de l’UE plus intégré devraient être les suivantes : l’élimination des obstacles qui subsistent à la mobilité des travailleurs, l’amélioration des infrastructures de transport, la reconnaissance mutuelle des qualifications et une intégration plus étroite des marchés dans les industries de réseau. Enfin, une utilisation plus explicite de l’évaluation comparative pourrait contribuer à accélérer les réformes futures concernant le marché intérieur.
    Keywords: productivity, croissance économique, productivité, réglementation, réforme structurelle, regulation, integration, intégration, structural reforms, economic growth
    JEL: D24 E23 F15 K23 L11 L51
    Date: 2009–04–24
  8. By: Holger Bonin (IZA); Werner Eichhorst (IZA); Christer Florman (AMS); Mette Okkels Hansen (NIRAS); Lena Skiöld (AMS); Jan Stuhler (IZA); Konstantinos Tatsiramos (IZA); Henrik Thomasen (NIRAS); Klaus F. Zimmermann (IZA)
    Abstract: Joint expertise with NIRAS Consultants and AMS for the European Commission
    Date: 2008–07
  9. By: Migheli, Matteo
    Abstract: This paper compares individual preferences for a market economy in Western and Eastern Europe over more than one decade, since the fall of Berlin Wall. The aim is to understand whether preferences in the two blocks have converged towards the current orientation of the EU's economic policy: a market economy, where the Government decides the rules, but does not enter the game directly. This is important as in a democratic system the approved guidelines need the support of the population to be fully effective and not reversed by a change of the government. In the EU the integration process is still going on, especially since the entrance of several Eastern countries. This paper shows that Eastern and Western Europeans have different preferences: the first would like a larger direct intervention of the public hand in the economy, while the second prefer a more private-oriented market than their Eastern peers. In addition for the citizens of ex-soviet countries, the concept of "competition" seems to represent more the new ideology that defeated the communism rather than a real market mechanism. Nevertheless some convergence emerges from data, especially during the last years, i.e. after the negative impact of transition over Eastern economies left the place to a beneficial recovery.
    Keywords: transition, Eastern Europe, Western Europe, people's support, market economy
    JEL: D40 O57 P36
    Date: 2009–04
  10. By: Salvador Barrios (European Commission); Luc Laeven (International Monetary Fund); Harry Huizinga (Tilburg University); Gaetan Nicodeme (European Commission)
    Abstract: Using a large international firm-level data set, we estimate separate effects of host and parent country taxation on the location decisions of multinational firms. Both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries. In fact, the impact of parent country taxation is estimated to be relatively large, possibly reflecting its international discriminatory nature. For the cross-section of multinational firms, we find that parent firms tend to be located in countries with a relatively low taxation of foreign-source income. Overall, our results show that parent-country taxation ? despite the general possibility of deferral of taxation until income repatriation ? is instrumental in shaping the structure of multinational enterprise.
    Keywords: European Union, corporate taxation, dividend withholding taxation, location decisions.
    JEL: H25
    Date: 2009–04
  11. By: Gonzalez Alegre, Juan (European University Institute); Kappeler, Andreas (European Investment Bank, Economic and Financial Studies); Kolev, Atanas (European Investment Bank, Economic and Financial Studies); Valila, Timo (European Investment Bank, Economic and Financial Studies)
    Abstract: We set out to decompose government investment, seeking especially to estimate how much governments in Europe invest in infrastructure in general and transport infrastructure in particular. It is concluded that infrastructure accounts for about one-third of overall government investment in the EU on average, with the share of transport investment as high as 80 percent in government infrastructure investment. These shares have remained quite stable in the past decades, so government transport investment has not suffered from excessive swings, slides or sudden stops - at least relative to other types of government investment. Whether that has been economically optimal is an altogether different issue, to be addressed elsewhere.
    Keywords: Government investment; infrastructure investment; fiscal federalism; transport infrastructure; fiscal position
    JEL: H54 H62 H77
    Date: 2008–07–18
  12. By: Daniel Leigh; Sven Jari Stehn
    Abstract: This paper analyzes how fiscal and monetary policy typically respond during downturns in G7 countries. It evaluates whether discretionary fiscal responses to downturns are timely and temporary, and compares the response of fiscal policy to that of monetary policy. The results suggest that while responding more weakly and less quickly than monetary policy, discretionary fiscal policy is more timely than conventional wisdom would suggest, particularly in “Anglo-Saxon†countries, but the response differs substantially across fiscal instruments. Both fiscal and monetary policy are found to be subject to an easing bias, with more easing during downturns than tightening during upturns; and liable to easing in response to erroneously perceived downturns, many of which are subsequently revised to expansions.
    Keywords: Fiscal policy , Group of seven , Monetary policy , Government expenditures , Revenues , Economic stabilization , Economic models , Cross country analysis ,
    Date: 2009–03–19
  13. By: Martin Cihák; Wim Fonteyne
    Abstract: The proximity of the European Union, the prospect of membership, and actual entry by the New Member States (NMS) increased economic and financial integration in the region, leading to fast economic growth based on sizeable capital inflows. EU membership helped in developing sound macroeconomic and financial stability frameworks in the NMS. However, these frameworks remain work in progress and as such could not safeguard against private sector exuberance or risky policies, especially in the face of an unprecedented global financial crisis. Hence, more prudent policies and further strengthening of policy frameworks, especially with respect to financial stability, seem warranted.
    Keywords: Financial stability , European Union , Eastern Europe , Economic integration , Economic growth , Exchange rates , Price stabilization , Payments imbalances , Financial crisis , Crisis prevention , Cross country analysis ,
    Date: 2009–03–27
  14. By: Ashoka Mody; Daniel Leigh; Stefania Fabrizio
    Abstract: The countries of Eastern Europe achieved two remarkable transitions in the short period of the last two decades: from plan to market and, then, in the run-up to and entry into the European Union, they rode a wave of global trade and financial market integration. Focusing on the second transition, this paper reaches three conclusions. First, by several metrics, East European and East Asian growth performances were about on par from the mid-1990s; both regions far surpassed Latin American growth. Second, the mechanisms of growth in East Europe and East Asia were, however, very different. East Europe relied on a distinctive-often discredited-model, embracing financial integration with structural change to compensate for appreciating real exchange rates. In contrast, East Asia contained further financial integration and maintained steady or depreciating real exchange rates. Third, the ongoing financial turbulence has, thus far, not had an obviously differential impact on emerging market regions: rather, the hot spots in each region reflect individual country vulnerabilities. If the East European growth model is distinctive, is it sustainable and replicable? The paper speculates on the possibilities.
    Keywords: Transition economies , Eastern Europe , Emerging markets , Economic growth , International trade , Economic integration , European Union , Cross country analysis ,
    Date: 2009–03–17
  15. By: Emil Stavrev
    Abstract: The paper analyzes the forces driving inflation in the new EU10 member countries. A significant part of headline inflation in these countries is due to common factors, such as price level convergence and EU integration. However, idiosyncratic factors have also played a role in the inflation process. These factors are related to the country-specific financial conditions, pass-through from foreign prices, and demand-supply situation in each country, although administered price adjustments and increases of indirect taxes associated with EU accession are also likely to have played a role.
    Keywords: Inflation , European Union , Economic integration , Economic models , Cross country analysis ,
    Date: 2009–03–19
  16. By: Edda Zoli
    Abstract: This paper assesses the role of international commodity prices, cyclical fluctuations, and convergence in driving inflation in 18 European emerging economies. Country specific VARs and panel estimates indicate that international commodity price shocks have a significant impact on domestic inflation, but the inflation response is asymmetric for positive and negative shocks. Cyclical fluctuations explain a relative small share of inflation variability, and the inflation response is asymmetric during upturns and downturns. Price convergence is estimated to add nearly 3 percentage points to headline inflation, for the average country whose price level is about 50 percent relative to the EU-15 average.
    Keywords: Commodity prices , Emerging markets , Commodity price fluctuations , Inflation , Economic models , Time series , Cross country analysis ,
    Date: 2009–03–17
  17. By: Andrea M. Maechler; Li L. Ong
    Abstract: The aim of this paper is to construct a comprehensive and consistent dataset to analyze the potential risks from foreign bank lending, for both the creditor and borrower countries of Central, Eastern and South-Eastern Europe (CESE). We develop a picture of bank claims on 13 CESE countries by combining credit statistics from several sources. Our constructed data suggest that some of these host countries have become more at risk from a sudden withdrawal of short-term external funding, while home countries have significant aggregate exposures to the region. Overall, we find that data on banking activity remain largely inadequate for surveillance and policymaking purposes, and that a concerted effort to improve data collection is needed at the international level.
    Keywords: Banks , Central and Eastern Europe , Southern Europe , Banking , Foreign investment , Private sector , Emerging markets , Economic integration , Spillovers , Data collection , Cross country analysis ,
    Date: 2009–03–19
  18. By: Anastasia Koutsomanoli-Filippaki (Council of Economic Advisors, Ministry of Economy and Finance, Greece); Emmanuel Mamatzakis (Department of Economics, University of Macedonia)
    Abstract: This paper provides empirical evidence that sheds new light into the dynamic interactions between risk and efficiency, a highly debated issue in the literature. Using a large panel data set that includes 251 listed banks operating in the enlarged European Union over the period 1998 to 2006 this study exploits a three-step procedure. First, we estimate three alternative measures of bank performance, based on alternative efficiency definitions, by employing a directional distance function framework, along with a cost frontier and a profit function. As a second step, we calculate a Merton type bank default risk, based on the Black and Scholes (1973) option pricing theory. Then, we employ a Panel-VAR analysis, which allows the examination of the underlying relationships between efficiency and risk without applying any a-priori restrictions. Most evidence shows that the effect of a one standard deviation shock of the distance to default on inefficiency is negative and substantial. There is some evidence of a reverse causation, but the impact of a shock in bank inefficiency on risk is small and lasts for a short period of time. As part of a sensitivity analysis, we extent our study to investigate the relationship between efficiency and default risk for banks with different types of ownership structures and across financial systems with different levels of development.
    Keywords: bank inefficiency, default risk, panel VAR, causality.
    JEL: G21 G28 D21
    Date: 2009–04
  19. By: Joanna Beza-Bojanowska (National Bank of Poland)
    Abstract: Poland is expected to enter the Exchange Rate Mechanism II (ERM II). The European Central Bank recommends that the ERM II central rate should reflect the best possible assessment of the equilibrium exchange rate. Since the equilibrium rate is changing in time, it is important to identify the pushing and pulling forces of the exchange rate. This knowledge will let the authorities to defend only the exchange rate that is in equilibrium and to assess outcomes of their actions. We use the VEC approach of Johansen to estimate the behavioral equilibrium exchange rate and to identify the pushing forces of the Polish zloty/euro rate. We apply the Gonzalo-Granger decomposition to calculate the permanent equilibrium exchange rate and to identify the pulling forces of the zloty exchange rate. We demonstrate that this approach may be useful for Polish authorities while entering the ERM II as well as within that mechanism.
    Keywords: equilibrium exchange rate, cointegration analysis, Gonzalo- Granger decomposition, ERM II
    JEL: C32 C51 F31
    Date: 2009–02–25
  20. By: Martin Schindler
    Abstract: Despite improvements in labor market performance over the past decade, owing in part to past reforms, Italy's employment and productivity outcomes continue to lag behind those of its European peers. This paper reviews Italy's institutional landscape and labor market trends from a cross-country perspective, and discusses possible avenues for further reform. The policy discussion draws on international reform experience and on simulations based on a calibrated labor market matching model. A key lesson is that the details of reform design, and the sequencing of reforms, matter greatly for labor market outcomes and for the fiscal costs associated with these reforms.
    Keywords: Labor markets , Italy , Labor market reforms , Labor productivity , Wages , Fiscal policy , Economic models , Cross country analysis ,
    Date: 2009–03–18
  21. By: Andrea Brandolini (Banca d'Italia); Matteo Bugamelli (Banca d'Italia); Guglielmo Barone (Banca d'Italia); Antonio Bassanetti (Banca d'Italia); Magda Bianco (Banca d'Italia); Emanuele Breda (Banca d'Italia); Emanuela Ciapanna (Banca d'Italia); Federico Cingano (Banca d'Italia); Francesco D’Amuri (Banca d'Italia); Leandro D’Aurizio (Banca d'Italia); Virginia Di Nino (Banca d'Italia); Stefano Federico (Banca d'Italia); Andrea Generale (Banca d'Italia); Federica Lagna (Banca d'Italia); Francesca Lotti (Banca d'Italia); Giuliana Palumbo (Banca d'Italia); Enrico Sette (Banca d'Italia); Bruna Szego (Banca d'Italia); Alessandra Staderini (Banca d'Italia); Roberto Torrini (Banca d'Italia); Roberta Zizza (Banca d'Italia); Francesco Zollino (Banca d'Italia); Stefania Zotteri (Banca d'Italia)
    Abstract: In the last decade the Italian economy has underperformed compared both with the previous decades and with the main European countries. It is widely acknowledged that this evolution reflects unresolved structural problems, which have become more urgent in view of the major changes in the world economy (the new technological paradigm, globalization, European economic integration). The goal of the Report is to make a critical survey of all the empirical analyses on the Italian economy and to derive policy suggestions. The evolution of Italy’s productive system is examined from a long-run perspective, highlighting weaknesses and possible signs of recovery and elaborating on the systemic features that may have negatively affected growth performance directly or indirectly through the above exogenous shocks. The focus, mostly but not exclusively microeconomic, emphasizes the considerable heterogeneity of firms, a crucial element for identifying the factors that affect economic growth.
    Keywords: growth, productivity, market structure, firm heterogeneity
    JEL: D20 O52 P42
    Date: 2009–04
  22. By: Miguel Fonseca, António Mendonça and José Passos
    Abstract: Given the increased internationalisation of the Portuguese economy through outward Foreign Direct Investment (FDI), particularly on the Portuguese-speaking countries, our main objective is to discuss the empirical relationship between this outward FDI and trade. We use panel data analysis within a framework of gravity equations for exports and imports, with a sample composed by EU-15, U.S.A., Brazil, Angola, Japan and China, for the period 1996-2007. Our main conclusion is that the empirical evidence for Portugal is consistent with a substitution hypothesis between direct investment abroad and trade, and consequently we detect a negative trade balance effect with the majority of countries in our sample, excepting Angola and, in a lesser extension, Spain.
    Keywords: Foreign Direct Investment, Trade, Gravity Model, Portugal.
    JEL: F21 C23 F14
    Date: 2009–03
  23. By: António Afonso and Ricardo M. Sousa
    Abstract: In the last twenty years Portugal struggled to keep public finances under control, notably in containing primary spending. We use a new quarterly dataset covering 1979:1-2007:4, and estimate a Bayesian Structural Autoregression model to analyze the macroeconomic effects of fiscal policy. The results show that positive government spending shocks, in general, have a negative effect on real GDP; lead to important “crowding-out” effects, by impacting negatively on private consumption and investment; and have a persistent and positive effect on the price level and the average cost of financing government debt. Positive government revenue shocks tend to have a negative impact on GDP; and lead to a fall in the price level. The evidence also shows the importance of explicitly considering the government debt dynamics in the model. Finally, a VAR counter-factual exercise confirms that unexpected positive government spending shocks lead to important “crowding-out” effects..
    Keywords: B-SVAR, fiscal policy, debt dynamics, Portugal.
    JEL: E37 E62 H62 G10
    Date: 2009–03

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