nep-eec New Economics Papers
on European Economics
Issue of 2022‒12‒12
twelve papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Forecasting the Stability and Growth Pact compliance using Machine Learning By Kea Baret; Amelie Barbier-Gauchard; Theophilos Papadimitriou
  2. Income inequality and the German export surplus By Ansgar Rannenberg; Thomas Theobald
  3. How do Economies in EU-CEE Cope with Labour Shortages? By Vasily Astrov; Richard Grieveson; Doris Hanzl-Weiss; Sebastian Leitner; Isilda Mara; Hermine Vidovic; Zuzana Zavarská
  4. Inflation Persistence in Europe: The Effects of the Covid-19 Pandemic and of the Russia-Ukraine War By Guglielmo Maria Caporale; Juan Infante; Luis A. Gil-Alana; Raquel Ayestaran
  5. European firms, Panic Borrowing and Credit Lines Drawdowns: What did we learn from the COVID-19 shock? By Mario Cerrato; Hormoz Ramian; Shengfeng Mei
  6. Sectoral effects of exchange rate shocks: Goods exports and the appreciation of the Swiss Franc in 2015 By Brunhart, Andreas; Geiger, Martin
  7. The Impact of Patent Applications on Technological Innovation in European Countries By Leogrande, Angelo; Costantiello, Alberto; Laureti, Lucio
  8. Pension Reform Preferences in Germany: Does Information Matter? By Jana Schuetz; Silke Uebelmesser; Ronja Baginski; Carmela Aprea
  9. Economic and Social Impacts of FDI in Central, East and Southeast Europe By Doris Hanzl-Weiss; Branimir Jovanović
  10. R&D and Productivity in Finnish Firms By Valmari, Nelli
  11. The Migration Crisis in the Local News: Evidence from the French-Italian Border By Silvia Peracchi
  12. Evaluating heterogeneous effects of housing-sector-specific macroprudential policy tools on Belgian house price growth By Lara Coulier; Selien De Schryder

  1. By: Kea Baret (University of Strasbourg); Amelie Barbier-Gauchard (University of Strasbourg); Theophilos Papadimitriou (Democritus University of Thrace)
    Abstract: Since the reinforcement of the Stability and Growth Pact (1996), the European Commission closely monitors public finance in the EU members. A failure to comply with the 3% limit rule on the public deficit by a country triggers an audit. In this paper, we present a Machine Learning based forecasting model for the compliance with the 3% limit rule. To do so, we use data spanning the period from 2006 to 2018 (a turbulent period including the Global Financial Crisis and the Sovereign Debt Crisis) for the 28 EU member states. A set of eight features are identified as predictors from 138 variables through a feature selection procedure. The forecasting is performed using the Support Vector Machines (SVM). The proposed model reached 91.7% forecasting accuracy and outperformed the Logit model that was used as benchmark.
    Keywords: Fiscal Rules, Fiscal Compliance, Stability and Growth Pact, Machine learning.
    JEL: F
    Date: 2022
  2. By: Ansgar Rannenberg (: Economics and Research Department, National Bank of Belgium); Thomas Theobald
    Abstract: We investigate the contribution of the increase in German (DE) income inequality to the German export surplus increase and the decline of the natural rate of interest in the Euro Area in an open economy model with rich and non-rich households. Rich households have Capitalist Spirit type Preferences (CSP) over their wealth and thus save out of an increase in their permanent income. Simulating the increase in DE income inequality over the 1992-2016 period generates a decline of the EA natural rate of interest rate of about 1 p.p. and an increase of the DE net-export-to-GDP ratio of about 3 p.p.
    Date: 2022–10
  3. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Zuzana Zavarská (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The EU member states in Central and Eastern Europe (EU-CEE) have been experiencing increasing labour shortages, which only briefly subsided in the wake of the COVID-19 pandemic. Ongoing demographic decline suggests that labour shortages will only get stronger over time. As a result, the bargaining power of labour has increased, wages have been generally rising ahead of labour productivity, and industrial action (strikes) – the level of which has remained low in recent decades – has emerged in some instances. In the face of labour and skill shortages, people have been investing in education. The share of employees with tertiary education has increased, and vocational training has gained in importance, although active labour market policies have been used only selectively. Employers have increasingly been investing in fixed assets, especially in manufacturing, and the degree of robotisation has risen strongly. Despite domestic concerns that automation would generate massive job losses, our findings suggest that capital deepening has taken place faster where labour was in higher demand. Thus, labour was not substituted with capital, but rather the complementary effect prevailed. Employment actually increased in EU-CEE over the past two decades – despite the shrinking working-age population. Employers could hire not only the formerly unemployed, but also the formerly inactive, and used the relaxed immigration policies to attract foreign workers, especially from Ukraine and the Western Balkans. Czechia, Hungary, Slovenia and Slovakia and most recently Poland have become net receivers of migrants, while in Bulgaria immigration largely compensates for the natives who go abroad. However, immigration from non-European countries as a general solution to the problem of labour shortages in the region is highly problematic in the current domestic political context. Overall, both our findings for the EU-CEE region over recent years and the experience of Western Europe during the ‘golden age’ (1950-1973) suggest that labour shortages are not in themselves an obstacle to rapid structural change and income growth. However, for such an economic model to be sustainable, more active government policies will be needed, such as greater public investment in education and training, higher minimum wages in order to encourage automation, and more extensive welfare networks in order to deal with the possible negative short-run side-effects of automation.
    Keywords: labour shortages, trade unions, migration policy, active labour market policy, investment, vocational training, ‘golden age’, populism
    JEL: J21 J23 J24 J31 J52 J61 N14 N34
    Date: 2022–11
  4. By: Guglielmo Maria Caporale; Juan Infante; Luis A. Gil-Alana; Raquel Ayestaran
    Abstract: This note analyses the possible effects of the Covid-19 pandemic and of the Russia-Ukraine war on the degree of inflation persistence in both the euro zone and the European Union as a whole (EU27). For this purpose a fractional integration model is estimated, first using the full sample and then recursively. Although the recursive analysis provides clear evidence of a significant increase in inflation persistence (especially in the case of the EU27, for which in addition to jumps an upward trend is clearly identifiable), the full-sample results imply long-lasting but only temporary effects of the two shocks being examined. These findings suggest that the required policy response to both shocks should also have a temporary nature.
    Keywords: inflation persistence, fractional integration, recursive estimation, Covid-19 pandemic, Russia-Ukraine war
    JEL: C22 E31
    Date: 2022
  5. By: Mario Cerrato; Hormoz Ramian; Shengfeng Mei
    Abstract: We show that European firms, at the peak of the COVID-19 shock in 2020:Q2, went into a “panic borrowing” status and drew down €87bn in a very short period. We show that firms with less stringent solvency and liquidity constraints drew down their credit lines and accumulated cash. Our study exploits the implications of the social distancing policies to corporate operations across Europe. It proposes a novel empirical framework that identifies panic borrowing while accounting for the endogeneity between credit line drawdowns and an underlying borrowing ability during the COVID-19 shock. We use COVID-19 infection data and proxies for social distancing policies in Europe to study if the increase in risk following the COVID-19 shock can explain the panic borrowing while accounting for possible endogenous credit lines drawdowns. Finally, we show that European corporate drawdowns during the pandemic crisis increased drawdowns, on average, by 3.35 percentage points in response to an unexpected one percentage point fall in their cash flows but only when firms’ earnings are negative. This result is driven by the lockdown policies introduced in Europe
    Keywords: Corporate credit lines, cash holding, investment, default risk
    JEL: G21 G32 G33
    Date: 2022–11
  6. By: Brunhart, Andreas; Geiger, Martin
    Abstract: Using granular customs data, we construct a counterfactual of the evolution of Swiss goods exports under the premise that the minimum exchange rate policy would have been continued. We study the dynamic adjustment of aggregate and sectoral goods exports due to the exchange rate shock in January 2015. In absence of a comprehensive J-curve type adjustment we find that Swiss nominal export values increase in Euro, while they drop in Swiss Franc. In real quantities, exports remain largely unaffected indicating a high degree of resilience of the Swiss export industry. On the sectoral level, we observe heterogenous adjustment of exports consistent with varying degrees of flexibility for supply side adjustment and market power.
    Keywords: exchange rate shock,goods exports,export sectors,synthetic control method
    JEL: F14 F31 F41
    Date: 2022
  7. By: Leogrande, Angelo; Costantiello, Alberto; Laureti, Lucio
    Abstract: We investigate the innovational determinants of “Patent Applications” in Europe. We use data from the European Innovation Scoreboard-EIS of the European Commission for 36 countries in the period 2010-2019. We use Panel Data with Fixed Effects, Panel Data with Random Effects, Pooled OLS, WLS and Dynamic Panel. We found that the variables that have a deeper positive association with “Patent Applications” are “Human Resources” and “Intellectual Assets”, while the variables that show a more intense negative relation with Patent Applications are “Employment Share in Manufacturing” and “Total Entrepreneurial Activity”. A cluster analysis with the k-Means algorithm optimized with the Silhouette Coefficient has been realized. The results show the presence of two clusters. A network analysis with the distance of Manhattan has been performed and we find three different complex network structures. Finally, a comparison is made among eight machine learning algorithms for the prediction of the future value of the “Patent Applications”. We found that PNN-Probabilistic Neural Network is the best performing algorithm. Using PNN the results show that the mean future value of “Patent Applications” in the estimated countries is expected to decrease of -0.1%.
    Keywords: Innovation, and Invention: Processes and Incentives; Management of Technological Innovation and R&D; Diffusion Processes; Open Innovation.
    JEL: O30 O31 O32 O33 O34
    Date: 2022–11–12
  8. By: Jana Schuetz; Silke Uebelmesser; Ronja Baginski; Carmela Aprea
    Abstract: Demographic change has an impact on pay-as-you-go pension systems. To maintain their financial sustainability, reforms are necessary, but often lack public support. Based on representative survey data from Germany, we conduct a survey experiment which allows investigating whether salience of or information about demographic change enhances preferences towards reforms in general as well as towards specific reform measures. We find that salience and information provision significantly increase the perceived reform necessity. Furthermore, salience increases preferences for an increase of the retirement age over other reform measures, while information provision reduces preferences for tax subsidies. In addition, we highlight the impact of prior beliefs on the treatment effects. As the salience and the information treatments barely differ, we conclude that it is not the information about the demographic change, which matters. Rather, being made aware of the challenges of the pension system impacts reform preferences.
    Keywords: pension reform preference, survey experiment, demographic change, information provision
    JEL: H55 J26 C90
    Date: 2022
  9. By: Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This study assesses the economic and social impacts of foreign direct investment (FDI) in 17 economies in Central, East and Southeast Europe (CESEE). More precisely, we investigate how different FDI inflows have affected various economic and social indicators, such as GDP growth, labour market outcomes, and poverty and inequality, for the period since the fall of communism until 2020. We pay particular attention to FDI that originates from the EU, as well as FDI from Germany and Austria, in order to evaluate whether their effects are different from the effects of FDI from other places of origin. We also examine whether there are differences in the impacts of different types of FDI – equity capital, reinvested earnings and intra-company debt, as well as of FDI that goes to different sectors of the economy – the primary, secondary and tertiary sectors. We find that FDI inflows have had, in general, a positive effect on economic growth in CESEE, and that this effect has been particularly strong for German and Austrian FDI. For total FDI, higher inflows of 1 percentage point (pp) of GDP are associated with 0.19 pp higher GDP growth. For FDI from Germany and Austria, this effect is five times higher – FDI inflows of 1 pp of GDP have led to 0.9 pp higher GDP growth. The positive GDP effects have come from the higher consumption and exports that the FDI has induced. FDI inflows have also reduced unemployment and increased wages, but have had no effects on labour productivity. Total FDI has had only limited effects on inequality and poverty, but FDI from Germany and Austria has been found to reduce both inequality and poverty, likely because they have benefitted mainly lower-income persons. There are differences in the effects of the different types of FDI, with reinvested earnings and equity capital having in general more beneficial effects than intra-company loans. Also, FDI in different sectors of the economy has had different effects, with inflows to the secondary and tertiary sectors having greater effects than inflows to the primary sector. The policy implications of these results are that CESEE economies should not give up on their efforts to attract more FDI, but also that their endeavours should be more targeted, focusing on investments that have greater economic and social impacts. Moreover, foreign investment should not be criticised for the perhaps unsatisfactory economic and social performances of the economies from this region. Instead, the reasons for this should be sought in domestic factors and in the modest growth of the European Union during the past two decades.
    Keywords: FDI, growth, unemployment, poverty, inequality, Eastern Europe
    JEL: F21 O40 J01 D63 I3
    Date: 2022–11
  10. By: Valmari, Nelli
    Abstract: Abstract Productivity of the Finnish private sector decreased during the financial crisis of 2008–2009 and, since then, productivity growth has not reached the level preceding the crisis. A key factor underlying productivity growth is R&D. The population of Finnish firms, excluding Nokia, have increased their R&D inputs since the financial crisis. Therefore, it is worthwhile considering whether changes in productivity effects of R&D, instead of changes in volumes of R&D inputs, may explain the slowdown in productivity growth. This paper estimates productivity effects of Finnish firms’ R&D inputs in several industries for the years 2001–2009 and 2010–2018. The estimates are used to find out whether the productivity effects of R&D have decreased after the financial crisis. The empirical strategy (Doraszelski and Jaumandreu, 2013) allows for productivity effects that are nonlinear and heterogeneous across firms. For most of the industries studied, there is no statistical evidence that the productivity effects of R&D are lower for the years 2010–2018 than for the years 2001–2009. Instead, there is evidence that, in some industries, the productivity effects of R&D increased after the financial crisis. In other words, low productivity growth after the financial crisis does not seem to be caused by a decrease in the productivity effects of R&D.
    Keywords: R&D, Productivity, Production function estimation
    JEL: D24 L60 O30
    Date: 2022–11–28
  11. By: Silvia Peracchi
    Abstract: This paper investigates the impact of local exposure to the migrant crisis on the local news market. Exploiting a narrow geographical setting, it explores a policy dating from June 2015, whereby French authorities introduced militarized controls at the Italian frontier. With the border controls in place, groups of migrants and asylum seekers who had planned to cross the border irregularly were pushed back to the Italian lands. With rejected migrants clustering at the border, natives residing along the Italian region were unevenly exposed to their settlement. Taking advantage of this unequal treatment as a natural experiment, this study uses novel data collected on the text and on the number of local news items for the border areas of Liguria, Italy, between 2011 and 2019. It documents that the backlog of migrants in the Italian border area was substantially mediatized: coverage of migration rose most in the most exposed municipalities. Conversely, anti-immigrant discourse in the news grew more in areas least directly in contact with the border. Exploring further this framing dimension, the bias effect turns out to be shaped by readers’ demand and to be closely associated with local news penetration. Finally, this study documents that anti-immigrant slant and voting preferences share a similar broad direction, while a related broad pattern also appears in hate-crime records.
    Keywords: media slant, EU borders, immigration, diff-in-diff
    JEL: F22 L82 F50
    Date: 2022
  12. By: Lara Coulier (: Department of Economics, Ghent University); Selien De Schryder (Department of Economics, Ghent University)
    Abstract: This paper analyzes whether housing-related macroprudential policy has heterogeneous effects on house price growth in local housing markets. More specifically, we employ an extensive dataset of Belgian municipalities containing a multitude of drivers of local house price dynamics and examine the potential heterogeneity of housing-related macroprudential policy changes driven by local characteristics related to financial constrained and high-risk borrowers, the degree of local housing market activity, and changes in local household indebtedness. We find more dampening effects of the common macroprudential policy tightenings on local house price growth for municipalities characterized by low-income and young citizens, which furthermore increase in hot housing markets. Our findings shed more light on the geographical heterogeneity of national macroprudential policy changes, which indicate the possibility to stabilize local housing market booms.
    Keywords: macroprudential policy, local housing markets, heterogeneity, dynamic panel data, quantile regressions
    JEL: C22 C23 E58 O18 R3
    Date: 2022–10

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