Disentangling Barriers to Internationalization
C. Arndt, Claudia M. Buch, A. Mattes
Canadian Journal of Economics,
No. 1,
2012
Abstract
Recent literature on multinational firms has focused on low productivity as a barrier to the internationalization of firms. But labour market frictions or financial constraints may also hamper internationalization. In order to assess the importance of these barriers, we present new empirical evidence on the extensive and intensive margin of exports and foreign direct investment (FDI) based on micro-level data of German firms. First, we find a positive impact of firm size and productivity on firms’ international activities. Second, labour market frictions can constitute barriers to foreign activities. Third, self-reported financial constraints have no impact on firms’ internationalization decisions.
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Financial Factors in Macroeconometric Models
Sebastian Giesen
Volkswirtschaft, Ökonomie,
2013
Abstract
The important role of credit has long been identified as a key factor for economic development (see e.g. Wicksell (1898), Keynes (1931), Fisher (1933) and Minsky (1957, 1964)). Even before the financial crisis most researchers and policy makers agreed that financial frictions play an important role for business cycles and that financial turmoils can result in severe economic downturns (see e.g. Mishkin (1978), Bernanke (1981, 1983), Diamond (1984), Calomiris (1993) and Bernanke and Gertler (1995)). However, in practice researchers and policy makers mostly used simplified models for forecasting and simulation purposes. They often neglected the impact of financial frictions and emphasized other non financial market frictions when analyzing business cycle fluctuations (prominent exceptions include Kiyotaki and Moore (1997), Bernanke, Gertler, and Gilchrist (1999) and Christiano, Motto, and Rostagno (2010)). This has been due to the fact that most economic downturns did not seem to be closely related to financial market failures (see Eichenbaum (2011)). The outbreak of the subprime crises ― which caused panic in financial markets and led to the default of Lehman Brothers in September 2008 ― then led to a reconsideration of such macroeconomic frameworks (see Caballero (2010) and Trichet (2011)). To address the economic debate from a new perspective, it is therefore necessary to integrate the relevant frictions which help to explain what we have experienced during recent years.
In this thesis, I analyze different ways to incorporate relevant frictions and financial variables in macroeconometric models. I discuss the potential consequences for standard statistical inference and macroeconomic policy. I cover three different aspects in this work. Each aspect presents an idea in a self-contained unit. The following paragraphs present more detail on the main topics covered.
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Introducing Financial Frictions and Unemployment into a Small Open Economy Model
Mathias Trabandt, Lawrence J. Christiano, Karl Walentin
Journal of Economic Dynamics & Control,
No. 12,
2011
Abstract
Which are the main frictions and the driving forces of business cycle dynamics in an open economy? To answer this question we extend the standard new Keynesian model in three dimensions: we incorporate financing frictions for capital, employment frictions for labor and extend the model into a small open economy setting. We estimate the model on Swedish data. Our main results are that (i) a financial shock is pivotal for explaining fluctuations in investment and GDP. (ii) The marginal efficiency of investment shock has negligible importance. (iii) The labor supply shock is unimportant in explaining GDP and no high frequency wage markup shock is needed.
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Labor Demand During the Crisis: What Happened in Germany?
Claudia M. Buch
IZA. Discussion Paper No. 6074,
2011
Abstract
In Germany, the employment response to the post-2007 crisis has been muted compared to other industrialized countries. Despite a large drop in output, employment has hardly changed. In this paper, we analyze the determinants of German firms’ labor demand during the crisis using a firm-level panel dataset. Our analysis proceeds in two steps. First, we estimate a dynamic labor demand function for the years 2000-2009 accounting for the degree of working time flexibility and the presence of works councils. Second, on the basis of these
estimates, we use the difference between predicted and actual employment as a measure of labor hoarding as the dependent variable in a cross-sectional regression for 2009. Apart from total labor hoarding, we also look at the determinants of subsidized labor hoarding through short-time work. The structural characteristics of firms using these channels of adjustment differ. Product market competition has a negative impact on total labor hoarding but a positive effect on the use of short-time work. Firm covered by collective agreements hoard less labor overall; firms without financial frictions use short-time work less intensively.
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Exports Versus FDI Revisited: Does Finance Matter?
Claudia M. Buch
Bundesbank Discussion Paper 03/2010,
2010
Abstract
This paper explores the impact of financial constraints on the internationalization
strategies of firms. It contributes to the literature by focusing on three aspects: First, the paper studies the impact of financial constraints on exporting relative to FDI. Consistent with theory, the empirical results confirm that the impact of financial constraints is stronger for FDI than for exporting. Second, the paper analyzes the extensive and the intensive margins and finds that financial frictions matter for both. Third, the paper explores the impact on manufacturing as compared to service industries and shows that firms in service industries are affected more than firms in manufacturing. The paper also identifies a threshold effect: Financial constraints do not matter for small firms whose productivity seems to be too low to consider international expansions.
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Cross-border Diversification in Bank Asset Portfolios
Claudia M. Buch, J.C. Driscoll, C. Ostergaard
International Finance,
forthcoming
Abstract
We compute optimally diversified international asset portfolios for banks located in France, Germany, Italy, the United Kingdom and the United States using the mean–variance portfolio model with currency hedging. We compare these benchmark portfolios with the actual cross-border asset positions of banks from 1995 to 2003 and ask whether the differences are best explained by regulations, institutions, cultural conditions or other financial frictions. Our results suggest that both culture and regulations affect the probability of a country's being overweighted in banks' portfolios: countries whose residents score higher on a survey measure of trust are more likely to be overweighted, while countries that have tighter capital controls are less likely to be overweighted. From a policy standpoint, the importance of culture suggests a limit to the degree of financial integration that may be achievable by the removal of formal economic barriers.
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How do multinationals meet investment decisions: The case study of General Motors
Diemo Dietrich, Daniel Höwer
Wirtschaft im Wandel,
No. 10,
2005
Abstract
The recent events around Opel, the German subsidiary of General Motors, has attracted a great deal of attention, especially with respect to the influence of multinational corporations on the German economy. General Motors' announcement of an internal competition for production capacities in June 2004 has led some observers to the assessment that this would be a step towards more efficiency and profitability. But such internal competition for ressources may be hampered and end up in inefficiency. This is because informational frictions and enforcement problems within a corporation restrict the headquarters ability and willingness to allocate ressources efficiently. Against this background, we discuss possible problems associated with the internal capital allocation within multinational corporations and show their relevance in the case of General Motors.
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The integration of imperfect financial markets: Implications for business cycle volatility
Claudia M. Buch, C. Pierdzioch
Journal of Policy Modeling,
No. 7,
2005
Abstract
During the last two decades, the degree of openness of national financial systems has increased substantially. At the same time, asymmetries in information and other financial market frictions have remained prevalent. We study the implications of the opening up of national financial systems in the presence of financial market frictions for business cycle volatility. In our empirical analysis, we show that countries with more developed financial systems have lower business cycle volatility. Financial openness has no strong impact on business cycle volatility, in contrast. In our theoretical analysis, we study the implications of the opening up of national financial markets and of financial market frictions for business cycle volatility using a dynamic macroeconomic model of an open economy. We find that the implications of opening up national financial markets for business cycle volatility are largely unaffected by the presence of financial market frictions.
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