Asymmetric Investment Responses to Firm-specific Forecast Errors
IWH Discussion Papers,
This paper analyses how firm-specific forecast errors derived from survey data of German manufacturing firms over 2007–2011 affect firms’ investment propensity. Understanding how forecast errors affect firm investment behaviour is key to mitigate economic downturns during and after crisis periods in which forecast errors tend to increase. Our findings reveal a negative impact of absolute forecast errors on investment. Strikingly, asymmetries arise depending on the size and direction of the forecast error. The investment propensity declines if the realised situation is worse than expected. However, firms do not adjust investment if the realised situation is better than expected suggesting that the uncertainty component of the forecast error counteracts positive effects of unexpectedly favorable business conditions. Given that the fraction of firms making positive forecast errors is higher after the peak of the recent financial crisis, this mechanism can be one explanation behind staggered economic growth and slow recovery following crises.
Agglomeration and FDI in East German Knowledge-intensive Business Services
The focus of this article is the empirical identification of factors influencing Foreign Direct Investment (FDI) in the knowledge-intensive business service (KIBS) sector on the regional level of «Raumordnungsregionen» in East Germany. The analysis focuses on the impact of regional agglomeration and technological capability on the location decision of foreign investors and West German MNEs. It shows that localisation, patent activity and the share of employees with an R&D occupation affect significantly the location decision of FDI. This result provides an explanation for the strong concentration of KIBS in urban areas in a post-transition economy.
East Germany Rearguard Only investments in education will lead to a further catch-up ...
Demographic Change Dossier ...
11.04.2017 • 18/2017
The state as a pioneering customer: How public demand can drive private innovation
Especially in technology-intensive industries, demand from the state can expand private markets and create incentives for privately funded research and development, a new study by the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association shows.
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