Currency Appreciation and Exports: Empirical Evidence for Germany
Götz Zeddies
Wirtschaft im Wandel,
No. 6,
2009
Abstract
In the first decade after its introduction, the Euro didn’t just hold up well, but compared to important currencies even appreciated considerably. Of course, exchange rate risks were noticeably lowered by introducing the single currency, since the bulk of EMU Member States’ exports are conducted within the currency union. Nevertheless, a strong Euro is unfavourable especially for open economies like Germany.
The article investigates the effects of exchange rate movements on German exports over time. The analyses reveal a downward impact of nominal effective exchange rates, not only for total, but also for exports to countries outside the currency union. Although an increasing pass-through of exchange rate changes to export prices is apparently at hand, further reasons for the dwindling effect of nominal exchange rates on exports are likely to exist.
In this context, it is shown that exports are less sensitive not only with respect to nominal, but also with respect to real effective exchange rate changes, suggesting a declining price elasticity of demand. Instead, exports are increasingly determined by economic activity in trading partner countries. In consequence of its geographic proximity, Germany did particularly benefit from the economic upswing in Eastern Europe, overlaying the appreciation of the Euro. Additionally, the latter could hardly impair German export industries due to their specialization on capital and high-quality consumer goods less vulnerable to exchange rate fluctuations.
Read article
German Economy Drawn into the World Recession
Wirtschaft im Wandel,
1. Sonderausgabe
2009
Abstract
In spring 2009, the world economy is in a deep recession. The intensification of the financial crisis in autumn has caused a sharp contraction of demand. The reaction of monetary and fiscal policy was substantial, but up to now (April 2009), it has not succeeded in restoring confidence of economic agents. Although some leading indicators point to a stabilization of production in the coming quarters, the downturn will not come to an end before next winter, because the financial crisis will continue to put strain on the real economy for some time to come.
The German economy is in its deepest recession since the foundation of the Federal Republic. Germany is particularly affected, because at the core of the economy is the production of those goods for that world demand has collapsed most: capital goods and high-quality consumer durables. While exports and private investment activity will continue to shrink this year (albeit at a slower rate), private consumption will be a stabilizing factor for some time, as will public investment activity in the second half of the year. Later in 2009 and in 2010, rising unemployment will depress consumption, while in this forecast, it is assumed that exports and investment slowly recover in 2010, because the financial turmoil will calm down.
For economic policy, a recapitalization of the banking sector should have priority. The ECB should lower its key interest rate to 0.5%. Given the sharply increasing fiscal deficits, a new, third fiscal program would be counterproductive. Only if monetary policy fails to stabilize the economy, further fiscal measures, coordinated at a European level, should be considered.
Read article
Growth, Volatility, and Credit Market Imperfections: Evidence from German Firms
Claudia M. Buch, Jörg Döpke
Journal of Economic Studies,
2008
Abstract
Purpose – The purpose of this paper is two-fold. First, it studies whether output volatility and growth are linked at the firm-level, using data for German firms. Second, it explores whether the link between volatility and growth depends on the degree of credit market imperfections.
Design/methodology/approach – The authors use a novel firm-level dataset provided by the Deutsche Bundesbank, the so-called Financial Statements Data Pool. The dataset has time series observations for German firms for the period 1997-2004, and the authors use information on the debt-to-assets or leverage ratio of firms to proxy for credit-constraints at the firm-level. As additional proxies for the importance of credit market imperfections, we use information on the size and on the legal status of firms.
Findings – The authors find that higher volatility has a negative impact on growth for small and a positive impact for larger firms. Higher leverage is associated with higher growth. At the same time, there is heterogeneity in the determinants of growth across firms from different sectors and across firms with a different legal status.
Practical implications – While most traditional macroeconomic models assume that growth and volatility are uncorrelated, a number of microeconomic models suggest that the two may be linked. However, it is unclear whether the link is positive or negative. The paper presents additional evidence regarding this question. Moreover, understanding whether credit market conditions affect the link between volatility and growth is of importance for policy makers since it suggests a channel through which the credit market can have long-run welfare implications. The results stress the importance of firm-level heterogeneity for the effects and effectiveness of economic policy measures.
Originality/value – The paper has two main novel features. First, it uses a novel firm-level dataset to analyze the determinants of firm-level growth. Second, it analyzes the growth-volatility nexus using firm-level data. To the best of the authors' knowledge, this is the first paper, which addresses the link between volatility, growth, and credit market imperfections using firm-level data.
Read article
Crisis Contagion in Central and Eastern Europe
Hubert Gabrisch
Wirtschaft im Wandel,
No. 12,
2008
Abstract
The global financial crisis reached the Central and Eastern European region. Fears of a recession are spreading among investors in Russia and the Ukraine due to the heavy decline of oil and steel prices and provoked a first wave of short-term capital withdrawals. The export sector of all countries in the region is affected by weakening global demand. Finally, the financial sector, which is dominated by international banks in almost all countries, appears as the contagion channel for risk adjustments of mother banks. The combined impact of all these causes and channels lead to a proliferation of restrictions in credit and money supply and an outflow of investment capital. A strong weakening of economic growth is on the way in the region, and a long-lasting recession seems possible in some countries, in first line in the Baltic countries. It becomes a superior task of governments to ease the length and depth of the approaching recession by a strong fiscal stimulus. A continuation of the present policy of fiscal consolidation or of nominal convergence toward a quick adoption of the Euro does not seem very advisable. If governments decided to support domestic demand, measures should be taken to strengthening of a genuinely domestic banking sector in order to maintain credit availability.
Read article
In which Ways do Universities React to New Technologies? The Case of Photovoltaics
Peter Franz
Wirtschaft im Wandel,
No. 12,
2008
Abstract
Universities can be conceived as actors in regional innovative systems with the functions to make available new knowledge for a region, to contribute to the human capital formation by teaching, and to the extension of the knowledge by research. These functions are in particular important concerning the adaptation of new technologies, e.g. photovoltaics. 89 German universities – amongst them 65 universities of applied sciences – meanwhile offer 171 full-time study courses with a degree oriented to photovoltaics. Each federal state has at least one university location offering such degrees. A certain spatial concentration of courses can be shown for Saxony, for the Ruhr Area and for the Rhine Main Region. Almost 90% of the degrees are offered by faculties of engineering. 43% of the universities with degrees in photovoltaics have successfully applied for research grants from the photovoltaics research programs of the federal government. These numbers show a spatial concentration of research in the South whereas the photovoltaics industry is concentrated in the East of Germany. This distribution indicates that the research opportunities tied to the photovoltaics industry are not in the Eastern part of Germany. Further research will have to pay more attention to the role of research institutes.
Read article
The Great Risk Shift? Income Volatility in an International Perspective
Claudia M. Buch
CESifo Working Paper No. 2465,
2008
Abstract
Weakening bargaining power of unions and the increasing integration of the world economy may affect the volatility of capital and labor incomes. This paper documents and explains changes in income volatility. Using a theoretical framework which builds distribution risk into a real business cycle model, hypotheses on the determinants of the relative volatility of capital and labor are derived. The model is tested using industry-level data. The data cover 11 industrialized countries, 22 manufacturing and services industries, and a maximum of 35 years. The paper has four main findings. First, the unconditional volatility of labor and capital incomes has declined, reflecting the decline in macroeconomic volatility. Second, the idiosyncratic component of income volatility has hardly changed over time. Third, crosssectional heterogeneity in the evolution of relative income volatilities is substantial. If anything, the labor incomes of high- and low-skilled workers have become more volatile in relative terms. Fourth, income volatility is related to variables measuring the bargaining power of workers. Trade openness has no significant impact.
Read article
Foreign Subsidiaries in the East German Innovation System – Evidence from manufacturing industries
Jutta Günther, Johannes Stephan, Björn Jindra
Applied Economics Quarterly Supplement,
No. 59,
2008
Abstract
This paper analyses the extent of technological capability of foreign subsidiaries located in East Germany, and looks at the determinants of foreign subsidiaries’ technological sourcing behaviour. The theory of international production underlines the importance of strategic and regional level variables. However, existing empirical approaches omit by and large regional level factors. We employ survey evidence from the “FDI micro database” of the IWH, that was only recently made available, to conduct our analyses. We find that foreign subsidiaries are above average technologically active in comparison to the whole East German manufacturing. This can be partially explained by the industrial structure of foreign direct investment. However, only a limited share of foreign subsidiaries with R&D and/or innovation activity source technological knowledge from the East German innovation system. If a subsidiary follows a competence augmenting strategy or does local trade, it is more likely to source technological knowledge locally. The endowment of a region with human capital and a scientific infrastructure has a positive effect too. The findings suggest that foreign subsidiaries in East Germany are only partially linked with the regional innovation system. Policy implications are discussed.
Read article
Aktuelle Trends: Brain Gain und Brain Drain: Hochschul-Bildungswanderung im föderalen Deutschland
Marco Sunder, Dirk Trocka, Jutta Günther
Wirtschaft im Wandel,
No. 10,
2008
Abstract
Hochqualifizierte Fachkräfte werden von den Unternehmen oft überregional rekrutiert, sodass gerade unter Akademikern eine hohe Mobilität zu beobachten ist. Aus der Perspektive der Bundesländer, die einen Großteil der Kosten der Akademikerausbildung bestreiten, kann ein hoher Zu- bzw. Abwanderungssaldo eine Schieflage bei der finanziellen Lastenverteilung zur Folge haben. Es liegt auf der Hand, dass einzelne Bundesländer im Ausbildungswesen nur ungern eine Zubringerfunktion für andere übernehmen wollen.
Read article
German Economy on the Brink of Recession
Wirtschaft im Wandel,
2. Sonderausgabe
2008
Abstract
In autumn 2008, the word economy is in a downswing, caused by the commodity and energy price hike of the first half of the year, housing crises in the US and some other important countries, and in particular by the financial crisis that has recently intensified. The downswing will continue this year and for some time during 2009, and will only come to an end later next year if governments and central banks succeed in stabilizing financial markets in the coming months. In this case, lower prices of commodities and still high growth dynamics in important emerging markets countries will lead to a tentative revival of the world economy.
The German economy is on the brink of a recession. It is particularly vulnerable to a global downswing because exports of investment goods are of upmost importance for the overall economy. Because the uncertainty about the worldwide effects of the financial crisis is very high, the forecast is split. A more probable scenario is based on the assumption of a stabilizing world economy. In this scenario, the growth rate of the German economy in 2009 is 0.2%. The second scenario is based on the assumption of a worldwide recession next year and forecasts that German GDP will shrink by 0.8% in 2009.
Concerning policy, the institutes recommend a strengthening of the capital base of banks via injection of government money. This should be done in a way that gives incentives to banks for attracting additional capital from private sources.
A special chapter of the report analyzes the nature and causes of the price hikes of energy and commodities in the first half of 2008.
Read article
Exchange Rates and FDI: Goods versus Capital Market Frictions
Claudia M. Buch, J. Kleinert
World Economy,
forthcoming
Abstract
Changes in exchange rates affect countries through their impact on cross-border activities such as trade and foreign direct investment (FDI). With increasing activities of multinational firms, the FDI channel is likely to gain in importance. Economic theory provides two main explanations why changes in exchange rates can affect FDI. According to the first explanation, FDI reacts to exchange rate changes if there are information frictions on capital markets and if investment depends on firms’ net worth (capital market friction hypothesis). According to the second explanation, FDI reacts to exchange rate changes if output and factor markets are segmented, and if firm-specific assets are important (goods market friction hypothesis). We provide a unified theoretical framework of these two explanations. We analyse the implications of the model empirically using a dataset based on detailed German firm-level data. We find greater support for the goods market than for the capital market friction hypothesis.
Read article