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
Der lange Schatten des Sozialismus: Folgen für die Wirtschaftspolitik in Ostdeutschland
Ulrich Blum
List Forum für Wirtschafts- und Finanzpolitik,
2008
Abstract
East Germany’s economy growth was not able to close, over the last ten years, the lag against the West German economy. This paper inquires into the economic reasons, especially those that can be traced in history. It is shown that the exodus of elites from what was Central Germany started in the 1930s because of the persecution of the Jewish elites. During the period after the Second World War until the construction of the wall in 1961 especially young and qualified people left the Soviet Zone and later the G.D.R. Thus, the elites destroyed in the Third Reich and the Second World War could not be replaced exogenously. In the 1970s, an inadequate economic system destroyed the still existing industrial middle class which was an important base of productivity and helped to generate foreign income because of its export intensity to the Western countries. This generated a current account crisis which was only overcome by a loan from West Germany, the so-called “Strauß-Kredit”. In 1988, however, the fundamental problems again became visible and enforced a change of the economic system. The privatisation strategy by the Treuhand by and large did not sell or restitute enterprises but sold plants out of the fragmented combines. Today, the visible deficit in headquarter function is the most important single obstacle against growth and wealth in the New Lander. It can be expected that this will only disappear within a new technology cycle.
Read article
Beseitigung struktureller Defizite mit der Gemeinschaftsaufgabe „Verbesserung der regionalen Wirtschaftsstruktur“ – Ein Vergleich der Strategien in den neuen Bundesländern
Mirko Titze
Raumforschung und Raumordnung,
2008
Abstract
The Joint Task “For the Improvement of the Regional Economic Structure” is one of the most important instruments for the “Reconstruction East”. Herein the federal states have an extensive flexibility to define their own kind of industrial policy. Due to their structural deficits this paper is focused on the federal states in East-Germany. A decrease in the budget constrains the governments to improve efficiency of subsidies. However, there is one way to solve this problem: change unselective government aid to regional as well as sectoral government aid. This paper shows that there is no federal state, which has applied this kind of policy forcefully.
Read article
Wirtschaftspolitische Beratung im Zeichen der Transformation: das Institut für Wirtschaftsforschung Halle
Ulrich Blum, Martin T. W. Rosenfeld
Zeitschrift für Politikberatung,
2008
Abstract
The paper analyzes the role of scientific policy advice in modern democratic societies in general and the role of the Halle Institute for Economic Research as one of the major German economic research institutes in particular. It shows that public funded institutions must be politically independent in order to turn theory and evidence based knowledge into political advice. Typical communication channels are contract research and public hearings as well as publications in economic policy journals, a frequent presence in other print media, radio, television and internet.
The Halle Institute for Economic Research focuses on macroeconomic analyses and forecasting. In addition it scrutinizes structural change and transformation processes from a regional, innovation system, competition and urban perspective.
Read article
Parenting Benefit – A New Risk for Companies
Nicole Nulsch, Henry Dannenberg
Wirtschaft im Wandel,
No. 7,
2008
Abstract
One of the aims of the new parenting benefit – introduced by the German government in January 2007 – is to motivate fathers to take parental leave in order to take care of their young children. Until now, the effects of the parenting benefit have been discussed predominantly from the viewpoint of family policy. In contrast, this paper analyses how companies are affected by the new law. In 2007, the number of fathers who stayed at home to spend more time with their children increased significantly. More than half of the working applicants were already fathers. In the past, it was easy for companies to reduce their risk of losing an important employee due to the birth of a child as companies rather hired men than women. But this strategy will be less important in the future. It is expected that the risk-environment of companies will change because of a larger group of fathers taking parental leave. Such a changed risk-environment could increase the career opportunities of women and might reduce the gender wage gap. However, it is also expected that the overall risk of companies increases. Assumed that companies need equity to cover risks, an increase of the overall risk reduces investment opportunities if it is not possible to increase equity in the same way. This could influence the current economic development negatively.
Read article
Suburban Municipalities on Trial – Analysing the Sustainability of Socioeconomic Structures at the Example of the Municipality Schkopau
Sabine Döhler, Alexander Kubis
Wirtschaft im Wandel,
No. 7,
2008
Abstract
This article analyses socio-economic criteria of municipalities next to large cities. In a case study, we examine the municipality Schkopau in the south of Saxony-Anhalt. We ask if the fusion of smaller communes to this “new” municipality created in 2004 was rational in terms of sustainable socio-economic structures. Hence, we use the criteria of satellite towns developed by Boustedt.
We show that the criterion of political independence is assured by law. Meanwhile, the criteria independence of culture and urban development are not completely fulfilled. Due to the high density of industrial enterprises, the municipality has high tax revenue and therefore a strong financial basis. Also, the criterion of the minimum population figure is implemented.
Based on the specific results of the satellite town criteria, we could not find definite results for the municipality Schkopau, they are rather ambivalent. This result is partly caused by the strong interactions within the functional area of the provinces Saxony, Saxony-Anhalt and Thuringia. Due to the high dynamic of the structural change, we also point out the necessity to enhance the criteria for sustainable socio-economic structures of local and regional municipalities.
Read article
Leaders and Laggards – An Analysis of Regional Growth Patterns in East Germany 1996 – 2005
Alexander Kubis, Mirko Titze, Matthias Brachert
Wirtschaft im Wandel,
No. 4,
2008
Abstract
Since the half of the 1990s, a heterogeneous development of East Germany NUTS 3 regions has taken place. Some of these regions could increase their competitiveness and regional employment. Otherwise, some regions do exist with less positive economic developments.
This article tries to contribute to this discussion. With the help of productivity and employment growth rates from 1996 to 2005, we create a regional classifications scheme for East Germany. Four types can be identified: Growth Regions, Weak Growth Regions, Regions in Transition, Stagnant Regions. Further, we demonstrate that each of these regions is undergoing specific patterns of structural change. Growth Regions (above average productivity growth and employment growth) benefit from positive developments both in the manufacturing and service sector. Additional research indicates that there is a need for an industrial base which contributes to a sound service sector. Thereby, spatial proximity of these sectors seems to be elementary for the above average development of this type of regions.
Read article
Culture as a Base for Efficient Economic Systems
Ulrich Blum
Wirtschaft im Wandel,
No. 2,
2008
Abstract
Globalization puts the German economic model, the so-called social market economy, under pressure. Constituting elements of this model are fundamental social and economic values. Globalization puts some of these values under pressure and creates inefficiencies because the costs of running the social and economic fabric rise. This is an important justification to inquire into the normative foundations of economic efficiency The following article discusses to what extent culture is a base for efficient economic systems. Information theory is regarded as a key element for explaining social change. The arguments are based on institutional economics with a special view on transaction costs and on cooperation structures. It is shown that specific information technologies promote forms of cooperation, which influence institutional arrangements. The related information technologies themselves are part of the cultural system and its value structures. As a consequence, competition among economic systems favours certain combinations of technologies, cultural arrangements and economic systems. In as much as cultural competition precedes economic competition in the sense of a certain way of thinking, the cultural system can be regarded as a strategic competitive parameter for an economy.
Read article
Business cycle forecast 2008: German upswing takes a break
Wirtschaft im Wandel,
No. 1,
2008
Abstract
Economic growth in the industrial countries will be much more muted in 2008 than in the past year. One cause is the prolonged oil price hike during 2007. The second and more important cause is the intensification of tensions on world financial markets. Due to problems in the financial sector, credit expansion will slow next year in the euro area as well as in the US. This will dampen demand in the real economy. A significant downswing in the industrial countries, however, is not the most likely scenario: in the US, expansive economic policy and a weak dollar that gives production in the US a competitive edge will prevent the economy from sliding into recession. In the euro area, high profitability of firms and structural improvements in the working of labour markets will help the economy cope with the stronger euro and with higher costs of external financing due to the turmoil in the financial sector. In Germany, the upswing has still not reached the demand of private households. The main reason is that real wages were stagnating in 2007 and will not rise by much in 2008, since inflation has accelerated considerably at the end of last year. In addition, weaker dynamics of external demand will dampen export growth. This and the end of tax incentives for investment at the end of 2007 will dampen investment activity. All in all, the economy will slow down in the first half of 2008. However, chances are good that the upswing will only have taken a break: when the dampening external shocks have ceased, the driving powers of the upswing will prevail; dynamic employment growth is a reflection of the strong confidence of firms. A major risk for employment and for the German economy in general is, however, the possibility that the policy concerning the labour markets changes course; bad omens are the recent the introduction of minimum wages for postal services and the announced extension of unemployment benefits for persons older than 50.
Read article
New Limits of Municipal Economic Activity: Expansion versus Reduction?
Peter Haug
Wirtschaft im Wandel,
No. 12,
2007
Abstract
On October 11th and 12th 2007, the department of urban economics of the Halle Institute for Economic Research organized a conference on local governments’ entrepreneurial activities. The main target of this second conference after the first one in 2005 was to analyze the spatial and functional boundaries of municipal economic activities. The participants came from various fields of science, local public administrations, municipal enterprises, associations and included politicians and others interested in the topic. The presentations covered a broad variety of subjects. On the first conference day, the speakers dealt with the partly controversial attitude of different disciplines such as law, economics, public business administration or sociology towards the local public economy. Other presenters focused on selected municipal services (public transportation, housing).
The second day was dedicated to the topics restrictions on municipal economic activities in Southern Europe, regional effects of municipal enterprises and employee protection in case of privatization. The conference was closed by a panel discussion with distinguished representatives from politics, science and management about the future role of municipal enterprises.
The presentations and discussions showed that the times are changing for the local public sector. In addition, the participants rejected an unrestricted extension of markets or business fields of municipal enterprises as well as the complete privatization of municipal services.
Read article