International Climate Policy after Kyoto – Economic Challenges Ahead
Wilfried Ehrenfeld
Wirtschaft im Wandel,
No. 12,
2009
Abstract
The signs are increasing that the gain in greenhouse gas emissions since the beginning of the 20th century causes the average global temperature to rise. Limiting the temperature rise to 2°C should at least avoid the worst consequences of global warming. This would require the greenhouse gas emissions to reach their maximum value by no later than 2015 and to be dramatically reduced worldwide from that time until 2050. From the economic perspective, there are a number of important questions: In the first place, how can the initial situation be described in economic categories? Therefore, the emissions should first of all be identified by region and sector and thereupon, the adjustment possibilities are to be outlined. Which costs and which revenues are associated with climate policy? The bandwidth of the estimated damage is between 5% and 20% of global gross domestic product (GDP) annually in the case of unmitigated climate change. These estimates are compared to around 1% of global GDP, which would be spent to stabilize the concentration of greenhouse gases in the atmosphere. How are the global targets to be distributed regionally and sectorally, and which economic instruments are recommended for this purpose? Obviously, tradable permits are preferred. Here, the initial assignment and the nature of the allocation on the one hand and the tradability on the other play a prominent role. What politico-economic conflicts arise and what recommendations can economists give to solve these conflicts goal-oriented? Finally, what is to recommend in terms of political economy in order to remain credible in particular in the sense of an international climate agreement?
Read article
Margins of international banking: Is there a productivity pecking order in banking, too?
Claudia M. Buch
Bundesbank Discussion Paper 12/2009,
2009
Abstract
Modern trade theory emphasizes firm-level productivity differentials to explain
the cross-border activities of non-financial firms. This study tests whether a
productivity pecking order also determines international banking activities. Using
a novel dataset that contains all German banks’ international activities, we
estimate the ordered probability of a presence abroad (extensive margin) and the
volume of international assets (intensive margin). Methodologically, we enrich the
conventional Heckman selection model to account for the self-selection of banks
into different modes of foreign activities using an ordered probit. Four main
findings emerge. First, similar to results for non-financial firms, a productivity
pecking order drives bank internationalization. Second, only a few non-financial
firms engage in international trade, but many banks hold international assets, and
only a few large banks engage in foreign direct investment. Third, in addition to
productivity, risk factors matter for international banking. Fourth, gravity-type
variables have an important impact on international banking activities.
Read article
A Panel Data Analysis on China's Intra-Industry Trade in the Capital Goods Sector
Yiping Zhu
IWH Discussion Papers,
No. 18,
2009
Abstract
This paper adopts the Hausman-Taylor 2SLS error components approach in estimating the determinants of China's Intra-Industry Trade (IIT) in the capital goods sector with its 26 partner countries. It disaggregates IIT into horizontal IIT (HIIT) and vertical IIT (VIIT). Capital goods final products and intermediates are separately estimated in order to reveal the differentiated trade patterns. It finds that economic similarity is very significantly negatively correlated with the intermediates IIT, but to a less extent correlated with the final products IIT. Factor endowment is of no significance in determining IIT in the intermediates, although it is significantly positively correlated with the final products IIT. Economic size is significantly negatively correlated with both final products and intermediates IIT. Distance is not yet dead in impacting the level of final products IIT, but of less importance in influencing the intermediates IIT. China is exchanging intermediates in a less intraindustry manner with ASEAN nations. However, because VIIT is dominating TIIT, no significant differences exist between the estimation results of TIIT and VIIT.
Read article
Out-migration and Regional Convergence
Alexander Kubis, Lutz Schneider
Wirtschaft im Wandel,
20 Jahre Deutsche Einheit - Teil 1 -
2009
Abstract
Since 1989, the migration deficit of East Germany has accumulated to 1.8 million people. Against this background, the contribution analyses the relationship between regional migration and regional growth. From a theoretical point of view, one might find reasons in favour and in opposition to a convergence supporting function of migration. If migrants are taken from the upper tail of the human capital distribution of a poor region, divergence is the probable outcome. If on the other hand people with low human capital endowment move to richer regions, migration might enhance regional convergence.
The empirical analysis how regional migration and convergence are interrelated is performed on the basis of German districts within a period from 1995 to 2006. The concept of ß-convergence is applied and a cross-section model controlling for spatial correlation between the error terms is estimated.
The results indicate convergence on the regional level; East German regions seem to catch up particularly fast. The effect of migration is twofold. Out-migration from poor region is correlated with strong growth in these regions. However, the corresponding migration towards richer region is accompanied with growth in these regions, too. Therefore, the impact of migration on convergence is uncertain. Nevertheless, the outcome is in favour of an aggregate benefit of migration if people move from poor to rich regions.
Read article
The Long Way to Convergence
Rolf Scheufele, Udo Ludwig
Wirtschaft im Wandel,
20 Jahre Deutsche Einheit - Teil 1 -
2009
Abstract
After nearly 20 years of economic development in unified Germany, East German states compared to the West German Leander still lag behind in terms of welfare. During the years immediately following unification, East Germany displayed high economic growth, but lost its relative strength largely in recent times. Therefore, this paper asks whether East Germany is still catching up in terms of per capita output. By considering the cross- section of German states, one can estimate an average convergence speed of approximately 2% per year. However, this catching-up process is partly driven by demographic effects and by migration from East to West Germany. If one considers a time series test of convergence, a catching-up process can still be identified, although the speed is lower and estimated to be around 1%. This implies that the convergence process of East Germany will need further decades until the regional gap will be closed.
Read article
The Identification of Technology Regimes in Banking: Implications for the Market Power-Fragility Nexus
Michael Koetter, Tigran Poghosyan
Journal of Banking and Finance,
No. 8,
2009
Abstract
Neglecting the existence of different technologies in banking can contaminate efficiency, market power, and other performance measures. By simultaneously estimating (i) technology regimes conditional on exogenous factors, (ii) efficiency conditional on risk management, and (iii) Lerner indices of German banks, we identify three distinct technology regimes: Public & Retail, Small & Specialized, and Universal & Relationship. System estimation at the regional level reveals that greater bank market power increases bank profitability but also fosters corporate defaults. Corporate defaults, in turn, lead to higher probabilities of bank distress, which supports the market power-fragility hypothesis.
Read article
Regional Growth and Finance in Europe: Is there a Quality Effect of Bank Efficiency?
Iftekhar Hasan, Michael Koetter, Michael Wedow
Journal of Banking and Finance,
No. 8,
2009
Abstract
In this study, we test whether regional growth in 11 European countries depends on financial development and suggest the use of cost- and profit-efficiency estimates as quality measures of financial institutions. Contrary to the usual quantitative proxies of financial development, the quality of financial institutions is measured in this study as the relative ability of banks to intermediate funds. An improvement in bank efficiency spurs five times more regional growth then an identical increase in credit does. More credit provided by efficient banks exerts an independent growth effect in addition to direct quantity and quality channel effects.
Read article
Keeping the Bubble Alive! The Effects of Urban Renewal and Demolition Subsidies in the East German Housing Market
Dominik Weiß
IWH Discussion Papers,
No. 11,
2009
Abstract
German urban renewal programs are favoring the cities in the Eastern part since the re-unification in 1990. This was accompanied additionally by attractive tax incentives, designed as an accelerated declining balance method of depreciation for housing investments during the late 1990s. The accumulated needs for comfortable housing after 40 years of a disastrous housing policy of the GDR era were generally accepted as justification for the subvention policy. But various subsidies and tax incentives caused a construction boom, false allocations, and a price bubble in Eastern Germany. After recognizing that the expansion of housing supply was not in line with the demographic development and that high vacancy rates were jeopardizing housing companies and their financial backers, policy changed in 2001. Up to now, the government provides demolition grants to reduce the vast oversupply. By means of a real option approach, it is ex-plained how different available forms of subsidies and economic incentives for landlords lift real estate values. The option value representing growth expectations and opportunities is calculated as an observable market value less an estimated fundamental value. Empirical results disclose higher option premiums for cities in Eastern Germany and a strong correlation of the option premium with urban renewal spending.
Read article
Effects of Heterogeneity on Bank Efficiency Scores
J. W. B. Bos, Michael Koetter, James W. Kolari, Clemens J. M. Kool
European Journal of Operational Research,
No. 1,
2009
Abstract
Bank efficiency estimates often serve as a proxy of managerial skill since they quantify sub-optimal production choices. But such deviations can also be due to omitted systematic differences among banks. In this study, we examine the effects of heterogeneity on bank efficiency scores. We compare different specifications of a stochastic cost and alternative profit frontier model with a baseline specification. After conducting a specification test, we discuss heterogeneity effects on efficiency levels, ranks and the tails of the efficiency distribution. We find that heterogeneity controls influence both banks’ optimal costs and profits and their ability to be efficient. Differences in efficiency scores are important for more than only methodological reasons. First, different ways of accounting for heterogeneity result in estimates of foregone profits and additional costs that are significantly different from what we infer from our general specification. Second, banks are significantly re-ranked when their efficiency is estimated with a specification other than the preferred, general specification. Third, the general specification gives the most reliable estimates of the probability of distress, although differences to the other specifications are low.
Read article
Shadow Budgets, Fiscal Illusion and Municipal Spending: The Case of Germany
Peter Haug
IWH Discussion Papers,
No. 9,
2009
Abstract
The paper investigates the existence of fiscal illusion in German municipalities with special focus on the revenues from local public enterprises. These shadow budgets tend to increase the misperception of municipal tax prices and seem to have been neglected in the literature. Therefore, an aggregated expenditure function has been estimated for all German independent cities applying an “integrated budget” approach, which means
that revenues and expenditures of the core budget and the local public enterprises are combined to one single municipal budget. The estimation results suggest that a higher relative share of local public enterprise revenues might increase total per capita spending as well as spending for non-obligatory municipal goods and services. Empirical evidence for other sources of fiscal illusion is mixed but some indications for debt illusion, renter illusion or the flypaper effect could be found.
Read article