International Banking and the Allocation of Risk
Claudia M. Buch
IAW Discussion Paper No. 32,
2007
Abstract
Macroeconomic risks could magnify individual bank risk. Mitigating the influence of economy-wide risks on banks could therefore be very important to maintain a smooth-running banking system. In this paper, we explore the extent to which macroeconomic risks affect banks. We use a bank-level dataset on over 2,000 banks worldwide for the years 1995-2002 to study the effect of macroeconomic volatility, the openness of the banking system, and banking regulations on bank risks. Our measure of bank risk is the volatility of banks' pre-tax profits. We find that macroeconomic volatility increases banks' profit volatility and that international openness of the banking system lowers bank risk. We find no impact of banking regulation on profit volatility. Our findings suggest that if policymakers want to lower bank risk, they should seek to lower macroeconomic volatility as well as increase openness in the banking system.
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Poland: Strong Domestic Demand Will Drive Economic Activity
Martina Kämpfe
Wirtschaft im Wandel,
No. 12,
2007
Abstract
Domestic demand was the main force behind growth in 2007. The high level of both, gross fixed investments of firms and private consumption, led to extended industrial production capacities and increased demand of imports. Extraordinarily high was the demand for the output of construction firms. Rising employment and wages and the continuing expansion of loans to the household sector supported the private consumption growth. The high levels of capacity utilization coincide with shortages of labour. First responses to this were wage hikes, which pushed the unit labour costs and led to some increase in consumer price inflation. In 2008, expansion of economic activity will continue at only some lower level, driven by investments and consumption.
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Paradigm Shift in European Competition Law
Nicole Steinat
Wirtschaft im Wandel,
No. 11,
2007
Abstract
During the last decade, European competition law went through several procedural changes, which were mainly influenced by US-American law. Economic criteria rather than legal parameters are now used to evaluate the conduct of firms. Such a “more economic approach” is apparent both in legislation and jurisdiction.
The article discusses the reforms that resulted from the paradigm shift by focusing on the legislation perspective as well as their impact in terms of cartels. One of the most important instruments in European competition policy is nowadays the Leniency Regulation, which was implemented in 1996. Another tool are the renewed Fining Guidelines, which in general will lead to higher fines.
Although European competition law adopted some instruments from American law, there are still major differences between the two jurisdictions. The possibility to impose jail sentences does not exist on a European level yet. However, a few European countries included criminal sanctions in their national laws.
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The Role of the Human Capital and Managerial Skills in Explaining the Productivity Gaps between East and West
Wolfgang Steffen, Johannes Stephan
IWH Discussion Papers,
No. 11,
2007
Abstract
This paper assess determinants of productivity gaps between firms in the European transition countries and regions and firms in West Germany. The analysis is conducted at the firm level by use of a unique database constructed by field work. The determinants tested in a simple econometric regression model are focussed upon the issue of human capital and modern market-oriented management. The results are novel in as much as a solution was established for the puzzling results in related research with respect to a comparison of formal qualification between East and West. Furthermore, the analysis was able to establish that the kind of human capital and expertise mostly needed in the post-socialist firms are related to the particular requirements of a competitive marketbased economic environment. Finally, the analysis also finds empirical support for the role of capital deepening in productivity catch-up, as well as the case that the gaps in labour productivity are most importantly rooted in a more labour-intense production, which does not give rise to a competitive disadvantage.
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Does Qualification Drive Innovation? A Microeconometric Analysis Using Linked-employer-employee Data
Bianca Brandenburg, Jutta Günther, Lutz Schneider
IWH Discussion Papers,
No. 10,
2007
Abstract
Degree-level science and engineering skills as well as management and leadership skills are often referred to as a source of innovative activities within companies. Broken down by sectoral innovation patterns, this article examines the role of formal education and actual occupation for product innovation performance in manufacturing firms within a probit model. It uses unique micro data for Germany (LIAB) that contain detailed information about innovative activities and the qualification of employees. We find significant differences of the human capital endowment between sectors differentiated according to the Pavitt classification. Sectors with a high share of highly skilled employees engage in product innovation above average (specialized suppliers and science based industries). According to our hitherto estimation results, within these sectors the share of highly skilled employees does not, however, substantially increase the probability to be an innovative firm.
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FDI and Domestic Investment: An Industry-level View
Claudia M. Buch
CEPR. Discussion Paper No. 6464,
2007
Abstract
Previous empirical work on the link between domestic and foreign investment provides mixed results which partly depend on the level of aggregation of the data. We argue that the aggregated home country implications of foreign direct investment (FDI) cannot be gauged using firm-level data. Aggregated data, in turn, miss channels through which domestic and foreign activities interact. Instead, industry-level data provide useful information on the link between domestic and foreign investment. We theoretically show that the effects of FDI on the domestic capital stock depend on the structure of industries and the relative importance of domestic and multinational firms. Our model allows distinguishing intra-sector competition from inter-sector linkage effects. We test the model using data on German FDI. Using panel cointegration methods, we find evidence for a positive long-run impact of FDI on the domestic capital stock and on the stock of inward FDI. Effects of FDI on the domestic capital stock are driven mainly by intra-sector effects. For inward FDI, inter-sector linkages matter as well.
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Comparative Study of Multinational Companies in the Enlarged EU - A Technology Transfer Perspective
Johannes Stephan, Björn Jindra, I. Klugert
Conference Proceedings of „Comparing International Competitiveness of Manufacturing Companies in the EU with Special Emphasis on Central and Eastern Europe“,
2007
Abstract
Our study makes a novel contribution to the analysis of the link between multinational companies' heterogeneity and technological transfer. Thereby, we focus on internal technology transfer i.e. technology flowing from the multinational enterprise to the foreign subsidiary. We estimate the impact of corporate governance, subsidiary objectives, local absorptive capacity, as well as the cultural and geographic distance as potential determinants of internal technology transfer. We control for other observed firm- and industry-specific effects as well as unobserved host-country effects. We test our hypothesis with a firm-level data simultaneously collected from 434 foreign subsidiaries in Poland, Hungary, Estonia, Slovakia and Slovenia in 2002/2003. The evidence seems to indicate that the nature of the parent-subsidiary relationship is subject to the institutional context, subsidiary objectives, and risks involved for the foreign parent. These factors in turn determine the incentives for transferring knowledge to the subsidiary. Foreign subsidiaries' absorptive capacity enhances the intensity of internal technology transfer. In contrast geographic distance seems to limit the extent of technology transfer within the company. Country-of-origin-effects seem not to be statistically relevant for internal technology transfer once we control for observable firm, industry, and unobserved host-country-specific effects.
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Systematic Mispricing in European Equity Prices?
Marian Berneburg
IWH Discussion Papers,
No. 6,
2007
Abstract
One empirical argument that has been around for some time and that clearly contra- dicts equity market efficiency is that market prices seem too volatile to be optimal estimates of the present value of future discounted cash flows. Based on this, it is deduced that systematic pricing errors occur in equity markets which hence can not be efficient in the Effcient Market Hypothesis sense. The paper tries to show that this so-called excess volatility is to a large extend the result of the underlying assumptions, which are being employed to estimate the present value of cash flows. Using monthly data for three investment style indices from an integrated European Equity market, all usual assumptions are dropped. This is achieved by employing the Gordon Growth Model and using an estimation process for the dividend growth rate that was suggested by Barsky and De Long. In extension to Barsky and De Long, the discount rate is not assumed at some arbitrary level, but it is estimated from the data. In this manner, the empirical results do not rely on the prerequisites of sta- tionary dividends, constant dividend growth rates as well as non-variable discount rates. It is shown that indeed volatility declines considerably, but is not eliminated. Furthermore, it can be seen that the resulting discount factors for the three in- vestment style indices can not be considered equal, which, on a risk-adjusted basis, indicates performance differences in the investment strategies and hence stands in contradiction to an efficient market. Finally, the estimated discount rates under- went a plausibility check, by comparing their general movement to a market based interest rate. Besides the most recent data, the estimated discount rates match the movements of market interest rates fairly well.
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Lower Firm-Specific Productivity Levels in East Germany and East European Industrial Branches: The Role of Managerial Factors
Johannes Stephan
Germany Economic Performance: From Unification to Euroisation. Macmillan: Basingstoke,
2007
Abstract
This research assesses the firm-specific reasons for lower productivity levels between West and East German firms. The study is based on a unique data-base generated by field work in the four particularly important industrial sectors of machinery, furniture, cosmetics, and electrotechnics manufacturers and for the two East and West German regions, Poland, the Czech Republic, and Hungary. Our results suggest that apparently management in industrial firms in the East still lack the kind of market-orientation that proves to be at the centre of competitiveness in a market and price-governed system of the modern western-style economy.
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Ageing in East Germany: Remarkable reduction of entrepreneurship
Lutz Schneider, Stefan Eichler
Wirtschaft im Wandel,
No. 4,
2007
Abstract
Population shrinking and ageing are obvious trends in many German regions, but in the Eastern states they reach an unique level. An often ignored economic implication of these demographic deve-lopments is the reduction of the entrepreneurial potential. Shirking, on the one hand, diminishes the quantity of potential entrepreneurs, on the other hand these effects are strengthened by ageing trends, since people usually decide in younger years to found an enterprise. The analysis tries to quantify the impact of demographic change on entrepreneurship activities in east Germany until 2020. At the first stage on the basis of the Mikrozensus survey age specific shares of new entrepreneurs are calculated. In order to obtain a status-quo-forecast of new entrepreneurs at the second stage these quotas are combined with the population projections for the East Germany. As expected the propensity to set up a new business is highest for persons at the age form 25 to 39 years. Due to the strong reduction of this age group the number of new firm foundations will fall by approximately 25% until 2020.Whereas the decline in Berlin will be relatively small (14%), Brandenburg has to bear an alarming reduction of 32%.In contrast the West German states show only a reduction of 6% during the same period, which emphasizes the extraordinary dimension of demographic change in East Germany.
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