Russia: A Victim to Transition or to the Financial Crisis?
Marina Grusevaja
Wirtschaft im Wandel,
No. 8,
2009
Abstract
The global financial crisis has revealed deficiencies of the Russian economic system which are caused by the path of the transformation from central planning to the market economy, and not only attributable to the downfall of crude oil prices. While the worldwide liquidity crunch impaired the availability of loans to enterprises, the situation in Russia has deteriorated especially by the large exposure of the private sector to short-term foreign liabilities and by the one-sided orientation of the economy relying on the natural resources industry. Until the mid-2008, the foreign debt of the private banks and non-banks had increased strongly and had strengthened the dependence of the Russian economy on the developments on the international financial markets. The Ruble devaluation at the end of January 2009 aggravated the situation. The high short-term foreign debt of the private sector and the dependence on exports of natural resources are typical outcomes of the Russian transformation path. Therefore, on the one hand, the banking sector has not being able to satisfy financing demand of the private sector beyond the natural resources industries, enterprises became forced to borrow short-term money abroad. On the other hand, the economic strategy of the past seventeen years has strengthened the influence of the state on the natural resources sector – with the strong priority to develop it further. Hence, the one-sided economic development negatively affects the adaptability of the real-economic sector to change during the crisis period. In essence, the present political preferences of the government are aimed at providing direct financial assistance and at protectionist measures. In the long run, these actions could lead to stronger intervention of the state in the economy. Due to these recent developments, the crisis is likely to continue in Russia longer than in the other transformation countries.
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European Commission, Leibniz Association and IWH Discuss Innovation Related Policy in Transitions Regions
Björn Jindra, Katja Wilde
Wirtschaft im Wandel,
No. 7,
2009
Abstract
On February 17, 2009, the Halle Institute for Economic Research (IWH) and the Leibniz Association (WGL) held the final conference of the EU-project “Understanding the Relationship between Knowledge and Competitiveness in the Enlarging European Union” (U-know) in Brussels. The research dealt with systemic aspects of innovation and knowledge transfer as well as the development of R&D (research and development) and innovation related policy. Thereby, a particular emphasis was put on the challenges facing the new EU member states and East Germany. The research project proved to be very productive with 54 research papers in refereed journals as well as 33 articles in edited volumes.
The aim of the conference was to present and discuss the main results of the U-know project with experts from the industry as well as the political and scientific community. Within four parallel sessions (Enterprises and markets, Public science and industry links, Systems and governance, Role of institutions), research output was presented. Representatives of the EU Commission commented directly on the presentations with a view on policy implications. In a final panel, all participants underlined the increasing importance of education, R&D, and innovation related policy to support the competitiveness of the EU-15 countries as well as the catching-up process of the new EU member states. The conference has raised significant interest both within the scientific community and the EU Commission.
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Global Financial Crisis Seriously Hits Russian Economy Because of Structural Imbalances
Martina Kämpfe
Wirtschaft im Wandel,
No. 6,
2009
Abstract
Due to the falling global demand for commodities and the heavy decline of world oil prices in last summer, Russian economy was affected seriously. The following decrease in export revenues and a wave of short-term capital withdrawals led to a crash of Russian stock and capital markets and a deterioration of the economic situation at the end of the previous year. The government decided to stabilize the exchange rate of the Rouble by interventions and to support the domestic banking sector in order to maintain credit availability. In respect of the approaching recession, the parliament approved an economic stimulus package that would help to stabilize the economy and to avoid too strong social burdens for the households. Nevertheless, there is a strong weakening of economic growth because of the economy’s dependency from oil prices and the lack of alternatives up to now.
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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.
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Municipal Enterprises as Shadow Budgets – How do they Affect the Actual Budgetary Situation of Germany´s Local Governments?
Peter Haug
Wirtschaft im Wandel,
No. 5,
2009
Abstract
Outsourcing of municipal tasks from the core budget to municipal enterprises tends to distort the perception of the actual financial position, net assets and results of operations of the German local governments. Excess supply or -demand of/for local public services might be possible consequences of this development. Hence, this article attempts to develop a more comprehensive picture of the municipal budgetary position by a simultaneous analysis of selected indicators. Furthermore, the methodological problems of the calculations are illustrated.
If these shadow budgets are taken into account, the total per capita revenues, -investments and -debts will increase by approximately one third to 50%. However, the share of the municipal employees belonging to the core administration in the total number of municipal employees is 75%. Although only about 22% of the expenditures for certain voluntary municipal tasks have been outsourced, there seems to be an upward trend.
The study also indicates that there are significant differences between Eastern and Western German cities. These include the higher revenues from municipal enterprises, the higher debts per capita and the higher expenditures on culture, sports, leisure services or the promotion of science in Eastern Germany.
The results should be interpreted carefully due to some shortcomings of the official statistics. For example, internal cash flows cannot be totally eliminated. Moreover, indirect municipal majority holdings as well as the municipal savings banks are not included in the results.
All in all, it remains to be seen whether the initiated reforms concerning the introduction of double-entry accounting into the local government budgeting system will help to achieve the ideal goal of a meaningful “consolidated financial statement” for the “city company”.
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The Ending of Solidarity Pact Payments: Are the “Neue Länder” Prepared Sufficiently?
Katja Wilde, Sabine Freye
Wirtschaft im Wandel,
No. 3,
2009
Abstract
Up to 2019, the “Neue Länder” in Germany are benefitting from financial transfer within the framework of the solidarity pact. From 2005 to 2007, the “Neue Länder” were able to improve they financial situation and used the solidarity pact payments efficiently. However, these payments are decreasing annually. This implies a significant financial reduction to the “Neue Länder’s” overall budgets and a considerable challenge for their future investments. This article analyses publications by the governments of the “Neue Länder” about their medium term budget planning and related progress reports from the year 2006. The consolidation of their budgets seems to be an essential aspect in the policy strategy of “Neue Länder” due to limited tax autonomy and legal restrictions on their expenditures. However, we identified several consolidation strategies with regard to infrastructural priorities, restructuring of administration, and creation of reserves. The public revenues of the “Neue Länder” are expected to decline in 2009 due to the current recession. In case that there are no fundamental changes in the underlying economic structures, the financial scope of the “Neue Länder” is going to be increasingly constrained, in particular with regard to future investments.
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The New EU Members on the Verge of Disaster: What to Do?
Hubert Gabrisch
Wirtschaft im Wandel,
No. 3,
2009
Abstract
The long lasting, but externally financed boom in the new EU countries has collapsed under the impacts of the global financial crisis. The countries’ fiscal and monetary authorizes do not seem to be able to effectively resist – a deep crisis is under way. The situation is particularly dramatic in the Baltic countries, where the hands of the monetary authority are institutionally tied, and an expansionary fiscal policy would trigger off speculative attacks on the exchange rate. Neither the maintaining of the currency board arrangement nor an ‘emergency access’ to the Euro zone would help. The other non-Euro members of the Union still aim to adopt the Euro in the next future and, thus, are reluctant to give up the Maastricht criteria. The Euro countries Slovakia and Slovenia might face a major deterioration of their credit rating if governments would attempt to increase fiscal deficits. All in all, two problems are to be solved: first, the external provision of liquidity to their economies and, second, an approach that anchors policies in the countries against economic nationalism, which is a beggar-thy-neighbor policy. We propose a combination of a reformed exchange rate mechanism with a stability and solidarity fund for all countries. The former would help to avoid too strong depreciations and the latter would provide liquidity to stabilize the exchange rate and the entire economy.
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Yes to Investments by Public Authorities for the Future! But Business Cycle will no Longer be Saved by it!
Hans-Ulrich Brautzsch, Brigitte Loose, Udo Ludwig
Wirtschaft im Wandel,
No. 3,
2009
Abstract
In order to mitigate the effects of the deep economic recession, the German federal government has adopted two economic stimulus packages to be applied in the period from 2009 to 2010. According to our estimations, these programs include investments amounting to 25.3 billion Euros mainly in infrastructure and education. We investigate the total effects of these investments on production and employment using a static input-output model. We find that the gross domestic product will increase by at most one percentage point, namely 0.4 points in 2009 and 0.7 points in 2010. This implies that approximately 400 000 jobs will be safeguarded. About one quarter of the effects will concern construction and business services respectively. For several reasons, our calculations constitute the upper bound to the expected effects. The increasing demand in construction could lead to significantly increasing prices. In light of the expected decline in production, the economic effects of the programs may appear to be low. Obviously, the strong decrease in external demand and its impact on the economy cannot be effectively combated by instruments of national economic policies.
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The Formation of Photovoltaic Clusters in Eastern Germany
Matthias Brachert, Christoph Hornych
Wirtschaft im Wandel,
No. 2,
2009
Abstract
One of the weaknesses of the East German economy is the relative lack of management functions and headquarters along with the relatively low research and developing efforts of the companies. With the emergence of new industries, there is a chance to respond to these weaknesses. Against this background, the article examines the emergence and development of the photovoltaic industry in Eastern Germany. The strong production and sales growth of the industry in the recent years is a result of central government funding programs. But up to now, East German regions have profited disproportionately from the growth of the sector. In 2008, we find about 14 000 direct industry employees in this sector in Eastern Germany.
Based on the Window of Locational Opportunity concept (WLO) by Storper and Walker – a stage model of industrial development –, this article describes the reasons of the development of the industry in Eastern Germany from 1996 until 2008. In spite of persistent growth processes and the foundation of new companies within the photovoltaic industry, a concentration on some certain locations, linked with the process of the formation of industrial clusters, becomes apparent. In a first result of the emergence of clusters, the regions of Bitterfeld-Wolfen, Dresden/Freiberg, Erfurt/Arnstadt, Frankfurt (Oder) and Berlin build leading sites in Eastern Germany.
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The Role of the Intellectual Property Rights Regime for Foreign Investors in Post-Socialist Economies
Benedikt Schnellbächer, Johannes Stephan
IWH Discussion Papers,
No. 4,
2009
Abstract
We integrate international business theory on foreign direct investment (FDI) with institutional theory on intellectual property rights (IPR) to explain characteristics and behaviour of foreign investment subsidiaries in Central East Europe, a region with an IPR regime-gap vis-à-vis West European countries. We start from the premise that FDI may play a crucial role for technological catch-up development in Central East Europe via technology and knowledge transfer. By use of a unique dataset generated at the IWH in collaboration with a European consortium in the framework of an EU-project, we assess the role played by the IPR regimes in a selection of CEE countries as a factor for corporate governance and control of foreign invested subsidiaries, for their own technological activity, their trade relationships, and networking partners for technological activity. As a specific novelty to the literature, we assess the in influence of the strength of IPR regimes on corporate control of subsidiaries and conclude that IPR-sensitive foreign investments tend to have lower functional autonomy, tend to cooperate more intensively within their transnational network and yet are still technologically more active than less IPR-sensitive subsidiaries. In terms of economic policy, this leads to the conclusion that the FDI will have a larger developmental impact if the IPR regime in the host economy is sufficiently strict.
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