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
Das makroökonometrische Modell des IWH: Eine angebotsseitige Betrachtung
Rolf Scheufele
IWH Discussion Papers,
No. 9,
2008
Abstract
This paper describes the IWH macroeconometric model, a quarterly structural model for the German Economy. It focuses on the specification and estimation on supply-side aspects of the model. This approach guarantees a theoretical derived long-run model equilibrium. It combines short-run forecasting requirements with a long-run theoretical foundation. For some macroeconomic aggregates short- and long-run effects of supply- and demand shocks are illustrated. Additionally, effects of external shocks are investigated through model simulations to illustrate aggregate model characteristics.
Read article
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.
Read article
Institutionelle Defizite und wachsende Spannungen in der Euro-Zone
Hubert Gabrisch
Wirtschaft im Wandel,
No. 7,
2007
Abstract
The introduction of the Euro was certainly a success. Nevertheless, behind this success one may find some increasing asymmetries and imbalances across member countries, which may undermine the stability of the common currency in the long run. Tensions include the paralysis of fiscal policy, increasing divergence in per capita income, a high volatility of real state prices, and diverging unit labour cost developments. The given forms of macroeconomic coordination seem not to be appropriate to mitigate the problems. Obviously, countries can compete with wage policy only after currencies and their exchange rates were abolished, and the use of fiscal policy has been restricted. In particular, Germany and Austria were successful in competitive wage policy, while countries like Spain, Greece, Portugal, Italy, and also France did not yet use the competitiveness channel. Germany was able to reduce its unit labour costs more than other countries by labour market reforms and higher indirect taxes in replacing social taxes. However, the advantage may proof to be temporary only, for other countries will be forced to follow the German example. Given an ECB inflation target of 2 %, more competitive wage policy in the Euro area might jeopardize the stability of the currency through deflation and higher unemployment. It does not wonder that the discussion on other and new forms of macroeconomic coordination revived recently. This debate does not only include the introduction of a central EU budget with anti-cyclical effects, but also forms of direct and indirect coordination of national wage policies. In any case, it would be useful to oblige national wage policies to obey the common interest of the Union.
Read article
Fiscal economy potentials of a county structure reform in Saxony-Anhalt
Simone Scharfe
Wirtschaft im Wandel,
No. 5,
2006
Abstract
In view of the foreseeable demographic and finance-political developments the public house holds of Eastern Germany are under considerable strain to consolidate. This applies particularly to Saxony-Anhalt and there especially to local authorities. In 2003 the municipal expenses level (running material expenses and personnel expenses) of counties and communities in Saxony-Anhalt amounted 1,015 Euro per inhabitant and was clearly higher than the other East German states. Beyond the means of economisation through the efficient application of public funds, considerations are given to the potentials of country structure reforms. In the last legislative period, the CDU/FDP government already established the amalgamation of 24 counties to eleven new ones with the bill of 11.11.2005. The SPD - as an oppositional party at that time - submitted a proposal for an even further-reaching structural change with a concentration to five counties. This article comprises an estimation of the fiscal economisation potentials of both versions. In the first step, the (long term accessible) county expense levels of Saxony-Anhalt within the scope of the existing structure of a county is determined with the help of a Benchmarkanalysis. These results are then compared with expected expense levels of a reformed county structure which leads to the saving effect of the respective county reform. In the result of the analysis it appears that the suggestion of the SPD to the county structure reform allows to expect clearly higher saving effects than the suggestion of the former CDU/FDP government, a strong meaning of the already enforced community administrative reform is imputable.
Read article
Liberalization of Electricity Markets in Selected European Countries
Albrecht Kauffmann, M. Keim, P. J. J. Welfens
Diskussionsbeiträge des Europäischen Instituts für Internationale Wirtschaftsbeziehungen (EIIW), Bergische Universität Wuppertal, Nr. 124,
No. 124,
2004
Abstract
We look into liberalization issues in the context of the EU Electricity Liberalization. Taking a look at principal issues reveals that the Community Directive 96/92/EC does not really take into account the interdependencies of energy markets. Moreover, third party access is not effectively enforced, particularly not in Germany, where mergers between a major electricity company and the dominant gas company have raised particular issues. Electricity liberalization in Scandinavia is working relatively well. EU accession countries are considered potential electricity exporters in the long run as full restructuring will drive down both energy intensities and electricity intensities. Russia would be wise to quickly become a member country of WTO, not in the least to gain access to Western Europe’s electricity market; the role of Russia so far has been neglected in the discussion of electricity liberalization. Excess capacities in EU-27 can be expected in the medium term. There is considerable doubt that politicians – often with ambitious goals in the field of environmental policy – will allow for a pan-European liberalization of electricity. We also take a closer look at regulatory policy issues.
Read article
A Study of the Competitiveness of Regions based on a Cluster Analysis: The Example of East Germany
Franz Kronthaler
IWH Discussion Papers,
No. 179,
2003
Abstract
This paper examines whether some East German regions have already achieved the same economic capability as the regions in West Germany, so that they are on a competitive basis with the West German regions and are able to reach the same economic level in the long run. If this is not the case, it is important to know more about the reasons for the economic weakness of the East German regions twelve years after unification.
The study is based on a cluster analysis. Criteria for the cluster formation are several economic indicators, which provide information about the economic capability of regions. The choice of the indicators is based on a review of results of the theoretical and empirical literature on the new growth theory and new economic geography.
The results show that most of the East German regions have not yet reached the economic capability and competitiveness of their West German counterparts so that they - from the viewpoint of the new growth theory and the new economic geography - are not in the position to reach the same economic level. According to these theories economic disadvantages are most notably the consequences of less technical progress, a lack of entrepreneurship and fewer business concentration. Under these points it is especially noteworthy that young well educated people leave these East German regions so that human capital might will turn into a bottle-neck in the near future. Only a few regions in East Germany - those with important agglomerations - are comparable to West German regions that are characterised by average capability and competitiveness, but not to those with above average economic capability and competitiveness. Even those more advanced East German regions still suffer from a slower technical progress.
There are important policy implications based on these results: regional policy in East Germany was not able to assist raising all regions to a sufficient level of competitiveness. It may be more effective to concentrate the regional policy efforts on a selection of important agglomerations. This has also strong implications for the EU regional policy assuming that the accession countries will have similar problems in catching up to the economic level of the EU as have the East German regions.
Read article
Determinants of population development in East and West Germany
Gunter Steinmann, Sven Tagge
Wirtschaft im Wandel,
No. 4,
2002
Abstract
In the long run there will be a change of the size and the structure of the german population because of mortality decline and birth rates below the reproduction level. In this projection we analyze the different effects of variations of fertility, mortality and migration flows on the population. We show, that immigration on a realistic level is not able to compensate the deficit of live births, but can alleviate the shrinking and ageing process of the german population. Without pronatalistic measures, higher than present birth rates are not expected. While, in our simulations, immigration and an increase in fertility could potentially stabilize the population size in the west, this will not occur in the eastern part of Germany. There, the net east-west migration leads to an additional population decline.
Read article
Reduction of transfer payments to East Germany: Contractive effects only in the short term
Joachim Ragnitz, Christian Dreger
Wirtschaft im Wandel,
No. 7,
2000
Abstract
By applying a macroeconometric model, the effects of a substantial reduction of transfers for the New Laender are studied. It is argued that in the short run convergence will be hampered severely if transfers are reduced abruptly; however, in the long the negative effects on the East German economy can be ignored.
Read article
What can a town achieve today? Integration, urban regimes, and the acceptance of models
Peter Franz
IWH Discussion Papers,
No. 56,
1997
Abstract
Since 1990, the date of German reunification, urban development and especially the recovery of inner cities in East Germany has been delayed by several factors including real estate restitution claims, inflexible preservation codes for historic buildings, and the shortage of stores for retailers. This blockade situation has resulted in the quick and intensified development of shopping centres as „inner city substitutes“ on the urban periphery. The combined effect of the factors preventing revitalisation strategies and the newly realised and practised potential for autonomous action by the authorities of smaller municipalities was a severe restriction for the governing capacities of the authorities of the larger cities. in regaining their governance capability city governments are dependent on urban groups joining and supporting public developmental strategies. In accordance with Stone (1993) and Stoker and Mossberger (1994) urban groups active in urban development policy can be described as urban regimes. In Germany three types of regimes can be differentiated. The cities differ with respect to the political strength and the forms of coalition and conflict between different urban regimes. Specific conditions in East Germany have led to a special regime constellation with a powerful „conservation regime“ on the one hand and a vivid „globalisation regime“ on the other hand. This conflicting constellation results in a developmental blockade. The hypothesis is that a third regime type, the „local alliance“, is missing and still has to be created by practices such as city marketing and city management. Only when this regime building process has advanced will new constellations of political coalitions and compromise become possible and be able to reduce governance problems of city government in the long run.
Read article