16.12.2015 • 45/2015
German Economy: Strong domestic demand compensates for weak exports
The upturn of the German economy is expected to gain further momentum as a consequence of strong domestic demand. Real gross domestic product is expected to increase by 1.6% in 2016. Consumer prices are expected to rise by 0.9%. Unemployment is expected to rise slightly because it will take time to integrate refugees into the labour market.
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The Euro Plus Pact: Competitiveness and External Capital Flows in the EU Countries
Journal of Common Market Studies,
The Euro Plus Pact was approved by the European Union countries in March 2011. The pact stipulates various measures to strengthen competitiveness with the ultimate aim of preventing accumulation of unsustainable external imbalances. This article uses Granger causality tests to assess the short-term linkages between changes in relative unit labour costs and changes in the current account balance for the period 1995–2011. The main finding is that changes in the current account balance precede changes in relative unit labour costs, while there is no discernible effect in the opposite direction. This suggests that capital flows from the European core to the periphery contributed to the divergence in unit labour costs across Europe prior to the global financial crisis. The results also suggest that the measures to restrain unit labour costs may have only limited effect on the current account balance in the short term.
The Role of Entrepreneurship in US Job Creation and Economic Dynamism
Journal of Economic Perspectives,
An optimal pace of business dynamics—encompassing the processes of entry, exit, expansion, and contraction—would balance the benefits of productivity and economic growth against the costs to firms and workers associated with reallocation of productive resources. It is difficult to prescribe what the optimal pace should be, but evidence accumulating from multiple datasets and methodologies suggests that the rate of business startups and the pace of employment dynamism in the US economy has fallen over recent decades and that this downward trend accelerated after 2000. A critical factor in accounting for the decline in business dynamics is a lower rate of business startups and the related decreasing role of dynamic young businesses in the economy. For example, the share of US employment accounted for by young firms has declined by almost 30 percent over the last 30 years. These trends suggest that incentives for entrepreneurs to start new firms in the United States have diminished over time. We do not identify all the factors underlying these trends in this paper but offer some clues based on the empirical patterns for specific sectors and geographic regions.
The Regional Distribution of Foreign Investment in Russia: Are Russians more Appealing to Multinationals as Consumers or as Natural Resource Holders?
Economics of Transition and Institutional Change,
This article conducts a plant-level study of the factors affecting foreign direct investment (FDI) inflow to a large opening economy endowed with specific factor advantages. We conclude that the distribution of FDI in Russian regions depends on market access and can be most notably described by the knowledge-capital framework. Factor endowments built by natural resources are more successful in explaining the location decisions of export–platform affiliates. The impact of natural resources depends on how the availability of these resources is measured. The results reject the crowding out effects of resource FDI and prove co-location mode, when service investments are attracted to resource-rich regions. Labour cost advantages better explain the preferences of non-trading service affiliates.
Adjustments in the Use of Temporary Agency before and during the 2008/2009 Economic Crisis
The use of temporary agency work in Germany strongly increased between 2002 and the economic crisis of 2008 and 2009. This increase was characterised by an intensified use in medium and large manufacturing plants and was concentrated within user firms, i.e. the intensive margin was dominant. These phenomena can be explained with reduced transaction costs and strong international competition and they indicate increased productivity amongst user firms. The sharp decline in the use of temporary agency work during the economic crisis was concentrated among exporters and large manufacturing plants and mostly driven by the extensive margin. Employment opportunities in the temporary work sector were in particular sensitive to changes in the international demand for goods of the German manufacturing sector.
Cost of Transaction and the Search for Skilled Workers: A Theoretical Explanation Based on the Theory of Institutions
IWH Discussion Papers,
Germany will have an increasing need of qualified staff across regions and economical sectors. Not only does this concern highly qualified of so-called MINT-professions (mathematics, IT, natural sciences and technology), but expands to qualified laborers of the health business and the arts and crafts sector. This demand cannot be met through the employment of jobless people from within the country, as the demographic change of a shrinking and ageing population works against it. Societal responsibility thus demands to attract qualified laborers as immigrants. In order to improve Germany’s image as a country of immigration for qualified staff, so-called soft-criteria should be strengthened aside hard facts, like income or employment opportunities. Such a policy actively needs to communicate to migrants that they and their family members are welcome to stay for good. Such an approach has recently been discussed as “Willkommenskultur” (“culture of welcoming”). It signals a change of paradigm in German immigration policy. A policy of „Willkommenskultur“ does not yet exist in Germany, at least it has not yet reached a satisfying level to be recognized and accepted as such by potential immigrants. Based on the theoretical conception of the Institutional Economy, approaches of a political change and its implementation are outlined. Those changes would imply governmental, societal and micro-economical shifts and changes.
The Determinants of Inward Foreign Direct Investment in Business Services Across European Regions
Finanza e Statistica 104/2012,
The paper accounts for the determinants of inward foreign direct investment in business services across the EU-27 regions. Together with the traditional variables considered in the literature (market size, market quality, agglomeration economies, labour cost, technology, human capital), we focus on the role of forward linkages with manufacturing sectors and other service sectors as
attractors of business services FDI at the regional level. This hypothesis is based on the evidence that the growth of business services is mostly due to increasing intermediate demand by other services industries and by manufacturing industries and on the importance of geographical proximity for forward linkages in services.
To our knowledge, there are no studies investigating the role of forward linkages for the location of FDI. This paper aims therefore to fill this gap and add to the FDI literature by providing a picture of the specificities of the determinants of FDI in business services at the regional level. The empirical analysis draws upon the database fDi Markets, from which we selected projects having as a destination NUTS 2 European regions in the sectors of Business services over the period 2003-2008. Data on FDI have been matched with data drawn from the Eurostat Regio
database. Forward linkages have been constructed using the OECD Input/Output database. By estimating a negative binomial model, we find that regions specialised in those (manufacturing) sectors that are high potential users of business services attract more FDI than other regions. This confirms the role of forward linkages for the localisation of business service FDI, particularly in the case of manufacturing.
What Drives FDI in Central-eastern Europe? Evidence from the IWH-FDI-Micro Database
The focus of this paper is on the match between strategic motives of foreign investments into Central-Eastern Europe and locational advantages offered by these countries. Our analysis makes use of the IWH-FDI-Micro Database, a unique dataset that contains information from 2009 about the determinants of locational factors, technological activity of the subsidiaries, and the potentials for knowledge spillovers in the Czech Republic, Hungary, Poland, Romania, and Slovakia. The analysis suggests that investors in these countries are mainly interested in low (unit) labour costs coupled with a well-trained and educated workforce and an expanding market with the high growth rates in the purchasing power of potential buyers. It also suggests that the financial crisis reduced the attractiveness of the region as a source for localised knowledge and technology. There appears to be a match between investors’ expectations and the quantitative supply of unqualified labour, not however for the supply of medium qualified workers. But the analysis suggests that it is not technology-seeking investments that are particularly content with the capabilities of their host economies in terms of technological cooperation. Finally, technological cooperation within the local host economy is assessed more favourably with domestic firms than with local scientific institutions – an important message for domestic economic policy.