European Firm Concentration and Aggregate Productivity
Tommaso Bighelli, Filippo di Mauro, Marc Melitz, Matthias Mertens
Abstract
This article derives a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power.
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European Firm Concentration and Aggregate Productivity
Tommaso Bighelli, Filippo di Mauro, Marc Melitz, Matthias Mertens
Abstract
This article derives a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power.
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International Emigrant Selection on Occupational Skills
Miguel Flores, Alexander Patt, Jens Ruhose, Simon Wiederhold
Journal of the European Economic Association,
No. 2,
2021
Abstract
We present the first evidence on the role of occupational choices and acquired skills for migrant selection. Combining novel data from a representative Mexican task survey with rich individual-level worker data, we find that Mexican migrants to the United States have higher manual skills and lower cognitive skills than nonmigrants. Results hold within narrowly defined region–industry–occupation cells and for all education levels. Consistent with a Roy/Borjas-type selection model, differential returns to occupational skills between the United States and Mexico explain the selection pattern. Occupational skills are more important to capture the economic motives for migration than previously used worker characteristics.
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Completing the European Banking Union: Capital Cost Consequences for Credit Providers and Corporate Borrowers
Michael Koetter, Thomas Krause, Eleonora Sfrappini, Lena Tonzer
Abstract
The bank recovery and resolution directive (BRRD) regulates the bail-in hierarchy to resolve distressed banks without burdening tax payers. We exploit the staggered implementation of the BRRD across 15 European Union (EU) member states to identify banks’ capital cost and capital structure responses. In a first stage, we show that average capital costs of banks increased. WACC hikes are lowest in the core countries of the European Monetary Union (EMU) compared to formerly stressed EMU and non-EMU countries. This pattern is driven by changes in the relative WACC weight of equity in response to the BRRD, which indicates enhanced financial system resilience. In a second stage, we document asymmetric transmission patterns of banks’ capital cost changes on to corporates’ borrowing terms. Only EMU banks located in core countries that exhibit higher WACC are those that also increase firms’ borrowing cost and contract credit supply. Hence, the BRRD had unintended consequences for selected segments of the real economy.
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What Drives the Commodity-Sovereign Risk Dependence in Emerging Market Economies?
Hannes Böhm, Stefan Eichler, Stefan Gießler
Journal of International Money and Finance,
March
2021
Abstract
Using daily data for 34 emerging markets in the period 1994–2016, we find robust evidence that higher export commodity prices are associated with lower sovereign default risk, as measured by lower EMBI spreads. The economic effect is especially pronounced for heavy commodity exporters. Examining the drivers, we find that, first, commodity dependence is higher for countries that export large volumes of commodities, whereas other portfolio characteristics like volatility or concentration are less important. Second, commodity-sovereign risk dependence increases in times of recessions and expansionary U.S. monetary policy. Third, the importance of raw material prices for sovereign financing can likely be mitigated if a country improves institutions and tax systems, attracts FDI inflows, invests in manufacturing, machinery and infrastructure, builds up reserve assets and opens capital and trade accounts. Fourth, the country’s government indebtedness or amount of received development assistance appear to be only of secondary importance for commodity dependence.
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Avoiding the Fall into the Loop: Isolating the Transmission of Bank-to-Sovereign Distress in the Euro Area
Stefan Eichler, Hannes Böhm
Journal of Financial Stability,
December
2020
Abstract
While the sovereign-bank loop literature has demonstrated the amplification between sovereign and bank risks in the Euro Area, its econometric identification is vulnerable to reverse causality and omitted variable biases. We address the loop's endogenous nature and isolate the direct bank-to-sovereign distress channel by exploiting the global, non-Eurozone related variation in banks’ stock prices. We instrument banking sector stock returns in the Eurozone with exposure-weighted stock market returns from non-Eurozone countries and take further precautions to remove Eurozone-related variation. We find that the transmission of instrumented bank distress to sovereign distress is around 50% smaller than the corresponding coefficient in the unadjusted OLS framework, confirming concerns on endogeneity. Despite the smaller relative magnitude, increasing instrumented bank distress is found to be an economically and statistically significant cause for rising sovereign fragility in the Eurozone.
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The Viral Effects of Foreign Trade and Supply Networks in the Euro Area
Virginia di Nino, Bruno Veltri
IWH-CompNet Discussion Papers,
No. 4,
2020
Abstract
Containment measures of COVID-19 have generated a chain of supply and demand shocks around the globe with heterogeneous fallout across industries and countries. We quantify their transmission via foreign trade with a focus on the euro area where deep firms integration within regional supply chains and strong demand linkages act as a magnification mechanism. We estimate that spillover effects in the euro area from suppression measures in one of the five main euro area countries range between 15-28% the size of the original shock; negative foreign demand shocks depress euro area aggregate activity by about a fifth the size of the external shock and a fourth of the total effect is due to indirect propagation through euro area supply chain. Last, reopening to regional tourism softened the contraction of aggregate activity due to travel and tourism bans by about a third in the euro area. Our findings suggest that enhanced coordination of recovery plans would magnify their beneficial effects.
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What Drives the Commodity-Sovereign-Risk-Dependence in Emerging Market Economies?
Hannes Böhm, Stefan Eichler, Stefan Gießler
Abstract
Using daily data for 34 emerging markets in the period 1994-2016, we find robust evidence that higher export commodity prices are associated with higher sovereign bond returns (indicating lower sovereign risk). The economic effect is especially pronounced for heavy commodity exporters. Examining the drivers, we find, first, that commodity-dependence is higher for countries that export large volumes of volatile commodities and that the effect increases in times of recessions, high inflation, and expansionary U.S. monetary policy. Second, the importance of raw material prices for sovereign financing can likely be mitigated if a country improves institutions and tax systems, attracts FDI inflows, invests in manufacturing, machinery and infrastructure, builds up reserve assets and opens capital and trade accounts. Third, the concentration of commodities within a country’s portfolio, its government indebtedness or amount of received development assistance appear to be only of secondary importance for commodity-dependence.
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Delay Determinants of European Banking Union Implementation
Michael Koetter, Thomas Krause, Lena Tonzer
European Journal of Political Economy,
2019
Abstract
Most countries in the European Union (EU) delay the transposition of European Commission (EC) directives, which aim at reforming banking supervision, resolution, and deposit insurance. We compile a systematic overview of these delays to investigate if they result from strategic considerations of governments conditional on the state of their financial, regulatory, and political systems. Transposition delays pertaining to the three Banking Union directives differ considerably across the 28 EU members. Bivariate regression analyses suggest that existing national bank regulation and supervision drive delays the most. Political factors are less relevant. These results are qualitatively insensitive to alternative estimation methods and lag structures. Multivariate analyses highlight that well-stocked deposit insurance schemes speed-up the implementation of capital requirements, banking systems with many banks are slower in implementing new bank rescue and resolution rules, and countries with a more intensive sovereign-bank nexus delay the harmonization of EU deposit insurance more.
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Potential International Employment Effects of a Hard Brexit
Hans-Ulrich Brautzsch, Oliver Holtemöller
Abstract
We use the World Input Output Database (WIOD) to estimate the potential employment effects of a hard Brexit in 43 countries. In line with other studies we assume that imports from the European Union (EU) to the UK will decline by 25% after a hard Brexit. The absolute effects are largest in big EU countries which have close trade relationships with the UK like Germany and France. However, there are also large countries outside the EU which are heavily affected via global value chains like China, for example. The relative effects (in percent of total employment) are largest in Malta and Ireland. UK employment will also be affected via intermediate input production. Within Germany, the motor vehicle industry and in particular the “Autostadt” Wolfsburg are most affected.
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