Euro Area External Imbalances and the Burden of Adjustment
Filippo di Mauro, Francesco Pappadà
Journal of International Money and Finance,
November
2014
Abstract
The objective of this paper is to explore the consequences of the correction of Euro area trade imbalances on real exchange rates. This analysis requires one additional dimension with respect to the standard Global Imbalances framework à la Obstfeld and Rogoff (2005), since the adjustment takes place within and outside the Euro area. Both types of adjustments are analyzed in a three-country general equilibrium model with a tradable and a non-tradable sectors, and heterogeneous firms built upon Pappadà (2011). ECB (CompNet) data are used to measure the differences in firm size and productivity dispersion across Euro area countries. With respect to the surplus country (Germany), countries running a trade deficit (Spain, Italy) are characterised by a productivity distribution with a lower mean and a less fat right tail. This increases the relative price movement associated with the external adjustment because of the limited role played by the extensive margin. We show that the real exchange rate movements are underestimated when the cross-country differences in terms of productivity distributions are neglected.
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Should I Stay or Should I Go? Bank Productivity and Internationalization Decisions
Claudia M. Buch, C. T. Koch, Michael Koetter
Journal of Banking and Finance,
Nr. 42,
2014
Abstract
Differences in firm-level productivity explain international activities of non-financial firms quite well. We test whether differences in bank productivity determine international activities of banks. Based on a dataset that allows tracking banks across countries and across different modes of foreign entry, we model the ordered probability of maintaining a commercial presence abroad and the volume of banks’ international assets empirically. Our research has three main findings. First, more productive banks are more likely to enter foreign markets in increasingly complex modes. Second, more productive banks also hold larger volumes of foreign assets. Third, higher risk aversion renders entry less likely, but it increases the volume of foreign activities conditional upon entry.
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The Role of Entrepreneurship in US Job Creation and Economic Dynamism
Ryan A. Decker, John Haltiwanger, Ron S. Jarmin, Javier Miranda
Journal of Economic Perspectives,
Nr. 3,
2014
Abstract
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.
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Micro-Based Evidence of EU Competitiveness: The CompNet Database
Filippo di Mauro, et al.
ECB Working Paper,
Nr. 1634,
2014
Abstract
Drawing from confidential firm-level balance sheets in 11 European countries, the paper presents a novel sectoral database of comparable productivity indicators built by members of the Competitiveness Research Network (CompNet) using a newly developed research infrastructure. Beyond aggregate information available from industry statistics of Eurostat or EU KLEMS, the paper provides information on the distribution of firms across several dimensions related to competitiveness, e.g. productivity and size. The database comprises so far 11 countries, with information for 58 sectors over the period 1995-2011. The paper documents the development of the new research infrastructure, describes the database, and shows some preliminary results. Among them, it shows that there is large heterogeneity in terms of firm productivity or size within narrowly defined industries in all countries. Productivity, and above all, size distribution are very skewed across countries, with a thick left-tail of low productive firms. Moreover, firms at both ends of the distribution show very different dynamics in terms of productivity and unit labour costs. Within-sector heterogeneity and productivity dispersion are positively correlated to aggregate productivity given the possibility of reallocating resources from less to more productive firms. To this extent, we show how allocative efficiency varies across countries, and more interestingly, over different periods of time. Finally, we apply the new database to illustrate the importance of productivity dispersion to explain aggregate trade results.
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A Weighty Issue Revisited: The Dynamic Effect of Body Weight on Earnings and Satisfaction in Germany
Frieder Kropfhäußer, Marco Sunder
Abstract
We estimate the relationship between changes in the body mass index (bmi) and wages or satisfaction, respectively, in a panel of German employees. In contrast to previous literature, the dynamic models indicate that there is an inverse u-shaped association between bmi and wages among young workers. Among young male workers, work satisfaction is affected beyond the effect on earnings. Our finding of an implied optimum bmi in the overweight range could indicate that the recent rise in weight does not yet constitute a major limitation to productivity.
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Financial Constraints and Foreign Direct Investment: Firm-level Evidence
Claudia M. Buch, I. Kesternich, A. Lipponer, Monika Schnitzer
Review of World Economics,
Nr. 2,
2014
Abstract
Low productivity is an important barrier to the cross-border expansion of firms. But firms may also need external finance to shoulder the costs of entering foreign markets. We develop a model of multinational firms facing real and financial barriers to foreign direct investment (FDI), and we analyze their impact on the FDI decision. Theoretically, we show that financial constraints can affect highly productive firms more than firms with low productivity because the former are more likely to expand abroad. We provide empirical evidence based on a detailed dataset of German domestic and multinational firms which contains information on parent-level financial constraints as well as on the location the foreign affiliates. We find that financial factors constrain firms’ foreign investment decisions, an effect felt in particular by firms most likely to consider investing abroad. The locational information in our dataset allows exploiting cross-country differences in contract enforcement. Consistent with theory, we find that poor contract enforcement in the host country has a negative impact on FDI decisions.
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Non-union Worker Representation, Foreign Owners, and the Performance of Establishments
U. Jirjahn, Steffen Müller
Oxford Economic Papers,
Nr. 1,
2014
Abstract
Using German establishment data, this study provides the first econometric analysis on the interaction of establishment-level codetermination and foreign owners. Works councils are associated with higher productivity in domestic-owned establishments while they are associated with lower productivity in foreign-owned establishments. Our results conform to the notion that foreign ownership can involve strong tensions with the institutional patterns of the host country.
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IT Use, Productivity, and Market Power in Banking
Michael Koetter, Felix Noth
Journal of Financial Stability,
Nr. 4,
2013
Abstract
Information management is a core process in banking that can resolve information asymmetries and thereby help to mitigate competitive pressure. We test if the use of information technology (IT) contributes to bank output, and how IT-augmented bank productivity relates to differences in market power. Detailed bank-level information on the use of IT reveals a substantial upward bias in bank productivity estimates when ignoring banks’ IT expenditures. IT-augmented bank productivity correlates positively with Lerner markups. A mere increase in IT expenditures, however, reduces markups. Results hold across a range of bank output definitions and productivity estimation methods.
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Competitiveness Research Network – First Year Results
Filippo di Mauro
CompNet Report,
June
2013
Abstract
This interim report summarises the main findings of the Competitiveness Research Network (CompNet) after one year of existence. The Network is organized in three workstreams related to: (i) aggregate measures of competitiveness; (ii) firm-level studies; and (iii) global value chains (GVCs). The main objectives of the Network are to improve the existing frameworks and indicators of competitiveness across all dimensions (macro, micro and cross-border) and establish a more solid connection between identified competitiveness drivers and resulting outcomes (trade, aggregate productivity, employment, growth and essentially welfare), in order to support the design of adequate policies.
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Disentangling Barriers to Internationalization
C. Arndt, Claudia M. Buch, A. Mattes
Canadian Journal of Economics,
Nr. 1,
2012
Abstract
Recent literature on multinational firms has focused on low productivity as a barrier to the internationalization of firms. But labour market frictions or financial constraints may also hamper internationalization. In order to assess the importance of these barriers, we present new empirical evidence on the extensive and intensive margin of exports and foreign direct investment (FDI) based on micro-level data of German firms. First, we find a positive impact of firm size and productivity on firms’ international activities. Second, labour market frictions can constitute barriers to foreign activities. Third, self-reported financial constraints have no impact on firms’ internationalization decisions.
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