FIW Working Papers

FIW Working Paper N° 53

Gabriele Tondl, Jorge A. Fornero - August 2010

Abstract: Empirical studies analysing productivity effects of inward FDI in Latin America (LA) are inconclusive. We argue that investigating aggregate FDI masks

interesting effects of FDI that take place within and across sectors. Moreover, the potential of FDI to generate productivity effects differs across sectors. For these reasons and because sectoral FDI intensities vary significantly among LA countries and change over time, we investigate the productivity effects of FDI in eight different sectors including the primary sector, manufacturing and services. Besides FDI, sector-specific institutional factors, education and a sector‘s export share are considered as control variables. Given the likely endogeneity of variables, a GMM system estimation approach is used. The results indicate that positive productivity effects can be found in all sectors, although they may depend on specific conditions or are limited to a certain time period. Direct productivity effects are highest in the primary sector (agriculture, mining and petroleum production) and in financial services. In contrast, FDI in manufacturing and in transport and telecommunications generates productivity spillovers to nearly all other sectors.

FIW Working Paper N° 52

Prema-chandra Athukorala und Archanun Kohpaiboon - Juli 2010

Abstract: This paper examines the export experience of China and other East Asian economies in the aftermaths of the global financial crisis against the backdrop of pre-crisis trade patterns. The analysis is motivated by the ‘decoupling’ thesis, which was a popular theme in the Asian policy circles in the lead-up to the onset of the recent financial crisis, and aims to probe three key issues: Was the East Asian trade integration story that underpinned the decoupling thesis simply a statistical artifact or the massive export contraction caused by an overreaction of traders to the global economic crisis and/or by the drying up of trade credit, which overpowered the cushion provided by intra-regional trade? What are the new policy challenges faced by the East Asian economies? Is there room for an integrated policy response that marks a clear departure from the pre-crisis policy stance favoring export-oriented growth? The findings caution against a possible policy backlash against openness to foreign trade arising from the new-found enthusiasm for rebalancing growth, and make a strong case for a long-term commitment to non-discriminatory multilateral and unilateral trade liberalization.

FIW Working Paper N° 51

Rita Cappariello, Stefano Federico and Roberta Zizza - Juni 2010

Abstract: This paper contributes to the empirical literature on the home-country effects of FDI. Instead of comparing FDI firms to non-FDI firms, we look at what happens within multi-plant FDI firms and we compare headquarters to onheadquarter plants belonging to the same firm. Using survey data on Italian industrial firms, we find that in FDI firms non-headquarter plants show a significantly worse performance in terms of employment and investment than headquarter plants. This suggests that the home-country effects of FDI tend to be biased in favour of headquarters.

FIW Working Paper N° 50

Domenico Buccella - Juni 2010

Abstract: This paper deals with firms’ decision related to international activities in a twocountry oligopoly model with a homogeneous product and unionized labor markets. Using a three-stage non-cooperative game with firms being first movers, it is found that firms’ strategies are affected by the scale of fixed costs of direct investments, trade costs and union wage strategies in labor markets, giving rise to different productive structures in equilibrium. Scopes and incentives for unions’ collusion are analyzed. The consequences on national welfare levels of both unions and firms’ strategic behavior are also investigated, deriving some policy insights.

FIW Working Paper N° 49

Nikolaos Antonakakis, Johann Scharler - April 2010

Abstract: Using the dynamic conditional correlation (DCC) model due to Engle (2002), we estimate time varying correlations of quarterly real GDP growth among the G7 countries. In general, we find that rather heterogeneous patterns of international synchronization exist during U.S. recessions. During the 2007 - 2009 recession, however, international co-movement increased substantially.

FIW Working Paper N° 48

Ramin Dadasov, Philipp Harms, Oliver Lorz - April 2010

Abstract: This paper analyzes the influence of financial integration on institutional

quality. We construct a dynamic political-economic model of an autocracy in which a ruling elite uses its political power to expropriate the general population. Although financial integration reduces capital costs for entrepreneurs and thereby raises gross incomes in the private sector, the elite may counteract this effect by increasing the level of expropriation. Since de facto political power is linked to economic resources, financial integration also has long-run consequences for the distribution of power and for the rise of an entrepreneurial class.

FIW Working Paper N° 47

Konstantin Wacker - April 2010

Abstract: I use the STAN database of the OECD and different econometric methods to investigate the effects of exports towards the EU-15 on wages in the Visegrad countries (CEEC-4; Czech Republic, Hungary, Poland, and Slovakia). The results do not allow to draw any definite statements about this effect. While the impact of exports towards the EU-15 on wages in the countries investigated is likely to be negative in the short run (1-2 years), it seems to be positive in the medium and long run, at least for Hungary and Poland.

Nevertheless, it is clear that the pattern of the CEEC-4 exports towards the EU-15 does not correspond with the predictions of the Heckscher-Ohlin model.

Therefore, also the theorems of Stolper and Samuelson (1941) and concerning the equalization of factor prices, which are based on the Heckscher-Ohlin model, do not seem accurate to describe the underlying forces linking trade with factor prices. I argue that missing regional and related inter-sectoral labor mobility might be a potential factor preventing employees from taking advantage of trade liberalization. To substantiate this suspicion, however, analysis of more disaggregated data is necessary.

FIW Working Paper N° 46

Petra Vujakovic - Februar 2010

Abstract: In this article, a new composite globalisation index will be presented. With its 21 variables, it accounts for the multidimensionality of this phenomenon instead of relying purely on economic indicators. As compared to other existing globalisation indices, three major innovations are introduced in this New Globalisation Index (NGI). Firstly, five variables that have until now not been used in globalisation indices enter the calculations. Secondly, geographical distances between countries are incorporated into the index in the trade variable, so as to account for the distinction between globalisation and regional integration. A final innovation is a methodological one, which concerns the use of a statistical method (principal component analysis) to form subindices according to the statistical features of the variable structure. A control for country size is employed for significantly affected variables, as was done in some other globalisation indices before. The final index contains 70 countries and covers a period between 1995 and 2005.

FIW Working Paper N° 45

Dinh Thi Thanh Binh - Jänner 2010

Abstract: This paper studies the effects of agglomeration economies on the location choices by foreign firms in Vietnam. By using a large dataset that provides detailed information about individual firms, the study examines the location choices by 568 newly created foreign firms in 2005 in about 150 different 4-digit industries. This is one of the few studies of agglomeration effects on the location choices by foreign investments in transition economies in general and in Vietnam in particular. The estimates of the negative binomial regression model and the conditional logit model show that agglomeration benefits motivate foreign firms in the same industries and from the same countries of origin to locate near each other. However, the empirical results also indicate that there is competition among provinces in Vietnam in attracting foreign investors, and the locations of Vietnamese firms have no effects on the location decisions by foreign firms in the same industry.

FIW Working Paper N° 44

Gabriele Di Filippo - Jänner 2010

Abstract: The present paper provides a new explanation for the dynamics of exchange rates based on conventions that prevail among market participants. The model relies on a two states Markov switching framework: a bull state and a bear state. In the bull state, agents are optimistic and put more weight on positive news about the domestic economy inducing an appreciation of the domestic currency. In the bear state, agents are pessimistic and overweight negative news associated to the domestic economy leading to a depreciation of the domestic currency. Results show that market switches between a bull state and a bear state explain the dynamics of the euro/dollar exchange rate between January 1995 and December 2008. Besides, the model highlights the life-cycle of conventions in the foreign exchange market and provides lessons for public authorities to reduce exchange rate volatility. Eventually, the model offers a solution to the exchange rate disconnection puzzle.

FIW Working Paper N° 43

Nikolina Stojanovska and Ludo Cuyvers - Jänner 2010

Abstract: We estimate the impact of international trade and of trade-induced technological change on the wage inequality in the OECD countries, by estimating a two-stage mandated-wage regression. From our estimation we find no evidence on the Stolper-Samuelson effect of trade with the developing and newly industrialized countries. On the other hand, the evidenced technological change from technological competition did not have a strong effect on the increase of the wage differential between the different types of labour in the analyzed sample of OECD countries, which would have indicated that the bias of the technological change towards the skilled-intensive sectors is determined by trade in innovation-intensive goods.

FIW Working Paper N° 42

Hossein Sedghi-Khorasgani - Jänner 2010

Abstract: This paper investigates the effect of financial instability on the design of monetary policy rule for a small open economy. We find evidence that optimal monetary policy rule reacts directly to financial imbalances and, as a result, to the real exchange rate movements. However, optimal rule would not react to the real exchange rate changes directly if central bank does not care about the financial instability. For a quantitative analysis, impulse responses of some macroeconomic variables and financial instability to the domestic productivity and foreign country output shocks, resulting from simulation, are also analysed in this paper.

FIW Working Paper N° 41

Luis San Vicente Portes - Jänner 2010

Abstract: This paper assesses the role of financial frictions and Foreign Direct Investment (FDI) on an economy´s growth rate, business cycle volatility, and firm´s capital structure. We gauge these effects within the Financial Accelerator framework, where entrepreneurs can establish affiliates of local firms abroad through Foreign Direct Investment. Model simulations suggest that in the presence of credit market imperfections FDI is associated with faster growth, less leverage, and lower aggregate volatility. These features are consistent with the macroeconomic dynamics of the more globally integrated economies over the last three decades.