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Abstract: This study investigates the determinants of bilateral Greenfield FDI projects and flows in knowledge intensive business services from OECD/BRIC countries to the EU countries for the period 2003-2010. Greenfield FDI projects are distinguished by type of activity: (i) business services, (ii) design, development and testing activities, (iii) headquarters activities and (iv) R&D services. Another aim of this study is to provide new empirical evidence on the patterns of Greenfield investments in knowledge intensive business services over time, source country and destination country. For Austria, the number of Greenfield investments in headquarter functions remains stable over time whereas Greenfield investments in R&D and related activities declined during the sample period. The same holds true for the number of jobs generated through greenfield investments. The results using panel count data models show that wage costs, tertiary education, corporate taxes, having a common border and sharing a common language all play a significant role in determining bilateral Greenfield FDI projects in knowledge intensive services. However, the impact of corporate taxation and labour costs differs widely across the functions and does not play a role in Greenfield investments in R&D and development, design and testing services.

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Abstract: This study investigates the determinants of bilateral Greenfield FDI projects and flows in knowledge intensive business services from OECD/BRIC countries to the EU countries for the period 2003-2010. Greenfield FDI projects are distinguished by type of activity: (i) business services, (ii) design, development and testing activities, (iii) headquarters activities and (iv) R&D services. Another aim of this study is to provide new empirical evidence on the patterns of Greenfield investments in knowledge intensive business services over time, source country and destination country. For Austria, the number of Greenfield investments in headquarter functions remains stable over time whereas Greenfield investments in R&D and related activities declined during the sample period. The same holds true for the number of jobs generated through greenfield investments. The results using panel count data models show that wage costs, tertiary education, corporate taxes, having a common border and sharing a common language all play a significant role in determining bilateral Greenfield FDI projects in knowledge intensive services. However, the impact of corporate taxation and labour costs differs widely across the functions and does not play a role in Greenfield investments in R&D and development, design and testing services.

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fileadmin/Documents/Publikationen/Studien_2012_13/02-ExecutiveSummary-Falk.pdf

Abstract: This study investigates the determinants of bilateral Greenfield FDI projects and flows in knowledge intensive business services from OECD/BRIC countries to the EU countries for the period 2003-2010. Greenfield FDI projects are distinguished by type of activity: (i) business services, (ii) design, development and testing activities, (iii) headquarters activities and (iv) R&D services. Another aim of this study is to provide new empirical evidence on the patterns of Greenfield investments in knowledge intensive business services over time, source country and destination country. For Austria, the number of Greenfield investments in headquarter functions remains stable over time whereas Greenfield investments in R&D and related activities declined during the sample period. The same holds true for the number of jobs generated through greenfield investments. The results using panel count data models show that wage costs, tertiary education, corporate taxes, having a common border and sharing a common language all play a significant role in determining bilateral Greenfield FDI projects in knowledge intensive services. However, the impact of corporate taxation and labour costs differs widely across the functions and does not play a role in Greenfield investments in R&D and development, design and testing services.

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fileadmin/Documents/Publikationen/Policy_Briefs/16.PolicyBrief.Roemisch.pdf

Abstract: This policy brief introduces a method to estimate foreign trade of the nine Austrian NUTS-2 regions. The basic idea of the method is to disaggregate national foreign trade data to the regional level using national input-output, regional employment and other supplemental data. This allows for the estimation of foreign trade of the Austrian regions for the years 1999 to 2009. The results indicate highly differentiated patterns of trade competitiveness across the Austrian regions. While Upper Austria and Vorarlberg perform well on European and global markets, other regions, foremost Burgenland, are in a much more difficult position. The regions’ reactions to the 2009 economic crisis were equally differentiated. Although the decline of foreign trade led to an employment loss in all Austrian regions, Vorarlberg and Tyrol proved to be much more resilient than others.

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Abstract: Foreign trade and foreign direct investments (FDI) are key elements for economic development and growth of both a country and its regions. This paper focuses on foreign trade and FDI in Austrian regions (Bundesländer). Unfortunately, data on regional trade in Austria is only available on a very limited basis. The aim of this study is to develop new methodologies for the estimation of exports and imports of Austrian regions and analyse the data generated by this methodology. The basic idea is to disaggregate national foreign trade data to the regional level by using national input-output, regional employment and other supplemental data. This allows estimating Austrian regional foreign trade for the years 1999 to 2009. The study shows a large variation in trade among regions. Lower Austria, Upper Austria, Styria and Vorarlberg are the regions with the highest export share. The importance of regional trade increases between 1999 and 2008; the crisis in 2009 had a strong negative impact. Furthermore, the competitiveness of regions differs considerably. Only three regions, Upper Austria, Styria and Vorarlberg, show trade surplus.

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fileadmin/Documents/Publikationen/Studien_2012_13/01-PolicyNote-Roemisch.pdf

Abstract: Foreign trade and foreign direct investments (FDI) are key elements for economic development and growth of both a country and its regions. This paper focuses on foreign trade and FDI in Austrian regions (Bundesländer). Unfortunately, data on regional trade in Austria is only available on a very limited basis. The aim of this study is to develop new methodologies for the estimation of exports and imports of Austrian regions and analyse the data generated by this methodology. The basic idea is to disaggregate national foreign trade data to the regional level by using national input-output, regional employment and other supplemental data. This allows estimating Austrian regional foreign trade for the years 1999 to 2009. The study shows a large variation in trade among regions. Lower Austria, Upper Austria, Styria and Vorarlberg are the regions with the highest export share. The importance of regional trade increases between 1999 and 2008; the crisis in 2009 had a strong negative impact. Furthermore, the competitiveness of regions differs considerably. Only three regions, Upper Austria, Styria and Vorarlberg, show trade surplus.

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Abstract: Foreign trade and foreign direct investments (FDI) are key elements for economic development and growth of both a country and its regions. This paper focuses on foreign trade and FDI in Austrian regions (Bundesländer). Unfortunately, data on regional trade in Austria is only available on a very limited basis. The aim of this study is to develop new methodologies for the estimation of exports and imports of Austrian regions and analyse the data generated by this methodology. The basic idea is to disaggregate national foreign trade data to the regional level by using national input-output, regional employment and other supplemental data. This allows estimating Austrian regional foreign trade for the years 1999 to 2009. The study shows a large variation in trade among regions. Lower Austria, Upper Austria, Styria and Vorarlberg are the regions with the highest export share. The importance of regional trade increases between 1999 and 2008; the crisis in 2009 had a strong negative impact. Furthermore, the competitiveness of regions differs considerably. Only three regions, Upper Austria, Styria and Vorarlberg, show trade surplus.

Abstract: Immigration has been popularised in the economics literature as a tool to balance the troubled PAYG pension systems. A pivotal research by Razin and Sadka showed that unskilled immigration can surmount the pension problem and, further, boost the general welfare in the host economy. However a large strand of current economics literature is engaged in identifying mechanisms through which unskilled immigration, while solving the pension problem, causes undesired shifts in general welfare. This work shows that actually recurring unskilled immigration may challenge the entire pension system and decrease the pension benefits themselves.

Abstract: FIW publishes quarterly FIW Notes. They present an overview of the most important Austrian and international developments regarding international economics. There is only a German version available.

Abstract: We analyse EMEs global competitiveness whereby we explicitly take account of non-price aspects of competitiveness building on the methodology developed in Feenstra (1994) and Broda and Weinstein (2006) and the extension provided in Benkovskis and Wörz (2012). We construct an export price index which adjusts for changes in the set of competitors (variety) and changes in non-price factors (quality in a broad sense) for a set of nine large emerging economies (Argentina, Brazil, Chile, China, India, Indonesia, Mexico, Russia and Turkey). We use a highly disaggregated data set at the detailed 6-digit HS level over the period 1999-2010. In contrast to the conclusions based on the CPI-based real effective exchange rate we find that there are rather pronounced differences between individual markets. As a first and important result, China shows a huge gain in international competitiveness due to non-price factors thus suggesting that the role of Renminbi undervaluation for China’s competitive position may be overstressed. The strong improvements in Russia's non-price competitiveness are exclusively due to developments in the oil sector as are the competitive losses observed for Argentina and Indonesia. Further, Brazil, Chile, India, and Turkey show discernible improvements in their competitive position when accounting for non-price factors while Mexico's competitiveness has deteriorated regardless of the index chosen.

Abstract: The present paper aims to test the impact of incoming Foreign Direct Investment (FDI) on local wages in the Italian manufacturing sector by using firm level data from 2002 to 2007. Results initially show the lack of wage spillovers at both horizontal and vertical level, meaning that the effects of foreign investment are completely internalized within each firm. However, when the technology gap is taken into account, we find some evidence of a non-linear relationship between gap size and wage spillover. In particular, if the technological gap between local firms and foreign companies is too large, Multinational Enterprises (MNEs) face some difficulty in interacting with domestic suppliers and customers, with the consequence that they act like monads within the host country. We therefore believe that policies favouring the attraction of inward investments, should not be of the ‘one for all’ or ‘one for always’ type, but must be strongly directed towards the sectoral and local characteristics of the host country.

Abstract: FIW publishes quarterly FIW Notes. They present an overview of the most important Austrian and international developments regarding international economics. There is only a German version available.

Abstract: The paper complements entry mode research by dealing with the choice of alternative modes of governance in the specific case of foreign R&D and its impact on a parent firm’s performance. Firstly, we identify the factors that determine whether a firm locates abroad any R&D activities, and, if it does so, whether it chooses an equity-based rather than a non-equity co-operative mode of governance. The OLI paradigm is used as theoretical background of this analysis. Secondly, we determine the impact of foreign R&D on a parent firm’s performance in terms of innovation output and labour productivity, and investigate whether this effect differs among firms using the one or the other governance mode. The study is based on separate estimations for Switzerland and Austria using comparable firm data and model specifications. The two countries are interesting cases as they strongly differ in terms of level and pattern of internationalisation.

Abstract: This paper considers the linkages between output growth and output volatility for the sample of G7 countries over the period 1958M2-2011M7, thereby paying particular attention to spillovers within and between countries. Using the VAR-based spillover index approach by Diebold and Yilmaz (2012), we identify several empirical regularities: i) output growth and volatility are highly intertwined, with spillovers taking place into all four directions; ii) the importance of spillovers has increased after the mid 1980s and reached unprecedented levels during the recent financial and economic crisis; iii) the US has been the largest transmitter of output and volatility shocks to other countries. Generalized impulse response analyses point to moderate growth-growth spillovers and sizable volatility-volatility spillovers across countries, suggesting that volatility shocks quintuplicate in the long run. The cross-variable effects turn out negative: volatility shocks lead to lower economic growth, growth shocks tend to reduce output volatility. Our findings underline the increased vulnerability of the G7 countries to destabilizing shocks and their detrimental effects on economic growth, which are sizeably amplified through international spillover effects and the associated repercussions.

Abstract: Recent empirical studies have been searching for evidence on and driving forces for offshoring. Frequently, this has been done by analyzing gross trade flows related to offshore activities using gravity equations augmented by ad hoc measures of supply-side country differences. This paper suggests that gravity formulations of this sort are mis-specified, due to theoretically unmotivated attempts to allow for both complete and incomplete specialization influences on gross trade flows within the same gravity framework. We suggest an alternative specification rooted in incomplete specialization that views bilateral gravity equations as statistical relationships constrained on countries’ multilateral specialization patterns. This view reveals that countries’ multilateral specialization incentives drive bilateral trade, corresponding to and competing with the role of multilateral trade resistance. Our results support evidence for offshoring activities across Europe, driven by countries’ multilateral specialization incentives, as expressed by supply-side country differences relative to the rest of the world.

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Abstract: We develop a model of directed technological change, frictional unemployment and migration to examine the effects of a change in skill endowments on wages, employment rates and emigration rates of skilled and unskilled workers. We find that, depending on the elasticity of substitution between skilled and unskilled workers and the elasticity of the matching function, an increase in the skill ratio can reduce the relative unemployment rate of skilled workers and decrease the relative emigration rate of skilled workers (brain drain). We provide empirical estimates and simulations to support our findings and show that effects are empirically relevant and potentially sizeable.

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fileadmin/Documents/Publikationen/Working_Paper/N_082-Dadasov.pdf

Abstract: This paper empirically analyzes the effects of de jure financial opennesson institutional quality as captured by indicators on investment risk, corruption level, impartiality of judiciary system as well as the effectiveness of bureaucratic authorities. Using a panel data set of more than 110 countries and a time span from 1984 to 2005, we show that a higher degree of financial openness improves institutional quality in particular by reducing investment risks. We also study the effect of a single liberalization reform on the development of institutional quality.Again, we find evidence for the beneficial impact of financial liberalization with the exception of the level of corruption. We additionally show that if financial liberalization is supported by simultaneous politicalliberalization, the benign consequences of financial opening for the institutional performance are even larger, while financial deregulation in former socialist countries tends to worsen institutional quality.

Abstract: The monetary and fiscal policy interactions have gained a new research interest after the 2008 crisis due to the global increase of fiscal debt. This paper constructs a macroeconomic model of joint fiscal and monetary policy for an emerging open economy taking into account its structural uniqueness. In particular, the two instruments of monetary policy, interest rate and foreign exchange intervention; the two instruments of fiscal policy, government consumption and government investment; and a sudden stops shock through the collateral constraint of foreign borrowings are modeled here in a single DSGE framework. The parameters are calibrated for the case of Hungary using data over 1995Q1-2011Q3. The impulse response functions show that government consumption is unproductive and increases fiscal debt as opposed to government investment, foreign exchange intervention positively affects net exports but does not stimulate an economy per se causing inflation, and a negative shock to the upper bound of leverage ratio in the collateral constraint of foreign borrowings generates a sudden stops crisis for the emerging world. Monetary and fiscal policy intimately interact in the short and medium run such that there is an immediate response of monetary instruments to fiscal shocks, while fiscal instruments adjust to monetary shocks in the medium run.

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fileadmin/Documents/Publikationen/Spezial/5.FIW-Special_Trade and Productivity _policy report__20120613.pdf

Abstract: This FIW Special – International Economics contains a policy report on the relationship between trade and productivity in the European Economy. The reports consists of three chapters which all mainly deal with empirical evidence from firm level but with each chapter focusing on a specific aspect of the trade and productivity nexus. Chapter 1 presents some initial findings on the relationship between exporting and productivity for Austrian exporters in the manufacturing industry. Chapter 2 offers new insights into the relationship between exporting and productivity by introducing the cross-country dimension of the export behaviour and internationalisation strategies of European firms. This kind of analysis became possible due to a recently compiled cross-country firm level data set covering seven European countries. Chapter 3 focuses on the causality between exporting and productivity which is a key question also for economic policy. The chapter summarises existing results on self-selection into exporting and the learning-by-exporting hypothesis but also acknowledges that productivity growth is not only driven by within-firm productivity growth but also the reallocation of resources between firms, the entry and exit of firms as well as shifts of resources between industries.

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fileadmin/Documents/Publikationen/Working_Paper/N_080-Antonakakis.pdf

Abstract: This paper examines co-movements and volatility spillovers in the returns of the euro, the British pound, the Swiss franc and the Japanese yen vis-à-vis the US dollar before and after the introduction of the euro. Based on dynamic correlations, variance decompositions, generalized VAR analysis, and a newly introduced spillover index, the results suggest significant co-movements and volatility spillovers across the four exchange returns, but their extend is, on average, lower in the latter period. Return co-movements and volatility spillovers show large variability though, and are positively associated with extreme economic episodes and, to a lower extend, with appreciations of the US dollar. Moreover, the euro (Deutsche mark) is the dominant currency in volatility transmission with a net volatility spillover of 8% (15%) to all other markets, while the British pound is the dominant net receiver of volatility with a net volatility spillover of -11% (-13%), in the post- (pre-) euro period. The nature of crossmarket volatility spillovers is found to be bidirectional though, with the highest volatility spillovers occurring between the European markets. The economic implications of these findings for central bank interventions, international portfolio diversification and currency risk management are then discussed.

Abstract: A fundamental question in monopolistic competition theory is whether the market allocates resources efficiently. This paper generalizes the Spence-Dixit-Stiglitz framework to heterogeneous firms, addressing when the market provides optimal quantities, variety and productivity. Under constant elasticity of demand, each firm prices above its average cost, yet we show market allocations are efficient. When demand elasticities vary, market allocations are not efficient and reflect the distortions of imperfect competition. After determining the nature of market distortions, we investigate how integration may serve as a remedy to imperfect competition. Both market distortions and the impact of integration depend on two demand side elasticities, and we suggest richer demand structures to pin down these elasticities. We also show that integration eliminates distortions, provided the post-integration market is sufficiently large.

Abstract: Using distance and time zone differences as a measure for coordination costs between service suppliers and consumers, we employ a Hausman-Taylor model for services trade by foreign affiliates. Given the need for proximity in the provision of services, factors like distance place a higher cost burden on the delivery of services in foreign markets. In addition, differences in time zones add significantly to the cost of doing business abroad. By decomposing the impact of distance into a longitudinal and latitudinal component and accounting for differences in time zones, we can identify in detail the factors driving the impact of increasing coordination costs on the delivery of services through foreign affiliates. Working with a bilateral U.S. data set on foreign affiliate sales in services we examine the impact of time zone differences and East-West and North-South distance on U.S. outward affiliate sales. We find that both distance as well as time zone differences have a significant positive effect on foreign affiliate sales. By decomposing the effect of distance our results show that increasing East-West or North-South distance by 100 kilometers raises affiliates sales by 2%. Finally, focusing on time zone differences our findings suggest that affiliate sales increase the more time zones we have to overcome.

Abstract: In the present contribution, we concentrate on the process of financial liberalization in a specific context of European economic and monetary integration. We implement de facto and de jure measures of financial liberalization and find that formal aspects of financial openness generate a strongly positive impact on economic growth and its sources, productivity growth and capital accumulation. Moreover, there is evidence of a positive contribution to the process stemming from the EU membership, while no substantial effect comes from the euro adoption. Finally, we investigate the effects from financial integration on country groups within the EU.

Abstract: We investigate the impact of the emergence of China as a global competitor on the trade performance of Central, Eastern and Southeastern European (CESEE) countries at the EU-15 market. The paper takes a comprehensive approach in terms of empirical methods and data. We analyze export growth, export market shares, extensive and intensive margins and the number of trade links, applying highly disaggregated data at the 6 digit HS level over the period 1995 – 2010. We show that the most contested markets are those for capital goods and transport equipment, product categories where both regions have gained market shares and comparative advantage. We show that the number of trade links at the product level where both regions are active has increased substantially, indicating intensified competition. At the same time hardly any trade links were lost, which points against cut-throat competition between CESEE and China. The decomposition of export growth along the extensive versus the intensive margin shows that in line with the literature, the deepening of already existing trade relationships (i.e. the intensive margin) contributed most strongly export growth in both regions, whereas the contribution of new trade links (i.e. the extensive margin) had only a minor contribution, apart from the instance of EU accession which boosted the extensive margin considerably. We further decompose intensive margin growth into demand related structural effects and a supplier related competitiveness effect. Both the CESEE region and China successfully intensified their trade linkages above all as a result of their outstanding competitiveness as shown by the econometric shift-share analysis. While this suggests that both regions pursue a able export strategy, further diversification of production towards promising new industries and markets will become increasingly crucial for both, especially in face of projected slower EU-15 market growth in the longer run.

Abstract: This paper analyzes whether and to what extent determinants of comparative advantage have explanatory power for conventional services trade. It assesses the geographical, Heckscher-Ohlin and institutional determinants of services trade based on the literature for goods trade. Moreover, this paper investigates the importance of a country’s governance of regulation as a source of comparative advantage in services markets. Determinants for services trade differ from goods. Services trade is more sensitive to a country’s stock of high-skilled and mid-skilled labour, more receptive to the level of trust enjoyed by any importers, and more dependant on the quality of regulatory governance practiced when liberalizing services sectors. The counterfactual analyses presented in this paper show furthermore that these factors when affected by policy can bring substantial gains to countries. Specifically, countries with already good regulatory governance structures would enjoy relatively higher growth share in services trade by capitalizing on their highskilled stock. Other countries, however, would instead to better by improving their condition of regulatory governance.