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Abstract: This paper develops a structural empirical general equilibrium model of aggregate bilateral trade with path dependence of country-pair level exporter status. Such path dependence is motivated through informational costs about serving a foreign market for first-time entry of (firms in) an export market versus continued export services to that market. We embed the theoretical model into a structural dynamic stochastic econometric model of bilateral selection into import markets and apply it to a data-set of aggregate bilateral exports among 120 countries over the period 1995-2004. In particular, we disentangle the role of changes in trade costs, in labor endowments, and in total factor productivity for trade, bilateral market entry, numbers of firms active, and welfare. Dynamic gains from trade differ significantly from static ones, and path-dependence in market entry cushions effects of impulses in fundamental variables that are detrimental to bilateral trade.

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fileadmin/Documents/Publikationen/Working_Paper/N_072-Suleiman_Muhammad.pdf

Abstract: In this study the long-run relationship between real oil price, real effective exchange rate and productivity differentials is examined using annual data for Nigeria over the period 1980 to 2010. We aim to investigate whether oil price fluctuations and productivity differentials affect the real effective exchange rate. The empirical results suggest that whereas real oil price exercise a significant positive effect on the real exchange rate in the long run. Productivity differentials exercise a significant negative influence on the real exchange rate. The study noted that, the real exchange rate appreciation of 2000-2010 was driven by oil prices. The findings of this study have important implications for exchange rate policy and are relevant to many developing economies where oil exports constitute a significant share of their exports.

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fileadmin/Documents/Publikationen/Working_Paper/N_071-Muhammad et al.pdf

Abstract: This paper investigates the oil price – exchange rate nexus for Nigeria during the period 2007-2010 using daily data. The generalised autoregressive conditional heteroscedasticity (GARCH) and exponential GARCH (EGARCH) models are employed to examine the impact of oil price changes on the nominal exchange rate .The outcome of this research indicates that a rise in oil prices leads to a depreciation of the Nigerian Naira vis-à-vis the US dollar over the study period.

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.

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fileadmin/Documents/Publikationen/Policy_Briefs/12.FIW_Policy_Brief.Breuss.EU-WiReg.pdf

Abstract: Nach einer bemerkenswert raschen Erholung von der globalen Finanz- und Wirtschaftskrise 2008/09 schlitterten die meisten Industriestaaten in eine Staatsschuldenkrise. In Europa hat sie sich, ausgehend von Griechenland Ende 2009/Anfang 2010 vor allem auf die Peripheriestaaten der Eurozone (Portugal, Irland, Italien, Griechenland und Spanien) – die sogenannten PIIGS-Staaten - ausgebreitet. Die Intensität der Eurozonen-Krise hat die Verantwortlichen gezwungen, rasch außerordentliche Maßnahmen zur Stabilisierung des Euros und der Eurozone zu ergreifen (Rettungsschirme für Griechenland, Irland und Portugal; Einrichtung des EFSF/ESM) und Pläne vorzulegen, die in Zukunft das Entstehen solcher Krisen verhindern sollte. Die verschiedenen Maßnahmen werden vereinfacht im Stichwort “EUWirtschaftsregierung” zusammengefasst und bündeln Maßnahmen zur Reform des SWP und neuerdings zur Beseitigung von makroökonomischen Ungleichgewichten (“Sixpack”), den Euro-Plus-Pakt, Europa 2020 sowie die Einrichtung eines permanenten ESM und Maßnahmen zur Finanzmarktaufsicht. Einige Elemente dieses Maßnahmenpakets sind bereits in Kraft, einige harren noch ihrer gesetzlichen Umsetzung. Die auch nach einem Jahr ungelöste Griechenland-Schuldenkrise (die Finanzmärkte treiben nach wie vor die EU-Politik vor sich her) zwang die EU-Verantwortlichen im Sommer 2011 zu zusätzlichen Maßnahmen zur Stabilisierung der Eurozone („sanfte“ Umschuldung und Flexibilisierung des EFSF/ESM – Einstieg in einen EWF und Eurobonds). Damit bekommt die WWU und ihr wirtschaftspolitisches Design eine neue Dimension: Kontrolle der Fiskalpolitik und Stabilisierung der Finanzmärkte wird zum zentralen Element einer neuen „EU-Wirtschaftsregierung“ oder wie von Merkel/Sarkozy gewünscht, einer echten „Euro-Wirtschaftsregierung“.

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fileadmin/Documents/Publikationen/Working_Paper/N_025_2(rev)-buccella.pdf

Abstract: Key aspects in economic integrated areas like the EU are both the internationalization of productive activities, which usually occurs in unionized countries, and the ongoing process of labor market integration. In a symmetric two-country duopoly model with integrated product markets, this paper investigates the incentives for unions to coordinate wage demands in the presence of transaction costs. It shows that, contrary to conventional wisdom, under certain conditions wage coordination could lead from a social point of view to a Pareto superior outcome respect to separate wage settings.

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.

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fileadmin/Documents/Publikationen/Working_Paper/N_070-Hiller.pdf

Abstract: The theoretical claim that ethnic networks encourage trade has found broad empirical support in the literature on migration, business networks and international trade. Ethnic networks matter for the exporting firm, as they exhibit the potential to lower fixed and variable cost of exporting. This paper provides a first attempt to identify the export-promoting effect of emigration on the firm level. Using detailed Danish firm-level data, we can parsimoniously control for export determinants other than emigration, unobserved heterogeneity at the firm level, as well as for self-selection of firms into exporting. Additionally accounting for taste similarity between Denmark and its trade partners, our findings suggest a positive effect of emigration on Danish manufacturing trade within Europe, thereby corroborating preceding studies on aggregate data. Nevertheless, as a novel insight, our analysis reveals that the only beneficiaries of emigration are small enterprises.

Abstract: This paper investigates the coordination of bargaining activities among labor unions in a Multinational Enterprise (MNE) with plants in different countries. Making use of a threestage game where the parties sequentially decide whether o coordinate negotiations, it derives the bargaining regimes arising as sub-game perfect equilibria. In presence of workers perfect substitutes in production and symmetry in the plants’ efficiency, it is shown that unions’ transaction costs may attenuate the conflict of interests among the parties as regards the level of coordination at which negotiations should take place.

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fileadmin/Documents/Publikationen/Working_Paper/N_076-AntonakakisTondl.pdf

Abstract: This paper analyses the export market entry decisions of Dutch firms and their subsequent growth or market exit. Exporters, particularly when entering new markets, have to learn about market conditions and to search for new trade relations under uncertainty. In that sense the paper also investigates the role of economic diplomacy and knowledge spillovers from colleague-exporters. We combine detailed international trade data by firm and destination between 2002 and 2008 with firm data and export market haracteristics in order to disentangle the firm and country determinants of successful and less successful export behaviour. First, we find that about 5% of all Dutch exporters have just started in their first market and a similar share of exporters ceases all exports. Still, the starting exporters increase their exports very fast. In each market their export growth in their third year as exporter is about twice as high as for established exporters. Many starters also increase their exports by expanding their number of destinations, but they will retreat swiftly if they are not successful. For all exporters we find that more productive and larger firms are more inclined to enter (additional) export markets, and that larger firms are less likely to leave a market. Market characteristics are important as well. Distance and import tariffs reduce the probability to enter the market and increase the probability to exit. Not only distance to the home country matters, but also the distance to export markets already accessed. Firms seem to follow a stepping stone approach for reaching markets further away (physically and culturally). They first enter more nearby markets before moving to more distant markets. Finally, we find that the presence of support offices abroad and trade missions in destination countries, particularly middle income countries, stimulate the entry of new exporters and the growth of export volume. Knowledge spillovers from exporters with the same destinations have also positive effects on market entry

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fileadmin/Documents/Publikationen/Studienpool_II/Studien_2010_adapted_file_names/06.ResearchReport.Francois_Holzner_Pindyuk.Austrian_Linkages_to_the_European_Economy.pdf

Abstract: Like most of the global economy, Austria suffered from recession in 2008-2009. In this paper we deconstruct the pattern of recession, and the transmission of the global recession to Austria’s economy. We provide a new a new breakdown of the value added in Austrian exports, tracing both upstream and downstream linkages and their role in the recession. We also employ a multi-region computable general equilibrium (CGE) model, focused on Austria and its major trading partners. We estimate the combined impacts of the crisis, as implemented through stylized shocks to investment and household demand across major trading partners. These are based on the actual global demand shocks that occurred in 2008-2009. As we are focused on recession, we work with a short-run version of the model, where labor markers are modeled with unemployment and sticky wages, and where industry structure (number of varieties and allocation of capital stock across industries) is fixed. We introduce demand shocks (changes) to global investment demand calibrated from actual investment demand changes during the recession. We also calibrate output shocks based on actual changes in GDP in this period. The focus on backward and forward linkages provides new insight into the transmission channels for focused demand shocks at the border into more diffuse shocks within the broader Austrian economy. While the drop in global demand during the recent recession was focused on sectors producing heavy investment goods, the actual pressure this placed on the Austrian economy also hinged on the linkages of these sectors to other elements of the Austrian economy.

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fileadmin/Documents/Publikationen/Studienpool_II/06.PolicyNote.Francois_Holzner_Pindyuk.Austrian Linkages to the European Economy.pdf

Abstract: Like most of the global economy, Austria suffered from recession in 2008-2009. In this paper we deconstruct the pattern of recession, and the transmission of the global recession to Austria’s economy. We provide a new a new breakdown of the value added in Austrian exports, tracing both upstream and downstream linkages and their role in the recession. We also employ a multi-region computable general equilibrium (CGE) model, focused on Austria and its major trading partners. We estimate the combined impacts of the crisis, as implemented through stylized shocks to investment and household demand across major trading partners. These are based on the actual global demand shocks that occurred in 2008-2009. As we are focused on recession, we work with a short-run version of the model, where labor markers are modeled with unemployment and sticky wages, and where industry structure (number of varieties and allocation of capital stock across industries) is fixed. We introduce demand shocks (changes) to global investment demand calibrated from actual investment demand changes during the recession. We also calibrate output shocks based on actual changes in GDP in this period. The focus on backward and forward linkages provides new insight into the transmission channels for focused demand shocks at the border into more diffuse shocks within the broader Austrian economy. While the drop in global demand during the recent recession was focused on sectors producing heavy investment goods, the actual pressure this placed on the Austrian economy also hinged on the linkages of these sectors to other elements of the Austrian economy.

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fileadmin/Documents/Publikationen/Policy_Briefs/11 FIW_Policy_Brief Ungleichgewichte im Euro Gebiet.pdf

Abstract: ngleichgewichte in einem Währungsgebiet entstehen durch Kapitalströme, die nicht durch eine ent-sprechende Steigerung der Kapazität Einkommen zu erzielen begleitet werden. Dadurch entsteht eine Überschuldung in den „Defizitländern“, während in den „Überschussländern“ Forderungen abge-schrieben werden müssen. In beiden Fällen kommt es zu einer Verringerung zukünftigen Wirtschafts-wachstums und einer Verzerrung der Struktur der Wirtschaft, weil sich kreditfinanziertes Wachstum üb-licherweise auf einige wenige Wirtschaftsbereiche, insbesondere Immobilien und Bauwirtschaft be-schränkt. Eine Besonderheit des Eurogebietes besteht nun darin, dass nur die Geldpolitik nach einheit-lichen Kriterien durchgeführt wird, während die Fiskalpolitik sowie die Überwachung des Finanzsektors nach wie vor in der Hand der einzelnen Mitgliedsstaaten liegt. Anhand von zwei Länderstudien wird argumentiert, wie ein Überschussland (Deutschland) zum Abbau von Ungleichgewichten beitragen kann und welches Ausmaß an Flexibilität notwendig ist, um aus einem „Boom/Bust“-Zyklus wieder herauszukommen (Estland).

Abstract: This paper develops a two-country multi-frictional model where the freeze on liquidity access to commercial banks in one country raises unemployment rates via credit rationing in both countries. The expenditure-switching channel, whereby asymmetric monetary shocks traditionally lead to negative comovements of home and foreign outputs, is considerably weakened via opposite forces driving the exchange rate. Meanwhile, it is proved that financial market integration forms a transmission channel per se, without resorting to international cross-holdings of risky assets. The search and matching modeling serves two purposes. First, it accounts for the time needed to restore a normal level of confidence following financial market disruptions. Second, it allows dissociating pure liquidity contractions from non-walrasian financial shocks, arriving despite global excess savings and due to heterogeneity in the quality of the banking system. The former induce negative comovements of home and foreign outputs, in accordance with the literature, whereas the new type of financial shocks does generate financial contagion.

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fileadmin/Documents/Publikationen/Studienpool_II/05.PolicyNote.Francois_Pindyuk.Model Simulations for Trade Policy Analysis.pdf

Abstract: In this paper, we examine possible medium-term changes in EU trade policy, including the negotiation and implementation of Free Trade Agreements (FTAs) with regional entities like ASEAN and the NAFTA countries. We also examine the possible conclusion of the Doha Round of multilateral trade negotiations. Such changes in policy at the regional and global level imply changes in trade policy and industrial structure that affect Austria as part of the network of European industry. To accomplish this, we work with a computable general equilibrium model (CGE) of the Austrian economy and its major global trading partners. This model is benchmarked to 2020 macroeconomic projections. The modeling scenarios are based on a mix of tariff reductions for goods and non-tariff barriers (NTB) reductions for services. The services liberalization scenario is based on protection with an “actionability” assumption. The results include estimated changes in GDP, welfare, as well as in the value added contained in Austrian exports. The focus on value added provides important insight to the overall impact on the Austrian economy. In all policy cases examined, the striking messages is the importance of high technology services (ICT and other business services) to the total growth in Austrian exports, on a value added basis. This reflects both the high value added content of trade in this sector, and the apparent comparative advantage of Austria in this sector in the 2020 baseline.

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fileadmin/Documents/Publikationen/Studienpool_II/Studien_2010_adapted_file_names/05.ExecutiveSummary.Francois_Pindyuk.Model_Simulations_for_Trade_Policy_Analysis.pdf

Abstract: In this paper, we examine possible medium-term changes in EU trade policy, including the negotiation and implementation of Free Trade Agreements (FTAs) with regional entities like ASEAN and the NAFTA countries. We also examine the possible conclusion of the Doha Round of multilateral trade negotiations. Such changes in policy at the regional and global level imply changes in trade policy and industrial structure that affect Austria as part of the network of European industry. To accomplish this, we work with a computable general equilibrium model (CGE) of the Austrian economy and its major global trading partners. This model is benchmarked to 2020 macroeconomic projections. The modeling scenarios are based on a mix of tariff reductions for goods and non-tariff barriers (NTB) reductions for services. The services liberalization scenario is based on protection with an “actionability” assumption. The results include estimated changes in GDP, welfare, as well as in the value added contained in Austrian exports. The focus on value added provides important insight to the overall impact on the Austrian economy. In all policy cases examined, the striking messages is the importance of high technology services (ICT and other business services) to the total growth in Austrian exports, on a value added basis. This reflects both the high value added content of trade in this sector, and the apparent comparative advantage of Austria in this sector in the 2020 baseline.

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fileadmin/Documents/Publikationen/Studienpool_II/Studien_2010_adapted_file_names/05.ResearchReport.Francois_Pindyuk.Model_Simulations_for_Trade_Policy_Analysis.pdf

Abstract: In this paper, we examine possible medium-term changes in EU trade policy, including the negotiation and implementation of Free Trade Agreements (FTAs) with regional entities like ASEAN and the NAFTA countries. We also examine the possible conclusion of the Doha Round of multilateral trade negotiations. Such changes in policy at the regional and global level imply changes in trade policy and industrial structure that affect Austria as part of the network of European industry. To accomplish this, we work with a computable general equilibrium model (CGE) of the Austrian economy and its major global trading partners. This model is benchmarked to 2020 macroeconomic projections. The modeling scenarios are based on a mix of tariff reductions for goods and non-tariff barriers (NTB) reductions for services. The services liberalization scenario is based on protection with an “actionability” assumption. The results include estimated changes in GDP, welfare, as well as in the value added contained in Austrian exports. The focus on value added provides important insight to the overall impact on the Austrian economy. In all policy cases examined, the striking messages is the importance of high technology services (ICT and other business services) to the total growth in Austrian exports, on a value added basis. This reflects both the high value added content of trade in this sector, and the apparent comparative advantage of Austria in this sector in the 2020 baseline.

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fileadmin/Documents/Publikationen/Studienpool_II/03.ExecutiveSummary.Christie_etal.Vulnerability and Bargaining Power in EU-Russia Gas Relations.pdf

Abstract: This report contains three separate papers, each addressing selected issues concerning natural gas policy and security of gas supply in Europe. The over-arching themes are vulnerability (to supply disruptions, to supplier pricing power) and fragmentation; and measures designed to overcome them, namely interconnection and consolidation of bargaining power. The first paper contains a review of some of the economic effects of, and subsequent policy reactions to, the January 2009 cut of Russian gas supplies through the Ukraine Corridor, with a particular focus on Bulgaria and on EU policy. The second paper provides an analysis of the current state of gas relations between Ukraine and the Russian Federation, with a focus on the Ukrainian perspective and on recent political developments in that country. The third paper provides an analysis of the case for consolidating buyer power in line with the concept of an EU Gas Purchasing Agency.

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fileadmin/Documents/Publikationen/Studienpool_II/04.PolicyNote.Crespo-Cuaresma_Pfaffermayr.Macroeconomic Aspects of European Integration.pdf

Abstract: We analyze the role of fiscal policy and intra-European trade in business cycle synchronization in the EU for the period 1995-2008. There is a broad consensus that the relationship between fiscal policy and business cycle comovements and between trade integration and cyclical synchronization are subject to endogeneity problems. We instrument fiscal budget surplus by means of (exogenous) political determinants of fiscal policy acknowledged by the literature, while trade integration is instrumented using covariates which summarize the integration status of countries in the sample, GDP per capita differences with respect to the EU and trade specialization within the EU framework. Our results show that both fiscal policy and trade integration are important determinants of cyclical synchronization. We can conclude that once a high degree of trade integration is reached by countries involved in the European integration process, the role of fiscal policy is particularly relevant and differences in fiscal shocks should be analyzed in detail as a source of coherence in cyclical comovements in Europe. Furthermore, fiscal deficits are shown to be an important potential source of idiosyncratic macroeconomic fluctuations, especially in the eurozone. Our results confirm the rationale of monitoring fiscal developments to assess the adequacy of potential future EMU countries and the need for a broad agreement concerning fiscal policy at the EU level.

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fileadmin/Documents/Publikationen/Studienpool_II/Studien_2010_adapted_file_names/04.ResearchReport.Crespo-Cuaresma_Pfaffermayr.Macroeconomic_Aspects_of_European_Integration.pdf

Abstract: We analyze the role of fiscal policy and intra-European trade in business cycle synchronization in the EU for the period 1995-2008. There is a broad consensus that the relationship between fiscal policy and business cycle comovements and between trade integration and cyclical synchronization are subject to endogeneity problems. We instrument fiscal budget surplus by means of (exogenous) political determinants of fiscal policy acknowledged by the literature, while trade integration is instrumented using covariates which summarize the integration status of countries in the sample, GDP per capita differences with respect to the EU and trade specialization within the EU framework. Our results show that both fiscal policy and trade integration are important determinants of cyclical synchronization. We can conclude that once a high degree of trade integration is reached by countries involved in the European integration process, the role of fiscal policy is particularly relevant and differences in fiscal shocks should be analyzed in detail as a source of coherence in cyclical comovements in Europe. Furthermore, fiscal deficits are shown to be an important potential source of idiosyncratic macroeconomic fluctuations, especially in the eurozone. Our results confirm the rationale of monitoring fiscal developments to assess the adequacy of potential future EMU countries and the need for a broad agreement concerning fiscal policy at the EU level.

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Abstract: This report contains three separate papers, each addressing selected issues concerning natural gas policy and security of gas supply in Europe. The over-arching themes are vulnerability (to supply disruptions, to supplier pricing power) and fragmentation; and measures designed to overcome them, namely interconnection and consolidation of bargaining power. The first paper contains a review of some of the economic effects of, and subsequent policy reactions to, the January 2009 cut of Russian gas supplies through the Ukraine Corridor, with a particular focus on Bulgaria and on EU policy. The second paper provides an analysis of the current state of gas relations between Ukraine and the Russian Federation, with a focus on the Ukrainian perspective and on recent political developments in that country. The third paper provides an analysis of the case for consolidating buyer power in line with the concept of an EU Gas Purchasing Agency.

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.

File:

fileadmin/Documents/Publikationen/Studienpool_II/03.PolicyNote.Christie_etal.Vulnerability and Bargaining Power in EU-Russia Gas Relations.pdf

Abstract: This report contains three separate papers, each addressing selected issues concerning natural gas policy and security of gas supply in Europe. The over-arching themes are vulnerability (to supply disruptions, to supplier pricing power) and fragmentation; and measures designed to overcome them, namely interconnection and consolidation of bargaining power. The first paper contains a review of some of the economic effects of, and subsequent policy reactions to, the January 2009 cut of Russian gas supplies through the Ukraine Corridor, with a particular focus on Bulgaria and on EU policy. The second paper provides an analysis of the current state of gas relations between Ukraine and the Russian Federation, with a focus on the Ukrainian perspective and on recent political developments in that country. The third paper provides an analysis of the case for consolidating buyer power in line with the concept of an EU Gas Purchasing Agency.

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fileadmin/Documents/Publikationen/Policy_Briefs/10.FIW_Policy_Brief.EU-South Korea FTA – Economic Impact for the EU.pdf

Abstract: Das Freihandelsabkommen zwischen der EU und Südkorea (EU-Südkorea FHA) ist das erste einer neuen Generation von FHA, die 2007 gestartet wurden und Teil der Initiative „Globales Europa“ sind. Solche Abkommen, die auf fundierten wirtschaftlichen Kriterien basieren, bilden einen wichtigen Schritt für weitere Handelsliberalisierungen, da sie auch Themen behandeln, die noch nicht reif für multilaterale Diskussionen sind und weit über eine bloße Marktöffnung hinausgehen, wie sie im Rahmen der WTO erreicht werden können. In diesem Sinne ist das EU-Südkorea FHA das umfassendste Freihandelsabkommen, das die EU jemals verhandelt hat. Wir evaluieren die wirtschaftlichen Auswirkungen dieses Freihandelsabkommen für die EU und für Österreich mit dem rechenbaren allgemeinen Weltgleichgewichtsmodell GTAP. Die Ergebnisse sind wie erwartet. Beide Parteien gewinnen von der Beseitigung der Zölle und anderer Handelsbarrieren. Da die Anteile der Exporte und Importe mit Südkorea sowohl von seitens der EU als auch Österreichs nur 2% bis 2 ½% des gesamten Extra-EU-Handels ausmachen, fallen die Handels- und Wohlfahrtsgewinne für die EU und Österreich bescheiden aus. Der gesamte Handel der EU steigt um 0,2%, jener Österreichs nur um 0,1%. Der Extra-EU-Handel steigt sowohl in der EU als auch in Österreich um jeweils 1,2%. Die Wohlfahrt steigt in der EU und in Österreich nur um 0,04% des BIP. In Südkorea sind die Effekte höher, da die EU der zweitgrößte Handelspartner mit einem Anteil von 12% ist. Der Handel nimmt in Südkorea um 5,3% zu und die Wohlfahrt kann um 1,3% des BIP gesteigert werden.

Abstract: This paper studies the dynamics of international consumption risk sharing among the G7 countries. Based on the dynamic conditional correlation model due to Engle (2002), we construct a time-varying, consumption-based measure of risk sharing. We find that although the exposure to countryspecific shocks has declined in the G7 countries, with Japan being an exception, the evolution of risk sharing is rather heterogeneous across countries.