File:

fileadmin/Documents/Publikationen/Studien_II/SI01.PolicyNote.Characteristics_of_exporting_and_non-exporting_firms_in_Austria.pdf

Abstract: In this study we provide detailed evidence on the importance and performance of exporters compared to non-exporters in Austrian manufacturing, based on firm level data. The results are in line with those found in other studies pointing towards the exceptional role of exporting firms with respect to various size and performance measures. We provide both descriptive as well as econometric evidence on these ‘export premia’ along these lines and further present a brief comparison with results found for other countries. Our findings however also suggest the existence of quite large differences across industries with respect to the export premia which deserves further attention.

File:

fileadmin/Documents/Publikationen/Studien_II/SI01.ExecutiveSummary.Characteristics_of_exporting_and_non-exporting_firms_in_Austria.pdf

Abstract: In this study we provide detailed evidence on the importance and performance of exporters compared to non-exporters in Austrian manufacturing, based on firm level data. The results are in line with those found in other studies pointing towards the exceptional role of exporting firms with respect to various size and performance measures. We provide both descriptive as well as econometric evidence on these ‘export premia’ along these lines and further present a brief comparison with results found for other countries. Our findings however also suggest the existence of quite large differences across industries with respect to the export premia which deserves further attention.

File:

fileadmin/Documents/Publikationen/Policy_Briefs/01.FIW_PolicyBrief_Breuss.pdf

Abstract: At its 10th anniversary the EMU had to stand the baptism of fire caused by the „Great Recession“ 2009. By and large it mastered this test. The introduction of the Euro, however, has brought to light the latent weaknesses in competitiveness of some member states of the Euro area, consisting up to now mostly of old EU member states. Shortly after the EU enlargement in 2004 and 2007 Cyprus, Malta, Slovakia and Slovenia introduced the Euro. Out of 27 EU member states already 16 countries belong to the Euro area. In the near future one can expect a further enlargement of the Euro area. The permanent diversion of competitiveness between the new and the old EU member states could, however, evolve into a big problem with respect to the coherence of the enlarged Euro area, pursuing a common monetary policy. Here we focus particularly on the differing competitiveness – measured by the relative unit labour costs or the real exchange rates - within the enlarged union. Conclusions are drawn with respect to the current "Great Recession".

File:

fileadmin/Documents/Publikationen/Working_Paper/N_034-breuss_fornero.pdf

Abstract: We build a fully micro-founded dynamic general equilibrium (DSGE) model, which is estimated employing Bayesian methods. The model captures the most salient features of Austria as a small open economy, the Euro Area (EA) and the United States (U.S.). Further analysis is conducted through numerical simulations to examine how nominal and real shocks are propagated. Besides, welfare costs of nominal rigidities are calculated. We distinguish two sample periods, ‘pre-EMU’ and ‘EMU’. In the former, we maintain the assumption of full commitment of respective (independent) Central Banks towards their monetary rules, whereas in the latter, the monetary policy of Austria is fully aligned with the European Central Bank. Main results are derived from Bayesian estimation and simulation of the estimated model. Welfare calculations from the estimated model suggest that in the pre-EMU period, the EA and Austria present welfare costs close to one percent of steady-state consumption, whereas the U.S. welfare costs is slightly higher (-1.52 percent). As it would be expected, in the second subsample, welfare costs in the EA decrease, indicating an improvement in the allocation during the EMU regime (similarly in the U.S.), whereas in Austria welfare costs go up.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_033-argentiero.pdf

Abstract: This paper implements a methodology to evaluate the desiderability of monetary and fiscal rules within the context of the EMU using a DSGE model within a New Keynesian framework with sticky prices. The approach adopted is a welfare-based criterion that measures the welfare losses associated with these rules through a welfare loss function. Monetary policy follows a standard Taylor rule augmented by a stochastic component, driven by a union-wide monetary shock, whereas fiscal policy is made up of a countercyclical and debt-stabilizing public expenditure and of distortionary taxation on labor, dividends and interests on public bonds. We find that: 1) in the presence of our monetary rule alone, domestic inflation variance falls more than in the only presence of fiscal rules, whereas output gap smoothing is stronger in the only presence of fiscal rules; 2) the combination of our monetary rule and fiscal rules reduces welfare losses more than the same rules singly considered.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_030-turkcan.pdf

Abstract: A distinctive feature of present globalization is the development of international production sharing activities i.e. production fragmentation. The increased importance of fragmentation in world trade has created an interest among trade economists in explaining the determinants of intra-industry trade (IIT) in intermediate goods. In this study the extent of IIT in Austria’s auto-parts trade is analyzed by decomposing Austria’s auto-parts trade into one-way trade, vertical IIT and horizontal intra-industry trade IIT. Then development of the vertical IIT in the auto-parts industry, as an indicator for international fragmentation of production process between Austria and its 29 trading partners, is examined and various country-specific factors suggested by fragmentation literature are tested using newly developed panel econometrics techniques and more recent data from 1996 to 2006. The results show that a substantial part of IIT in the Austrian auto-parts industry was vertical IIT and the econometric results mainly support the hypothesis drawn from the fragmentation results. In particular, the findings show that the extent of Austria’s vertical IIT in auto-parts is positively correlated with average market size, differences in per capita GDP, and foreign direct investment while it is negatively correlated with distance.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_032-skrinerII.pdf

Abstract: This constant-market-shares (CMS) analysis shows the development of competitiveness, market and product structure of the Austrian merchandise exports from 1990 to 2006. The traditional CMS application was transformed to a dynamic model, such that the static indicators have been replaced by time series. This dynamic consideration of the CMS analysis helps to track all changes in the trade structure and competitiveness over time. The long-term trend of the indicators suggests that the Austrian foreign trade sector was able to maintain its market share in the global environment. While the Austrian foreign trade performance only slightly deviates from the pattern of the traditional industrialised countries, a strong structural change is observable in the external sector of the emerging markets. The disadvantages in competitiveness of the Austrian foreign sector have vanished, however, the market and product structure effects show negative trends after 2000, pointing to vulnerability in the Austrian export sector.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_031-mohler.pdf

Abstract: Since the pioneering work of Krugman (1980) economists try to quantify the welfare gains from an increase in traded variety. The seminal work of Feenstra (1994) and its application to the U.S. of Broda and Weinstein (2006) allowed this quantification for the first time using highly disaggregated trade data. In this paper it is argued that size and openness of a country are important factors in determining these welfare gains. The gains from traded variety of a small open economy are calculated and compared to those of the U.S.; the differences between the countries are then analysed carefully. To achieve this, the methodology of Feenstra (1994) is extended. While the Armington definition of a variety forces the researcher to assume no growth at the extensive margin, in this paper the Feenstra ratios are reinterpreted in a way that allows for full growth at the extensive margin. The resulting two polar cases will influence the country comparison with respect to the gains from variety: Depending on how much growth at the extensive margin a researcher is willing to assume, the relative gains from variety of a small open economy compared to a larger economy like the U.S. are changed. It is also argued that this result may hold generally for other small and large OECD economies.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_028-giofre.pdf

Abstract: This paper demonstrates that, after integration, equity portfolios of countries that joined the European Monetary Union have converged at faster rate than those of NON EMU countries. This outcome can be interpreted as a combination of the convergence of inflation rates and the convergence of investment barriers. On the one hand, the common monetary policy might have driven a stronger comovement in inflation rates, leading to increasingly similar hedging strategies among member countries. On the other hand, exposure to the common currency might have homogenized bilateral investment barriers, thus inducing increasingly similar portfolio allocations among member countries. We find that the comovement of inflation rates has not significantly increased after EMU inception, pointing toward an exclusive role for convergence in investment barriers.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_027-horgos.pdf

Abstract: International Outsourcing effects on labor markets are mostly analyzed within flexible wage settings. Using a modern duality approach, this paper formally investigates differences occurring in industries with low skilled wage rigidity and, for the first time in literature, presents empirical evidence supporting the theoretical findings. Using a logit model to analyze microeconomic German panel data, results show that International Outsourcing significantly increases low skilled unemployment when taking place in industries characterized by low skilled wage rigidity. Thus, in terms of unemployment, not International Outsourcing but inflexible labor market institutions instead should be blamed for harming low skilled labor.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_029-erlat.pdf

Abstract: Testing whether real exchange rates are stationary and, thereby, obtaining evidence of whether the absolute version of the purchasing power parity (PPP) hypothesis holds, have, initially, be done by using the ADF statistic to test for a unit root. Subsequently, to mitigate the low power of the ADF test, several alternatives have been used for the same purpose. Panel unit root testing is one of these alternatives. In Erlat (2003), I had previously considered two other alternatives; namely, introducing multiple structural shifts in the deterministic terms and fractional integration, in the context of the two primary bilateral Turkish real exchange rates; the $US and the German DM based rates. This investigation did indicate that these two rates may, in fact, be taken to be stationary with significant long-memory components. In the present paper, I utilise panel procedures to see if they, also, give corroborating evidence. I used monthly data for the period 1984.01-2001.06 and constructed a panel of 17 bilateral CPI-based real exchange rates corresponding to Turkey's main trading partners for which complete data were available. I implemented seven panel procedures. The first two, Levin, Lin and Chu (LLC) (2002) and Im, Pesaran and Shin (IPS) (2003) are the most commonly used procedures. LLC assumes a common coefficient for the lagged dependent variable in the autoregressions while IPS recognises the full heterogeneity of the coefficients. The third procedure utilised, Hadri (2000), also assumes full heterogeneity but has stationarity as its null hypothesis. These three procedures take account of the dependence between the series that make up the panel by subtracting the means obtained for each time period across cross sections, from the observations. On the other hand, the remaining four procedures, due to Taylor and Sarno (TS) (1998), Breuer, McNown and Wallace (BMW) (2001), Pesaran (P) (2007)and Bai and Ng (BN) (2004a) handle the problem of dependence in a somewhat more elaborate manner. TS and BMW do this by considering the autoregressions corresponding to each series as set of seemingly unrelated regressions. TS consider a joint test of a unit root while BMW consider individual tests, thereby complementing each other. P and BN, on the other hand, assume that there is a common factor in the panel of series. P adds this common factor, proxied by the time-wise mean, as a regressor to the autoregressions and performs the ADF test while BN decompose the series into this common factor and the idiosyncratic components and test for a unit root in both components, thereby enabling us to determine the source of the persistence if it exists. Of these seven procedures, LLC and IPS lead to the rejection of the null hypothesis of a unit root, while Hadri, TS and BMW do not. The LLC result has the, rather sharp, implication that all 17 series are stationary which, obviously, is not realistic. The IPS result, on the other hand, implies that, at least one series is stationary. This is corroborated by individual ADF tests for, say, the UK, Italy, France, the Netherlands and Belgium based series. The same corroboration is, however, lacking from the other panel approaches, implying that the evidence about the stationarity of the Turkish real exchange rate is mixed and not very strong if panel procedures are used alone as an alternative to univariate ADF tests. Structural shifts in the deterministic terms may need to be introduced into these procedures to obtain stronger evidence of stationarity but this is the subject of further research.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_024-Sitz.pdf

Abstract: In this paper we investigate "integrated equilibria" of two-country models. Extending the basic framework non-traded goods as well as minimum wages are introduced and their effects on the models' results are studied. Finally, the consequences of three types of labor "shocks" are analyzed.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_026-herzer.pdf

Abstract: This paper makes two contributions to the literature on the impact of trade on income. First, we use heterogeneous panel cointegration techniques that are robust to omitted variables and endogenous regressors to estimate the effect of trade on income for 81 developed and developing countries, both for the sample as a whole and for each individual country. Second, we use a general-to-specific variable selection approach to identify important determinants of the effect of trade on income. Our main findings are: (i) A one percent increase in the trade share of GDP yields, on average, a statistically significant increase in income per worker of about 0.16 percent. This result is in contrast to previous studies, which tend to produce either unreasonably large or statistically insignificant estimates of the impact of trade on income. (ii) There are large cross-country differences in the income effects of trade, in particular between developed and developing countries. For developed countries the income effect of trade is positive, whereas trade has, on average, a negative impact on income in developing countries. (iii) The cross-country heterogeneity in the impact of trade on income can be explained mainly by cross-country differences in primary export dependence, labour market regulation, and property rights protection. The level of property rights protection is positively related, while the level of primary export dependence and labour market regulation is negatively related to the income effect of trade.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_020-islyami.pdf

Abstract: In this paper a stylized CGE model is constructed to study the impact of liberalization of barriers for foreign providers of intermediate producer services under imperfect competition on the welfare, the downstream industry output, the prices of the factors of production and the pattern of trade. An attempt is made at incorporating oligopoly market structure into the services sector within general equilibrium model. Consequently, a model with firms making output conjectures about domestic and foreign rivals is adopted. The case of a small developing country with less efficient services sector relative to the foreign firms is assumed. In this framework, interaction and the relative significance of mechanisms resulting from the love of variety, anti and pro competitive and the efficiency effects on the outcomes of the services liberalization is analyzed. It is found that the liberalization services trade might be negative in terms of welfare and downstream industry expansion even if the profits of the foreign firms are not shifted abroad. This represents the evidence of dominant anticompetitive effect. It is therefore important to take into consideration the underlying market structure while liberalizing services trade.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_023-Sauter.pdf

Abstract: This paper tests for one mechanism that can explain the existence of a language barrier to trade. Specifically, I ask if those industries that require more cross-border communication in order to export their products trade more between Canadian provinces that know the other's language(s). I find that trade in industries with a need to communicate directly (orally) with importers increases with the probability that people in another province speak the same language. This finding can fill a missing link in the empirical trade literature, which lacked convincing arguments for the observed correlation between language commonality and the total volume of trade.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_021-mccann.pdf

Abstract: The causality from outsourcing, defined as the procurement of inputs from outside the boundaries of the firm, to productivity is tested for a large panel of Irish manufacturing firms. Theory suggests that as firms outsource more 'non-core' activities to specialized providers, productivity due to the firm benefiting from cheaper or higher-quality inputs and from reallocation of resources towards higher value-added activities. The international outsourcing case adds another dimension in the form of input variety, quality and technological embeddedness. I test the above hypothesis using a "System GMM" estimator to control for endogeneity in the panel and allow for a lagged dependent variable to be a regressor. International outsourcing is found to lead to productivity gains, but upon closer inspection it seems that firms? international orientation and type of industry both matter.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_022-FehrJokischKotlikoff.pdf

Abstract: Will incomes of low and high skilled workers continue to diverge? Yes says our paper's dynamic, six-good, five-region - U.S., Europe, N.E. Asia (Japan, Korea, Taiwan, Hong Kong), China, and India -, general equilibrium, life-cycle model. The model predicts a near doubling of the ratio of high- to low-skilled wages over the century. Increasing wage inequality arises from a traditional source - a rising worldwide relative supply of unskilled labor, reflecting Chinese and Indian productivity improvements. But China's and India's education policies matter. If successive Chinese and Indian cohorts become more skilled, major exacerbation of inequality will be precluded.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_019-zulfiu.pdf

Abstract: Using a panel dataset of bilateral flows of foreign direct investment (FDI), we study the determinants of FDI in transition economies, with particular reference to Macedonia’s performance. As many transition countries, Macedonia has a low FDI potential and performance. The empirical work confirms the expectation of the positive feedback effect of past FDI onto current FDI. We do not have enough large dataset to say that all other variables, such as the GDP of the host and source country, unit labour cost, trade, inflation, legal environment, distance, and dummy variables capturing the language, common border and colonizing effect, do not have an effect on FDI stocks. Our suggestion is that all the econometric findings on the determinants of FDI in transition economies using small dataset and static models should be accepted only with caution.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_018-slacik.pdf

Abstract: In the present study we analyse relevant macro- and microeconomic forces driving inflation in the Czech Republic with a particular focus on how these channels are likely to change in the wake of euro adoption. We employ an ARDL model combined with the Bayesian Model Averaging technique. In order to carry out this analysis, we also estimate the time-varying natural rate of interest purged from the risk premium. Our results suggest that the costs arising from the discontinuation of nominal trend appreciation of the koruna after euro adoption are likely to be rather low. In contrast, a low inflation environment and a harmonization of the business cycles between the Czech Republic and the euro area are essential for ensuring that inflation hikes will remain limited after the euro adoption. The fulfilment of the Maastricht inflation criterion should not be enforced by policy measures that would artificially reduce inflation temporarily. The potential inflationary effect of the changeover cannot be eliminated altogether but it may well be substantially reduced by applying best practices based on the experience of current euro area participants.

File:

fileadmin/Documents/Publikationen/Working_Paper/N_017-breuss_rabitsch.pdf

Abstract: We present a two-country New Open Economy Macro model of the Austrian economy within the European Union's Economic & Monetary Union (EMU). The model includes both nominal and real frictions that have proven to be important in matching business cycle facts, and that allows for an investigation of the effects and cross-country transmission of a number of structural shocks: shocks to technologies, shocks to preferences, cost-push type shocks and policy shocks. The model is estimated using Bayesian methods on quarterly data covering the period of 1976:Q1-2005:Q1. In addition to the assessment of the relative importance of various shocks, the model also allows to investigate effects of the monetary regime switch with the final stage of the EMU and investigates in how far this has altered macroeconomic transmission. We find that Austria's economy appears to react stronger to demand shocks, while in the rest of the Euro Area supply shocks have a stronger impact. Comparing the estimations on pre-EMU and EMU subsamples we find that the contribution of (rest of the) Euro Area shocks to Austria's business cycle fluctuations has increased significantly.

File:

fileadmin/Documents/Publikationen/fiwstudie3.pdf

Abstract: Trade in services is a rapidly growing phenomenon. Consequently, the question of individual countries? competitiveness in trade in services is of increasing importance. In this paper we describe patterns of competitiveness in services sectors for EU members over the period 1995 to 2005, differentiating between 11 individual service activities. We find a clear East-West divide in general and especially for Austria's strengths and weaknesses in the services sector. Austria's competitiveness lies in traditional, yet globally declining sectors such as transport and travel and is weak in industries such as insurance, computer and information, communication services and royalties and licence fees. The latter two industries are characterized by above-average levels of competitiveness within the EU. We then investigate the influence of factors such as labour productivity, unit labour costs, industry size and skill endowments for services sector competitiveness in the EU member states.

File:

fileadmin/Documents/Publikationen/fiwstudie21.pdf

Abstract: Der Schwerpunkt der Studie ist - primär auf Basis eines Fragebogens die Ermittlung der Attraktivität Österreichs als Standort für Headquarters Funktionen von international orientierten Unternehmen. Analysiert werden Unterschiede und Gemeinsamkeiten in den Bestimmungsgründen von Standortentscheidungen, in der Wertung der tatsächlichen Attraktivität des Standorts Österreich sowie in der Beschäftigungsentwicklung von drei Unternehmenstypen: ausländische multinationale Unternehmen (MNU) mit Headquarters Funktionen (HQ F) in Österreich, ausländische MNU ohne HQ F in Österreich und österreichische MNU. Alle drei Typen geben eine steigende Beschäftigungsentwicklung an, dieser "positive Headquarters Effekt" untermauert die Bedeutung von HQ F am Standort Österreich. Als wichtige Standortkriterien für die Ausübung von internationalen HQ F am Standort Österreich werden die "Verfügbarkeit von qualifiziertem Personal" sowie das "Ausbildungsniveau" genannt. Regional überwiegen bei HQ F in Österreich die weltweite Ausübung und die Ausübung für die 10 neuen EU Mitgliedstaaten, bzw. für die restlichen osteuropäischen Länder. Weiters deuten die Ergebnisse der Unternehmensbefragung darauf hin, dass die Einführung der Gruppenbesteuerung im Jahr 2005 zur Absicherung des Headquarters Standorts beigetragen hat. Aufgabe einer zukunftsorientierten Wirtschaftspolitik ist es weitere Verbesserungen im Bereich der besonders wichtigen Standortkriterien "Verfügbarkeit von qualifiziertem Personal" sowie "Ausbildungsniveau" voranzutreiben. Um die Wettbewerbsfähigkeit des Headquarters Standorts Österreich auch für die Zukunft zu sichern, sollten neue Wettbewerbsvorteile beispielsweise durch die Unterstützung der Ansiedelung von F&E Funktionen in Österreich aufgebaut werden, noch bevor die bestehenden Vorteile aufgrund der Nähe zu Osteuropa verblassen.

File:

fileadmin/Documents/Publikationen/fiwstudie24.pdf

Abstract: Die Analyse (mit einem "Constant Market Shares" Modell) über die Wettbewerbsfähigkeit und Struktur hat ergeben, dass sich in der österreichischen Außenwirtschaft mit Gütern in den vergangenen Jahren die Wettbewerbsfähigkeit verschlechtert hat. Es zeichnen sich auch strukturelle Probleme ab. Hier erscheint es notwendig, neue Märkte zu erobern und das Produktangebot der internationalen Nachfrageentwicklung anzupassen. Das Ergebnis der Untersuchung (mit vektorautoregressiven Prozessen) über die Zusammenhänge im österreichischen Außenhandel zeigt, dass die Exporte kleiner Dienstleistungsbranchen ein Vielfaches an Warenexporten mit sich ziehen. Signifikante Impulse kommen von der Transportbrache, von den Bau- und Finanzdienstleistungen, den EDV- und Informationsdienstleistungen, den Exporten von Patenten und Lizenzen, den sonstigen unternehmensbezogenen Dienstleistungen und vom Bereich operationales Leasing. Das Ergebnis des Gravitationsmodels ist, dass die österreichische Exportwirtschaft in Länder mit einem hohen Einkommen mehr exportiert, dass eine Verringerung der Distanz um 5 Prozent mit einer Steigerung der Exporte um 5 Prozent gerechnet werden kann und dass die Grenzen innerhalb der EU kaum handelsmindernd sind. Werden Grenzkontrollen vermindert, so wirkt sich dies positiv auf die Reiszeit aus.

File:

fileadmin/Documents/Publikationen/fiwstudie1.pdf

Abstract: This note gives a comprehensive overview of the currently available international databases on trade in services. Notwithstanding problems in data collection arising from the very wide definition of trade in services (i.e. the four GATS modes in contrast to what is traditionally considered as trade in merchandise goods), we identify a considerable room for improvement of the data situation also with respect to Balance of Payments based data. In this paper we survey IMF, OECD, Eurostat and OENB data at the most detailed sector level. We further give a short descriptive overview of Austria's relative position in service trade flows compared to its major trading partners.

File:

fileadmin/Documents/Publikationen/fiwstudie4.pdf

Abstract: This paper gives a quantitative assessment of possible trade effects resulting from different trade liberalization scenarios within the EU. The simulations are based on the GTAP model, a computable general equilibrium model. We use the GTAP database and own estimates of protection in the service sector. We compare different scenarios, which differ in the extent of their liberalization (linear versus sector country and specific cuts in existing trade barriers, including all sectors versus only selected sectors). Our findings point towards larger gains from more comprehensive cuts (i.e. including all service sectors) and larger gains for the - up to date more restricted - new EU members.