The Regional Distribution of Foreign Investment in Russia: Are Russians more Appealing to Multinationals as Consumers or as Natural Resource Holders?
K. Gonchar, Philipp Marek
Economics of Transition and Institutional Change,
No. 4,
2014
Abstract
This article conducts a plant-level study of the factors affecting foreign direct investment (FDI) inflow to a large opening economy endowed with specific factor advantages. We conclude that the distribution of FDI in Russian regions depends on market access and can be most notably described by the knowledge-capital framework. Factor endowments built by natural resources are more successful in explaining the location decisions of export–platform affiliates. The impact of natural resources depends on how the availability of these resources is measured. The results reject the crowding out effects of resource FDI and prove co-location mode, when service investments are attracted to resource-rich regions. Labour cost advantages better explain the preferences of non-trading service affiliates.
Read article
How Can Skill Mismatch be Measured? New Approaches with PIAAC
Daniela Ackermann-Piek, Anja Perry, Simon Wiederhold
Methods, Data, Analyses,
No. 2,
2014
Abstract
Measuring skill mismatch is problematic, because objective data on an individual skill level are often not available. Recently published data from the Program for the International Assessment of Adult Competencies (PIAAC) provide a unique opportunity for gauging the importance of skill mismatch in modern labor markets. This paper systematically compares existing measures of skill mismatch in terms of their implications for labor market outcomes. We also provide a new measure that addresses an important limitation of existing measures, namely, assigning a single competency score to individuals. We find that the importance of skill mismatch for individual earnings differs greatly, depending on the measure of mismatch used.
Read article
Changing Forces of Gravity: How the Crisis Affected International Banking
Claudia M. Buch, Katja Neugebauer, Christoph Schröder
ZEW Discussion Paper, No. 14-006,
2014
Abstract
The global financial crisis has brought to an end a rather unprecedented period of banks’ international expansion. We analyze the effects of the crisis on international banking. Using a detailed dataset on the international assets of all German banks with foreign affiliates for the years 2002-2011, we study bank internationalization before and during the crisis. Our data allow analyzing not only the international assets of the banks’ headquarters but also of their foreign affiliates. We show that banks have lowered their international assets, both along the extensive and the intensive margin. This withdrawal from foreign markets is the result of changing market conditions, of policy interventions, and of a weakly increasing sensitivity of banks to financial frictions.
Read article
The Skills Balance in Germany’s Import Intensity of Exports: An Input-Output Analysis
Udo Ludwig, Hans-Ulrich Brautzsch
Intereconomics,
No. 2,
2014
Abstract
In the decade prior to the economic and financial crisis, Germany’s net exports increased in absolute terms as well as relative to the growing level of import intensity of domestically produced export goods and services. This article analyses the direct and indirect employment effects induced both by exports as well as by of the import intensity of the production process of export goods and services on the skills used. It shows that Germany’s export surpluses led to positive net employment effects. Although the volume of imports of intermediate goods increased and was augmented by the rise in exports, it could not undermine the overall positive employment effect.
Read article
An Empirical Analysis of Legal Insider Trading in The Netherlands
Frank de Jong, Jérémie Lefebvre, Hans Degryse
De Economist,
No. 1,
2014
Abstract
In this paper, we employ a registry of legal insider trading for Dutch listed firms to investigate the information content of trades by corporate insiders. Using a standard event-study methodology, we examine short-term stock price behavior around trades. We find that purchases are followed by economically large abnormal returns. This result is strongest for purchases by top executives and for small market capitalization firms, which is consistent with the hypothesis that legal insider trading is an important channel through which information flows to the market. We analyze also the impact of the implementation of the Market Abuse Directive (European Union Directive 2003/6/EC), which strengthens the existing regulation in the Netherlands. We show that the new regulation reduced the information content of sales by top executives.
Read article
Sovereign Credit Risk, Banks' Government Support, and Bank Stock Returns around the World: Discussion of Correa, Lee, Sapriza, and Suarez
Reint E. Gropp
Journal of Money, Credit and Banking,
s1
2014
Abstract
In the years leading up to the 2008–09 financial crisis, many banks around the world greatly expanded their balance sheets to take advantage of cheap and abundantly available funding. Access to international funding markets, in particular, made it possible for banks to reach a size that in some cases was a large multiple of their home countries’ gross domestic product (GDP). In Iceland, for example, assets of the banking system reached up to 900% of GDP in 2007. Similarly, by the end of 2008, assets in UK and Swiss banks exceeded 500% of their countries’ GDPs, respectively. Banks may also have grown rapidly because they may have wanted to reach too-big-to-fail status in their country, implying even lower funding cost (Penas and Unal 2004).
The depth and severity of the 2008–09 financial crisis and the subsequent debt crisis in Europe, however, have cast doubts on the ability of governments to bail out banks when they experience severe difficulties, in particular, in financially fragile environments and faced with large budget imbalances. This has resulted in as what some observers have dubbed a “doom loop”: the combination of weak public finances and weak banks results in a vicious cycle, in which the funding cost of banks increases, as the ability of governments to bail out banks is called into question, in turn increasing the funding cost of these banks and making the likelihood that the government will actually have to step in even higher, which in turn increases funding cost to the government and so forth.
Against this background, the paper by Correa et al. (2014) explores the link between sovereign rating changes and bank stock returns. They show large negative reactions of stock returns in response to sovereign ratings downgrades for banks that are expected to receive government support in case of failure. They find the strongest effects in developed economies, where the credibility of government bail outs is higher ex ante, while the effects are smaller in developing and emerging economies. In my view, the paper makes a number of important contributions to the extant literature.
Read article
Changing Forces of Gravity: How the Crisis Affected International Banking
Claudia M. Buch, Katja Neugebauer, Christoph Schröder
IWH Discussion Papers,
No. 15,
2013
Abstract
The global financial crisis has brought to an end a rather unprecedented period of banks’ international expansion. We analyze the effects of the crisis on international banking. Using a detailed dataset on the international assets of all German banks with foreign affiliates for the years 2002-2011, we study bank internationalization before and during the crisis. Our data allow analyzing not only the international assets of the banks’ headquarters but also of their foreign affiliates. We show that banks have lowered their international assets, both along the extensive and the intensive margin. This withdrawal from foreign markets is the result of changing market conditions, of policy interventions, and of a weakly increasing sensitivity of banks to financial frictions.
Read article
Has Labor Income Become More Volatile? Evidence from International Industry-Level Data
Claudia M. Buch
German Economic Review,
No. 4,
2013
Abstract
Changes in labor market institutions and the increasing integration of the world economy may affect the volatility of capital and labor incomes. This article documents and analyzes changes in income volatility using data for 11 industrialized countries, 22 industries and 35 years (1970–2004). The article has four main findings. First, the unconditional volatility of labor income has declined in parallel to the decline in macroeconomic volatility. Second, the industry-specific, idiosyncratic component of labor income volatility has hardly changed. Third, cross-sectional heterogeneity is substantial. If anything, the labor incomes of high- and low-skilled workers have become more volatile relative to the volatility of capital incomes. Fourth, the volatility of labor income relative to the volatility of capital income declines in the labor share. Trade openness has no clear-cut impact.
Read article
Towards Deeper Financial Integration in Europe: What the Banking Union Can Contribute
Claudia M. Buch, T. Körner, Benjamin Weigert
IWH Discussion Papers,
No. 13,
2013
Abstract
The agreement to establish a Single Supervisory Mechanism in Europe is a major step towards a Banking Union, consisting of centralized powers for the supervision of banks, the restructuring and resolution of distressed banks, and a common deposit insurance system. In this paper, we argue that the Banking Union is a necessary complement to the common currency and the Internal Market for capital. However, due care needs to be taken that steps towards a Banking Union are taken in the right sequence and that liability and control remain at the same level throughout. The following elements are important. First, establishing a Single Supervisory Mechanism under the roof of the ECB and within the framework of the current EU treaties does not ensure a sufficient degree of independence of supervision and monetary policy. Second, a European institution for the restructuring and resolution of banks should be established and equipped with sufficient powers. Third, a fiscal backstop for bank restructuring is needed. The ESM can play a role but additional fiscal burden sharing agreements are needed. Direct recapitalization of banks through the ESM should not be possible until legacy assets on banks’ balance sheets have been cleaned up. Fourth, introducing European-wide deposit insurance in the current situation would entail the mutualisation of legacy assets, thus contributing to moral hazard.
Read article
