The European Refugee Crisis and the Natural Rate of Output
Katja Heinisch, Klaus Wohlrabe
Applied Economics Letters,
No. 16,
2017
Abstract
The European Commission follows a harmonized approach for calculating structural (potential) output for EU member states that takes into account labour as an important ingredient. This article shows how the recent huge migrants’ inflow to Europe affects trend output. Due to the fact that the immigrants immediately increase the working population but effectively do not enter the labour market, we illustrate that the potential output is potentially upward biased without any corrections. Taking Germany as an example, we find that the average medium-term potential growth rate is lower if the migration flow is modelled adequately compared to results based on the unadjusted European Commission procedure.
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Economic Transition in Unified Germany and Implications for Korea
Hyung-Gon Jeong, Gerhard Heimpold
H.-G. Jeong and G. Heimpold (eds.): Economic Transition in Unified Germany and Implications for Korea. Policy References 17-13. Sejong: Korea Institute for International Economic Policy,
2017
Abstract
The reunification of Germany, which marked the end of the Cold War in the 20th century, is regarded as one of the most exemplary cases of social integration in human history. Nearly three decades after the German reunification, the economic and social shocks that occurred at the beginning of the reunification process have largely been resolved. Moreover, the unified Germany has grown into one of the most advanced economies in the world.
The unification process that Germany underwent may not necessarily be the way that the Republic of Korea would choose. However, the economic and social exchanges between East and West Germany prior to unification, and the cooperation in a myriad of policies based on these exchanges, served as the crucial foundation for unification. The case of Germany will surely help us find a better way for the re-unification of the Korean Peninsula.
In this context, this is the first edition of a joint research which provides diverse insights on social and economic issues during the process of unification. It consists of nine chapters whose main topics include policies on macroeconomic stabilization, the privatization of state-owned enterprises in East Germany, labor policies and the migration of labor, integration of the social safety nets of the North and South, and securing finances for reunification. To start with, the first part covers macroeconomic stabilization measures, which include policies implemented by the federal government of Germany to overcome macroeconomic shocks directly after the reunification. There was a temporary setback in the economy at the initial phase of reunification as the investment per GDP went down and the level of fiscal debt escalated, reverting to its original trend prior to the reunification. While it appears the momentum for growth was compromised by reunification from the perspective of growth rate of real GDP, this state did not last long and benefits have outpaced the costs since 2000.
In the section which examines the privatization of state-owned enterprises in East Germany, an analysis was conducted on the modernization of industrial infrastructure of East German firms. There was a surge in investment in East German area at the beginning stages but this was focused on a specific group of firms. Most of the firms were privatized through unofficial channels, with a third of these conducted in a management buy-out (MBO) process that was highly effective. Further analysis of a firm called Jenoptik, which was successfully bailed out, is incorporated as to draw implications of its accomplishments.
In the section on migration, we examine how the gap between the unemployment rates in the West and East have narrowed as the population flow shifted from the West to East. Consequently, there was no significant deviation in terms of the Gross Regional Domestic Product (GRDP) per capita in each state of East Germany. However, as the labor market stabilized in East Germany and population flows have weakened, the deviation will become larger. Meanwhile, if we make a prediction about the movement of population between the North and the South, which show a remarkable difference in their economic circumstances, a radical reunification process such as Germany’s case would force 7% of the population of the North to move towards the South. Upon reunification, the estimated unemployment rate in North Korea would remain at least 30% for the time being. In order to reduce the initial unemployment rate, it is crucial to design a program that trains the unemployed and to build a system that predicts changes in labor demand.
It seems nearly impossible to apply the social safety nets of the South to the North, as there is a systemic difference in ideologies. Taking steps toward integration would be the most suitable option in the case of the Koreas. We propose to build a sound groundwork for stabilizing the interest rates and exchange rates, maintain stable fiscal policies, raise momentum for economic growth and make sure people understand the means required to financially support the North in order to reduce the gap between the two.
This book was jointly organized and edited by Dr. Hyung-gon Jeong of the Korea Institute for International Economic Policy (KIEP) and Dr. Gerhard Heimpold of the Halle Institute for Economic Research (IWH). We believe that this report, which examines numerous social and economic agendas that emerged during the reunification of Germany, will provide truly important reference for both Koreas. It is also our view that it will serve as a stepping-stone to establish policies in regard to South-North exchanges across numerous sectors prior to discussions of reunification. KIEP will continue to work with IWH and contribute its expertise to the establishment of grounds for unification policies.
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TV and Entrepreneurship
Viktor Slavtchev, Michael Wyrwich
IWH Discussion Papers,
No. 17,
2017
Abstract
We empirically analyse whether television (TV) can influence entrepreneurial identity and incidence. To identify causal effects, we utilise a quasi-natural experiment setting. During the division of Germany after WWII into West Germany with a free-market economy and the socialistic East Germany with centrally-planned economy, some East German regions had access to West German public TV that – differently from the East German TV – transmitted images, values, attitudes and view of life compatible with the free-market economy principles and supportive of entrepreneurship. We show that during the 40 years of socialistic regime in East Germany entrepreneurship was highly regulated and virtually impossible and that the prevalent formal and informal institutions broke the traditional ties linking entrepreneurship to the characteristics of individuals so that there were hardly any differences in the levels and development of entrepreneurship between East German regions with and without West German TV signal. Using both, regional and individual level data, we show then that, for the period after the Unification in 1990 which made starting an own business in East Germany, possible again, entrepreneurship incidence is higher among the residents of East German regions that had access to West German public TV, indicating that TV can, while transmitting specific images, values, attitudes and view of life, directly impact on the entrepreneurial mindset of individuals. Moreover, we find that young individuals born after 1980 in East German households that had access to West German TV are also more entrepreneurial. These findings point to second-order effects due to inter-personal and inter-generational transmission, a mechanism that can cause persistent differences in the entrepreneurship incidence across (geographically defined) population groups.
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Predicting the Rise of EU Right-Wing Populism in Response to Unbalanced Immigration
Marko Jusup, Dejan Kovač, Boris Podobnik, H. Eugene Stanley
Complexity,
August
2017
Abstract
Among the central tenets of globalization is the free migration of labor. Although much has been written about the benefits of globalization, little is known about its limitations and how antiglobalist sentiment can be strongly affected by high levels of immigration. Analyzing poll data from a group of EU countries affected by the recent migrant crisis, we find that over the last three years the percentage of right-wing (RW) populist voters in a given country depends on the prevalence of immigrants in this country’s population and the total immigration inflow into the entire EU. The latter is likely due to the perception that the EU functions as a supranational state in which a lack of inner borders means that “someone else’s problem” can easily become “my problem.” We find that the increase in the percentage of RW voters substantially surpasses the percentage of immigration inflow, implying that if this process continues, ongoing democratic processes will cause RW populism to prevail and globalization to rapidly decrease. We locate tipping points between the fraction of immigrants and the rise of RW populism, and we model our empirical findings using a complex network framework in which the success of globalization rests on a balance between immigration and immigrant integration.
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Plant-based Bioeconomy in Central Germany – A Mapping of Actors, Industries and Places
Wilfried Ehrenfeld, Frieder Kropfhäußer
Technology Analysis and Strategic Management,
No. 5,
2017
Abstract
The bioeconomy links industrial and agricultural research and production and is expected to provide growth, particularly in rural areas. However, it is still unclear which companies, research institutes and universities make up the bioeconomy. This makes it difficult to evaluate the policy measures that support the bioeconomy. The aim of this article is to provide an inventory of relevant actors in the three Central German states of Saxony, Saxony-Anhalt and Thuringia. First we take an in-depth look at the different sectors, outline the industries involved, note the location and age of the enterprises and examine the distribution of important European industrial activity classification (NACE) codes. Our results underline the fact that established industry classifications are insufficient in identifying the plant-based bioeconomy population. We also question the overly optimistic statements regarding growth potentials in rural areas and employment potentials in general.
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Taking the Leap: The Determinants of Entrepreneurs Hiring Their First Employee
Robert W. Fairlie, Javier Miranda
Journal of Economics and Management Strategy,
No. 1,
2017
Abstract
Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of start‐ups. Longitudinal data from the Integrated Longitudinal Business Database (iLBD), Kauffman Firm Survey (KFS), and the Growing America through Entrepreneurship (GATE) experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a nonemployer to employer firm among start‐ups. Several interesting patterns emerge regarding the dynamics of nonemployer start‐ups hiring their first employee. Hiring rates among the universe of nonemployer start‐ups are very low, but increase when the population of nonemployers is focused on more growth‐oriented businesses such as incorporated and employer identification number businesses. If nonemployer start‐ups hire, the bulk of hiring occurs in the first few years of existence. After this point in time, relatively few nonemployer start‐ups hire an employee. Focusing on more growth‐ and employment‐oriented start‐ups in the KFS, we find that Asian‐owned and Hispanic‐owned start‐ups have higher rates of hiring their first employee than white‐owned start‐ups. Female‐owned start‐ups are roughly 10 percentage points less likely to hire their first employee by the first, second, and seventh years after start‐up. The education level of the owner, however, is not found to be associated with the probability of hiring an employee. Among business characteristics, we find evidence that business assets and intellectual property are associated with hiring the first employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, we do not find evidence that entrepreneurship training increases the likelihood that nonemployers hire their first employee.
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The European Refugee Crisis and the Natural Rate of Output
Katja Heinisch, Klaus Wohlrabe
Abstract
The European Commission follows a harmonized approach for calculating structural (potential) output for EU member states that takes into account labor as an important ingredient. This paper shows how the recent huge migrants inflow to Europe affects trend output. Due to the fact that the immigrants immediately increase the working population but effectively do not enter the labor market, we illustrate that the potential output is potentially upward biased without any corrections. Taking Germany as an example, we find that the average medium-term potential growth rate is lower if the migration flow is modeled adequately compared to results based on the unadjusted European Commission procedure.
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To Invest or Not to Invest, That Is the Question: Analysis of Firm Behavior under Anticipated Shocks
Dejan Kovač, Nikola Kleut, Boris Podobnik, Vuk Vukovic
Plos One,
No. 8,
2016
Abstract
When companies are faced with an upcoming and expected economic shock some of them tend to react better than others. They adapt by initiating investments thus successfully weathering the storm, while others, even though they possess the same information set, fail to adopt the same business strategy and eventually succumb to the crisis. We use a unique setting of the recent financial crisis in Croatia as an exogenous shock that hit the country with a time lag, allowing the domestic firms to adapt. We perform a survival analysis on the entire population of 144,000 firms in Croatia during the period from 2003 to 2015, and test whether investment prior to the anticipated shock makes firms more likely to survive the recession. We find that small and micro firms, which decided to invest, had between 60 and 70% higher survival rates than similar firms that chose not to invest. This claim is supported by both non-parametric and parametric tests in the survival analysis. From a normative perspective this finding could be important in mitigating the negative effects on aggregate demand during strong recessionary periods.
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Does Administrative Status Matter for Urban Growth? Evidence from Present and Former County Capitals in East Germany
Bastian Heider, Albrecht Kauffmann, Martin T. W. Rosenfeld
Abstract
Public sector activities are often neglected in the economic approaches used to analyze the driving forces behind urban growth. The institutional status of a regional capital is a crucial aspect of public sector activities. This paper reports on a quasi-natural experiment on county towns in East Germany. Since 1990, cities in East Germany have demonstrated remarkable differences in population development. During this same period, many towns have lost their status as a county seat due to several administrative reforms. Using a difference-in-difference approach, the annual population development of former county capitals is compared to population change in towns that have successfully held on to their capital status throughout the observed period. The estimations show that maintaining county capital status has a statistically significant positive effect on annual changes in population. This effect is furthermore increasing over time after the implementation of the respective reforms.
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Social Distress and Economic Integration
Walter Hyll, Lutz Schneider
IWH Discussion Papers,
No. 21,
2016
Abstract
We analyze whether social distress from income comparisons affects attitudes towards the integration of economies. Using Germany’s division as natural experiment, we find that East Germans’ feelings of relative deprivation with respect to better-off West Germans led to significantly more support for the upcoming German re-unification.
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