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The Research Centre International Economics FIW is a project of WIFO, wiiw and WSR on behalf of the Federal Ministry for Digital and Economic Affairs. The FIW cooperation with the Vienna University of Economics and Business, the University Vienna, the Johannes Kepler University Linz and the University of Innsbruck is supported by the Federal Ministry of Education, Science and Research.

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FIW Research Reports of the "FIW Studypool II"

The FIW Research Reports 2010/11 show the results of the "FIW-Studypool II", that were commissioned by the Austrian Federal Ministry of Economics, Family and Youth (BMWFJ) within the framework of the ‘Research Centre International Economics” (FIW) in January 2010.

The "FIW Studypool II" contains six thematic work packages: ‘The financial and economic crisis of 2007-2010 and the European economy’, ‘Modelling the Effects of Trade Policy and the Transmission Mechanisms of the Economic Crisis on the Austrian Economy’, ‘The Gravity Equation’, ‘Macroeconomic Aspects of European Integration’, ‘Effects of International Integration on Income Distribution’ and ‘New Energy Policy and Security of Gas Supply‘.

Structural Estimation of Gravity Models with Path-Dependent Market Entry

FIW Research Reports 2010/2011 N° 7
Peter Egger and Michael Pfaffermayr


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.

Keywords: Bilateral trade flows; Gravity equation; Dynamic random effects model; Sample selection
JEL-codes: F10; F12; F17



- Research Report

- Policy Note

- Executive Summary (in German)

Austrian Linkages to the European Economy and the Transmission Mechanisms of Economic Crisis

FIW Research Reports 2010/2011 N° 6 / Modelling the Effects of Trade Policy and the Transmission Mechanisms of the Economic Crisis on the Austrian Economy

Joseph Francois, Mario Holzner, Olga Pindyuk


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.

Keywords: economic crisis, transmission mechanisms, Austria, Europe, CGE
JEL-codes: F14, F44, F47, C68


- Research Report (incl. Executive Summary)

- Policy Note

Model Simulations for Trade Policy Analysis: the impact of potential trade agreements on Austria

FIW Research Reports 2010/2011 N° 5 / Modelling the Effects of Trade Policy and the Transmission Mechanisms of the Economic Crisis on the Austrian Economy

Joseph Francois, Olga Pindyuk


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.


Keywords: trade agreements, ASEAN, NAFTA, Doha Round, Austria, CGE
JEL-codes: F15, F17, C68


- Research Report

- Policy Note

- Executive Summary

Macroeconomic Aspects of European Integration: Fiscal Policy, Trade Integration and the European Business Cycle

FIW Research Reports 2010/2011 N° 4 / Macroeconomic Aspects of European Integration

Jesús Crespo-Cuaresma, Michael Pfaffermayr, Octavio Fernández Amador, Catherine Keppel


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.


JEL classification: E32, E62, F15

Keywords: Monetary union, business cycles, synchronization, trade integration, fiscal policy


- Research Report (incl. Executive Summary)

- Policy Note

Vulnerability and Bargaining Power in EU-Russia Gas Relations

FIW Research Reports 2010/2011 N° 3 / New Energy Policy and Security of Gas Supply
Edward Hunter Christie, Pavel K. BAEV, Volodymyr GOLOVKO


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.


JEL classification: C78, L11, Q34, Q48

Keywords: Natural gas, security of supply, supply disruption, interconnector, Russia, Ukraine, Bulgaria, European Union, energy policy, fragmentation, bargaining power, countervailing power, gas purchasing agency


- Research Report

- Policy Note

- Executive Summary (German)

A Land Far Away

FIW Research Reports 2010/2011 N° 2 / The Gravity Equation

Guenther Grohall and Yuri Yegorov


Abstract: What goods to export and where to sell them? Our research was pursuing these two major goals. The first one is related to detecting countries where Austria has good perspectives for boosting its export. The basic idea was to use macroeconomic data set detecting the significant variables. We found that besides the GDP of importer and distance, there are more important variables like being landlocked, language, inflation, and so forth. We found recent GDP growth rate to be non-significant in more than just the very basic models. Taking all explanatory variables into account we could calculate the country-effects, telling us how Austrian exporters are under or over-represented within each country. It is argued that exporters could put additional efforts into quickly growing countries where Austria is still under-represented. The second goal was a more detailed view on the role of transport costs. Gravity model was shown to be correct and robust (even for a class of functions of distance). The detailed accounting for transport costs requires consideration of different transport modes and ratios of value to weight. Distance suppresses trade of cheap goods most, suggesting that Austria has no disadvantage in export of high-tech goods (like pharmaceutics and complex machines) over long distances. In particular, pharmaceutical sector has growing potential and trade with Russia is one of its perspectives.


JEL Codes: F14, L90, R40

Keywords: International Trade, Gravity Model, Transport Cost, Growth, Advantage


- Research Report
- Policy Note (German)
- Executive Summary (German)

Modell basierte Analyse von Wasserströmen im internationalen Handel von Agrarprodukten

FIW Research Reports 2010/2011 N° 1 / New Energy Policy and Security of Gas Supply
Roland Treitler and Helmut Berrer


Abstract: The study quantifies the amount of water embodied in Austrian imports of selected agricultural products. These imports are analysed by a dynamic model that is based on the water footprint concept. The model quantifies the water savings potential using a database including more than 200 countries and regions. Austria could save up to 28% of the water embodied in coffee by substituting the current coffee imports from water inefficient countries by efficiently produced coffee. The water savings potential from wheat imports amounts to 22%, that from orange imports equals almost 20% of the current amount of embodied water. We calculate a global water value equal to € 0.013 per cubic meter of water. The international trade of coffee, wheat and oranges trades embodied water equal to € 51.6 billions per year with a share of 92.6% (€ 47.8 billions) traded at commodity exchanges.


JEL Codes: Q 56, Q 17, Q 25

Keywords: Water, Water Footprint, Water Value, International Trade


- Research Report (German)
- Policy Note (German)
- Executive Summary (German)