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The FIW - Research Centre International Economics ( is a cooperation between the Vienna University of Economics and Business (WU), the University Vienna, the Johannes Kepler University Linz, the University of Innsbruck, WIFO, wiiw and WSR. FIW is supported by the Austrian Federal Ministries of Education, Research and Science (BMBFW) and of Labour and Economy (BMAW).

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H. Suleiman and Z. Muhammad, The real exchange rate of an oil exporting economy: Empirical evidence from Nigeria.
Sep. 2011.


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.

D. Buccella, International Production and Wage Coordination in an Integrated Economy.
Jul. 2011.


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.

D. Buccella, Unions’ Bargaining Coordination in Multinational Enterprises.
Jun. 2011.


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.

S. Hiller, The Export Promoting Effect of Emigration: Evidence from Denmark.
Jun. 2011.


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.

H. Creusen and A. Lejour, Uncertainty and the export decisions of Dutch firms.
May 2011.


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

M. Isoré, International Propagation of Financial Shocks in a Search and Matching Environment.
Apr. 2011.


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.

N. Antonakakis and J. Scharler, Have Consumption Risks in the G7 Countries Become Diversified?.
Feb. 2011.


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.

R. Dadasov and O. Lorz, Mode of International Investment and Endogenous Risk of Expropriation.
Jan. 2011.


Abstract: In this paper, we develop a politico-economic model to analyze the relationship between the mode of international investment and institutional quality in a non-democratic capital importing country. Foreign investors from a capital-rich North can either purchase productive assets in a capital-poor South and transfer their capital within integrated multinational firms or they can form joint ventures with local asset owners. The South is ruled by an autocratic elite that may use its political power to expropriate productive assets. In a joint venture, the domestic asset owner bears the risk of expropriation, whereas in an integrated firm, this risk affects the foreign investor. This effect lowers the incentives for specific investments in an integrated firm and distorts the decision between joint ventures and integrated production. By setting the institutional framework in the host country, the elite influences the risk of expropriation. We determine the equilibrium risk of expropriation in this framework and the resulting pattern of international production. We also analyze as to how globalization, which is reflected in a decline in investment costs, influences institutional quality.

N. Palan, Measurement of Specialization - The Choice of Indices.
Dec. 2010.


Abstract: This paper compares nine common specialization indices, discussing their properties, strengths and weaknesses. In order to unravel the differences between the indices they are applied to European employment structures in 2005, spanning 51 industries and 24 European countries. The resulting heterogeneity levels differ largely between relative and absolute specialization measures, but also within these two groups of indices. As results are highly dependent on which measure is employed, it is important to be aware of carefully choosing appropriate indices in empirical studies in order to attain appropriate conclusions and conduct sound economic policy.

E. C. Tarabusi and G. Guarini, Inequality Adjustment Criteria for the Human Development Index.
Dec. 2010.


Abstract: Despite its popularity, the United Nations' Human Development Index (HDI) only addresses simplistically, if at all, issues of inequality, intended either across dimensions or across units (or both). To overcome this problem, the weighted arithmetic average can be replaced, in the aggregation steps, by more sophisticated non-linear functions, often given by suitable generalised means, that impose penalizations for inequalities; this is done (more or less explicitly) in the literature, as well as in the 2010 edition of the Human Development Report (HDR). Besides other basic properties that aggregation functions are expected to satisfy, the following additional two appear relevant: the function must be defined for every set of values of variables (including high or negative), and the compensability among variables must be incomplete. Furthermore, a choice must be allowed among three different kinds of penalisations: one that only depends on the differences of variables (called "constant penalisation" here); one that, for given such differences, increases--and one that decreases--when the absolute levels of variables increase. These features were not discussed previously in the literature and are not fulfilled, for instance, by the Inequality Adjusted HDI of the 2010 HDR. Nevertheless, these features do hold for a suitable explicit generalised mean introduced here. Such an aggregation function is then applied to a database of 32 developing or developed countries, thereby resulting in significant rating and ranking variations with respect to the HDI, especially in the non-constant penalisation cases. Moreover, there is a negative correlation between the HDI and the penalisation value (that can be regarded as a penalization index in itself), both in terms of rating and ranking.

O. Hossfeld, Equilibrium Real Effective Exchange Rates and Real Exchange Rate Misalignments: Time Series vs. Panel Estimates.
Dec. 2010.


Abstract: We follow the behavioral equilibrium exchange rate approach by Clark and MacDonald (1998) to derive equilibrium real effective exchange rates and currency misalignments for the US and its 16 major trading partners. We apply cointegration and panel cointegration techniques to derive fully countryspecific measures of misalignment and measures based on panel estimates. We formally test the forecast performance of pooled vs. heterogeneous estimators over a hold-back period and find that pooling the data delivers more accurate forecasts in the vast majority of cases although the implicit long-run homogeneity restriction is statistically rejected. This is especially remarkable, since we have given the heterogeneous estimator an ’unfair’ advantage by choosing the country-specific model (of up to 21 possible ones) with the best out-of-sample performance prior to comparing it to two final panel specifications. Robustness of the results is supported by recently introduced cross-sectionally augmented panel unit root tests by Pesaran (2007) and bootstrapped error correction-based panel cointegration tests by Westerlund (2007), as well as different estimators. While we find strong evidence for the Balassa-Samuelson-effect, the evidence for other commonly hypothesized fundamentals is weak.

C. Dreger, Does the nominal exchange rate regime affect the real interest parity condition?.
Dec. 2010.


Abstract: The real interest parity (RIP) condition combines two cornerstones in international finance, uncovered interest parity (UIP) and ex ante purchasing power parity (PPP). The extent of deviation from RIP is therefore an indicator of the lack of product and financial market integration. This paper investigates whether the nominal exchange rate regime has an impact on RIP. The analysis is based on 15 annual real interest rates and covers a long time span, 1870-2006. Four subperiods are distinguished and linked to fixed and flexible exchange rate regimes: the Gold Standard, the interwar float, the Bretton Woods system and the current managed float. Panel integration techniques are applied to increase the power of the tests, where cross section correlation is embedded via common factor structures. The results suggest that RIP holds as a long run condition irrespectively of the nominal exchange rate regime. However, adjustment towards RIP is affected by both the institutional framework and the historical episode. Half lives of shocks tend to be lower under fixed exchange rates and in the first part of the sample. Although barriers to trade and capital controls have been removed, they did not lead to lower half lives during the managed float.

N. Antonakakis and H. Badinger, International Spillovers of Output Growth and Output Growth Volatility: Evidence from the G7.
Nov. 2010.


Abstract: This paper examines the transmission of GDP growth and GDP growth volatility among the G7 countries over the period 1960 q1 - 2009 q3, using a multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) model to identify the source and magnitude of spillovers. Results indicate the presence of positive own-country GDP growth spillovers in each country and of cross-country GDP growth spillovers among most of the G7 countries. In addition, the large number of significant own-country output growth volatility and cross-country output growth volatility spillovers indicates that output growth shocks in most of the G7 countries affect output growth volatility in the remaining others. An additional finding is that U.S. is the dominant source of GDP growth volatility transmission, as its volatility exerts a significant unidirectional spillover to all remaining G7 countries.

T. H. H. Pham, Financial Development, Financial Openness and Trade Openness: New evidence.
Nov. 2010.


Abstract: Employing the Pedroni co-integration technique and the GMM estimator, this paper aims at investigating the possible connection between financial development, financial openness and trade openness in twenty-nine Asian developing countries over 1994-2008. Firstly, we find a bidirectional causality between trade openness and financial development/openness. Secondly, the relationship between financial development and financial openness is heterogeneous across different measures. Finally, this paper provides a complementary contribution to earlier studies as asking for the question of whether the inclusion of financial crisis in estimated models can change the nature of the relationship between financial development and both types of openness.

A. Donado and K. Wälde, How Bad is Globalization for Labour Standards in the North?.
Nov. 2010.


Abstract: We analyse a world consisting of ’the North’ and ’the South’ where labour standards in the North are set by trade unions. Standards set by unions tend to increase output and welfare. There are no unions in the South and work standards are suboptimal. Trade between these two countries can imply a reduction in work standards in the North. Moreover, when trade unions are established in the South, the North, including northern unions, tends to lose out. Quantitatively, these effects are small and overcompensated for by gains in the South. The existing empirical literature tends to support our findings.

M. Petreski, An Overhaul of a Doctrine: Has Inflation Targeting Opened a New Era in Developing-country Peggers?.
Nov. 2010.


Abstract: The aim of this paper is to empirically examine the effect of a regime switch, from exchange-rate targeting (fixed exchange rate) to inflation targeting, on monetary policy in developing economies, hence adding to evidence on whether inflation targeting along with a managed float provides a better monetary policy compared to exchange-rate targeting. For this purpose, a group of developing countries that have historically experienced such a switch is analysed. This is done by an augmented interest-rate rule a-la Taylor (1993; 2001). Two methodological approaches are used: switching regression and Markov-switching method. Although both approaches have different drawbacks which compensate, still both lead to the conclusion that inflation targeting represented a real switch in developing countries. The period of inflation targeting was characterized by: a more stable economic environment; by more independent monetary-policy conduct; and by strict focus on inflation. Estimates suggest that the switch to a new monetary regime explains these results.

J. Crespo-Cuaresma and O. Fernández-Amador, Business cycle convergence in EMU: A first look at the second moment.
Sep. 2010.


Abstract: We propose the analysis of the dynamics of the standard deviation of business cycles across euro area countries in order to evaluate the patterns of cyclical convergence in the European Monetary Union for the period 1960-2008. We identify significant business cycle divergence taking place in the mid-eighties, followed by a persistent convergence period spanning most of the nineties. This convergent episode finishes roughly with the birth of the European Monetary Union. A hypothetical euro area including all the new members of the recent enlargements does not imply a sizeable decrease in the optimality of the currency union. Finally, the European synchronization differential with respect to other developed economies seems to have been diluted within a global cycle since 2004.

H. Oberhofer, Firm growth, European industry dynamics and domestic business cycles.
Sep. 2010.


Abstract: Based on the empirical firm growth literature and on heterogeneous (microeconomic) adjustment models, this paper empirically investigates the impact of European industry fluctuations and domestic business cycles on the growth performance of European firms. Since the implementation of the Single market program (SMP) the EU 27 member states share a common market. Accordingly, the European industry business cycle is expected to become a more influential predictor of European firms' behavior at the expense of domestic fluctuations. Empirically, the results of a two-part model for a sample of European manufacturing firms reject this hypothesis. Additionally, subsidiaries of Multinational Enterprises (MNEs) constitute the most stable firm cohort throughout the observed business cycle.

J. Crespo-Cuaresma and O. Fernández-Amador, Business cycle convergence in EMU: A second look at the second moment.
Sep. 2010.


Abstract: We analyse the dynamics of the standard deviation of demand shocks and of the demand component of GDP across countries in the European Monetary Union (EMU). This analysis allows us to evaluate the patterns of cyclical comovement in EMU and put them in contrast to the cyclical performance of the new members of the EU and other OECD countries. We use the methodology put forward in Crespo-Cuaresma and Fernández-Amador (2010), which makes use of sigma-convergence methods to identify synchronization patterns in business cycles. The Eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s. The new EU members have also experienced a strong pattern of convergence from 1998 to 2005, when a strong divergence trend appears. An enlargement of the EMU to 22 members would not decrease its optimality as a currency area. There is evidence for some European idiosyncrasy as opposed to a world-wide comovement.

G. Tondl and J. A. Fornero, Sectoral productivity and spillover effects of FDI in Latin America.
Aug. 2010.


Abstract: Empirical studies analysing productivity effects of inward FDI in Latin America (LA) are inconclusive. We argue that investigating aggregate FDI masks interesting effects of FDI that take place within and across sectors. Moreover, the potential of FDI to generate productivity effects differs across sectors. For these reasons and because sectoral FDI intensities vary significantly among LA countries and change over time, we investigate the productivity effects of FDI in eight different sectors including the primary sector, manufacturing and services. Besides FDI, sector-specific institutional factors, education and a sector‘s export share are considered as control variables. Given the likely endogeneity of variables, a GMM system estimation approach is used. The results indicate that positive productivity effects can be found in all sectors, although they may depend on specific conditions or are limited to a certain time period. Direct productivity effects are highest in the primary sector (agriculture, mining and petroleum production) and in financial services. In contrast, FDI in manufacturing and in transport and telecommunications generates productivity spillovers to nearly all other sectors.

P. Athukorala and A. Kohpaiboon, East Asia in World Trade: The Decoupling Fallacy, Crisis, and Policy Challenges.
Jul. 2010.


Abstract: This paper examines the export experience of China and other East Asian economies in the aftermaths of the global financial crisis against the backdrop of pre-crisis trade patterns. The analysis is motivated by the ‘decoupling’ thesis, which was a popular theme in the Asian policy circles in the lead-up to the onset of the recent financial crisis, and aims to probe three key issues: Was the East Asian trade integration story that underpinned the decoupling thesis simply a statistical artifact or the massive export contraction caused by an overreaction of traders to the global economic crisis and/or by the drying up of trade credit, which overpowered the cushion provided by intra-regional trade? What are the new policy challenges faced by the East Asian economies? Is there room for an integrated policy response that marks a clear departure from the pre-crisis policy stance favoring export-oriented growth? The findings caution against a possible policy backlash against openness to foreign trade arising from the new-found enthusiasm for rebalancing growth, and make a strong case for a long-term commitment to non-discriminatory multilateral and unilateral trade liberalization.

D. Buccella, FDI, International Trade and Union Collusion.
Jun. 2010.


Abstract: This paper deals with firms’ decision related to international activities in a twocountry oligopoly model with a homogeneous product and unionized labor markets. Using a three-stage non-cooperative game with firms being first movers, it is found that firms’ strategies are affected by the scale of fixed costs of direct investments, trade costs and union wage strategies in labor markets, giving rise to different productive structures in equilibrium. Scopes and incentives for unions’ collusion are analyzed. The consequences on national welfare levels of both unions and firms’ strategic behavior are also investigated, deriving some policy insights.

R. Cappariello, S. Federico and R. Zizza, FDI and Corporate Geography in the Home Country.
Jun. 2010.


Abstract: This paper contributes to the empirical literature on the home-country effects of FDI. Instead of comparing FDI firms to non-FDI firms, we look at what happens within multi-plant FDI firms and we compare headquarters to onheadquarter plants belonging to the same firm. Using survey data on Italian industrial firms, we find that in FDI firms non-headquarter plants show a significantly worse performance in terms of employment and investment than headquarter plants. This suggests that the home-country effects of FDI tend to be biased in favour of headquarters.

N. Antonakakis and J. Scharler, The Synchronization of GDP Growth in the G7 during U.S. Recessions. Is this Time Different?.
Apr. 2010.


Abstract: Using the dynamic conditional correlation (DCC) model due to Engle (2002), we estimate time varying correlations of quarterly real GDP growth among the G7 countries. In general, we find that rather heterogeneous patterns of international synchronization exist during U.S. recessions. During the 2007 - 2009 recession, however, international co-movement increased substantially.

K. Wacker, The Influence of Trade with the EU-15 on Wages in the Czech Republic, Hungary, Poland, and Slovakia between 1997 and 2005.
Apr. 2010.


Abstract: I use the STAN database of the OECD and different econometric methods to investigate the effects of exports towards the EU-15 on wages in the Visegrad countries (CEEC-4; Czech Republic, Hungary, Poland, and Slovakia). The results do not allow to draw any definite statements about this effect. While the impact of exports towards the EU-15 on wages in the countries investigated is likely to be negative in the short run (1-2 years), it seems to be positive in the medium and long run, at least for Hungary and Poland. Nevertheless, it is clear that the pattern of the CEEC-4 exports towards the EU-15 does not correspond with the predictions of the Heckscher-Ohlin model. Therefore, also the theorems of Stolper and Samuelson (1941) and concerning the equalization of factor prices, which are based on the Heckscher-Ohlin model, do not seem accurate to describe the underlying forces linking trade with factor prices. I argue that missing regional and related inter-sectoral labor mobility might be a potential factor preventing employees from taking advantage of trade liberalization. To substantiate this suspicion, however, analysis of more disaggregated data is necessary