Structural policies in the euro area Klaus Masuch, Robert Anderton, Ralph Setzer,Nicholai Benalal(editors), Occasional Paper Series No 210, June 2018 –
Show/Hide Abstract Structural policies in the euro area are of great interest for the Eurosystem, particularly as they can support the smooth functioning of the Economic and Monetary Union (EMU) and the effectiveness of monetary policy. This paper adopts a broad definition of structural policies, analysing not only the benefits of efficient labour, product and financial market regulations, but also emphasising the importance of good governance and efficient institutions that ensure high quality and impartial public services, the rule of law and the control of rent-seeking. The paper concludes that there are many opportunities for enhanced structural policies in EU and euro area countries which can yield substantial gains by boosting long-term income and employment growth and supporting social fairness, also via better and more equal opportunities. It provides empirical and model-based analyses on the impacts and the interactions of structural policies, highlighting synergies between growth and inclusiveness, while acknowledging that structural policy changes need to be country-specific to reflect national conditions and social preferences. Well-designed structural policies would also strengthen economic resilience and convergence of Member States, bringing the euro area closer to the requirements of an optimal currency area and improving the transmission of monetary policy. The paper also discusses the political economy causes of the sluggish implementation of socially beneficial structural policies and assesses ways to deal with possible short-term costs of reforms.
Non-tariff measures and competitiveness Giorgio Barba Navaretti, Giulia Felice, Emanuele Forlani, Paolo Garella,
Centro Studi Luca D'Agliano Development Studies Working Papers, No. 438, September 2018 –
Show/Hide Abstract In this paper, we explore how tariff and standard-like Non-Tariff Measures (NTMs) introducedby the EU are related with market conditions in domestic EU markets. While Tariffs work asa pure tax on import, standard-like NTMs potentially affect costs of both domestic firms andforeign exporters. NTMs may not necessarily work as protectionist measures and even inducepro-competitive effects in the domestic market in the longer term, especially if we allow for firmsmobility. The impact could be different for large and small firms. We extend the model by Melitzand Ottaviano (2008) to include Non-Tariff barriers. We derive some testable implications relatingNon-Tariff barriers to the number of firms selling in the domestic market and average efficiency.The link between NTMs and domestic market conditions depends on whether they involve newstandards and technical specifications imposed on both domestic and foreign firms, or, rather, theextension to foreign firms of standards and technical specifications already adopted by domesticfirms. In the first case, there is a decline in the number of firms and in average productivity; inthe second case, NTMs induce pro-competitive effects: an increase in the number of firms and ofaverage productivity. We then take the model to the data for a group of European countries andmanufacturing industries. We combine Compnet data for 15 EU countries in 2001-2012, providinginformation on firms performance at the industry level and by size class, with the STC WTO-I-TIPdatabase, with information on Specific Trade Concerns raised at the WTO on NTMs and with theTrains database with information on Tariffs. The NTMs that we consider have similar effects asin the second NTMs case in the theoretical model; the results for Tariff are in the same direction,albeit of a larger magnitude. These results are consistent with a theoretical framework allowing forfirms mobility in the longer term.
2017
The exchange rate, asymmetric shocks and asymmetric distributions Calin-Vlad Demian, Filippo Di Mauro, Journal of International Economics,ISSN 2110-7017, October 2017 –
Show/Hide Abstract The elasticity of exports to exchange rate fluctuations has been the subject of a large body of literature without a clear consensus emerging. Using a novel sector-level dataset based on firm level information, we show that exchange rate elasticities double in size when country and sector specific firm productivity distributions are considered in the empirical estimations. In addition, exports appear to be sensitive to appreciation episodes, but rather unaffected by depreciations. Finally, only rather large changes in the exchange rate appear to matter. The paper intends to contribute to the debate on the effectiveness and impacts of exchange rate movements, which features highly in the policy agenda.
Banks credit and productivity growth Show/Hide Abstract Financial institutions are key to allocate capital to its most productive uses.In order to examine the relationship between productivity and bank credit in the context of different financial market set-ups, we introduce a model of overlapping generations of entrepreneurs under complete and incomplete credit markets. Then, we exploit firm-level data for France, Germany and Italy to explore the relation between bank credit and productivity following the main derivations of the model. We estimate an extended set of elasticities of bank credit with respect to a series of productivity measures of firms.We focus not only on the elasticity between bank credit and productivity during the same year, but also on the elasticity between credit and future realised productivity. Our estimates show a clear Eurozone core-periphery divide, the elasticities between credit and productivity estimated in France and Germany are consistent with complete markets, whereas in Italy they are consistent with incomplete markets. The implication is that in Italy firms turn to be constrained in their long-term investments and bank creditis allocated less efficiently than in France and Germany. Hence capital misallocation by banks can be a key driver of the long-standing slow productivity growth that characterises Italy and other periphery countries.
Wage bargaining regimes and firms' adjustments to the Great Recession Show/Hide Abstract The paper aims at investigating to what extent wage negotiation set-ups have shaped upfirms’response to the Great Recession, taking a firm-level cross-country perspective. We contribute to the literature by building a new micro-distributed database which merges data related to wage bargaining institutions (Wage Dynamic Network, WDN) with data on firm productivity and other relevant firm characteristics (CompNet). We use the database to study how firms reacted to the Great Recession in terms of variation in profits, wages, and employment.The paper shows that, in line with the theoretical predictions, centralized bargaining systems –as opposed to decentralized/firm level based ones –were accompanied by stronger downward wage rigidity, as well as cuts in employment and profits.
Firm growth in Europe: an overview based on the CompNet module Cristina Fernández, Roberto García, Paloma Lopez-Garcia, Benedicta Marzinotto, Roberta Serafini, Juuso Vanhala and Ladislav Wintr, ECB Working Paper Series No 2048, April 2017 –
Show/Hide Abstract This paper illustrates the main features of the Labour Module of the CompNet dataset which
provides indicators of firm growth over the period 1995-2012 across 17 EU (13 euro area) countries and 9 macro-sectors. It also includes information on a large set of micro-aggregated characteristics of firms growing at different speed such as their financial position and labour and total factor productivity. The paper shows that during the Great Recession the share of shrinking firms sharply increased in countries under stress, while firm growth slowed down in non-stressed countries. In the former, the construction sector suffered the most, while in the latter manufacturing and services related to transportation and storage were mainly affected, possibly as a result of the trade collapse. While we find that, all else equal, more productive firms had a higher probability of growing, the process of productivity-enhancing reallocation was muted during the Great Recession.
The drivers of revenue productivity: a new decomposition analysis with firm-level data Show/Hide Abstract This paper aims to derive a methodology to decompose aggregate revenue TFP changes over time into four different components – namely physical TFP, mark-ups, quality and production scale. The new methodology is applied to a panel of EU countries and manufacturing industries over the period 2006-2012. In summary, patterns of measured revenue productivity have been broadly similar across EU countries, most notably when we group them into stressed (Italy, Spain and Slovenia) and non-stressed countries (Belgium, Finland, France and Germany). In particular, measured revenue productivity drops for both groups by about 6 percent during the recent crisis. More specifically, for both stressed and non-stressed countries the drop in revenue productivity was accompanied by a substantial dip in the proxy we use for TFP in quantity terms, as well as by a strong reduction in mark-ups. Demand also suffered a conspicuous decline. Our results suggest that non-stressed countries seem to enjoy a stronger recovery in terms of fundamentals like quantity TFP, demand and mark-ups than stressed countries. Yet, their overall performance in terms of revenue TFP recovery does not necessarily align with the above analysis which is due to some possible deterioration in the resource reallocation, signalled in our framework from the lower covariance between the two components we split revenue TFP.
How you export matters: the disassortative structure of international trade Andreas Joseph, Chiara Osbat, ECB Working Paper Series No 1958, September 2016 –
Show/Hide Abstract The local network structure of in ternational trade relations offers a new dimension for understanding a country’s competitive position vis-a-vis its trade partners and competitors, supporting economic policy analysis. We introduce two network measures that canbe used to analyse comparative advantage and price competitiveness, called relative export density and export price assortativity, respectively. The novelty of these measuresis that they consider the embedding of a country in to its local trade environment. They are computed based on unit values and sector concentrations at a highly granular level and they help to uncover general patterns of the global organisation of international trade. Countries have a strong tendency to arrange their exports to form localmonopolies by focusing on products and markets, usually but not exclusively where they have a price advantage. Price (dis)assortativity turns out to be an important factor for export growth, even after controlling for a large set of macroeconomic and structural determinants. This effect is particularly strong for catching up CESEE countries, with potential implications for industrial policy. The relationshipbetween the two export assortativity metrics for different groups of countries and for varying technological content of exports indicates a tipping point in a country’s development from price driven competition to non-price factors.
How competitiveness shocks affect macroeconomic performance across euro area countries Karsten Staehr and Robert Vermeulen, ECB Working Paper Series No 1940, July 2016 –
Show/Hide Abstract This paper considers the short-term effects of competitiveness shocks on macroeconomic performance in the euro area. Vector autoregressive models are estimated on quarterly data from 1995 to 2013 for individual countries and the whole euro area. The results show that competitiveness shocks help to explain subsequent GDP developments in most countries but have little explanatory power for the current account balance and domestic credit. These results apply for all of the competitiveness measures considered, but a non-traditional competitiveness measure accounting for quality differences fares better in some cases. The effects of the competitiveness measures vary substantially across the countries in the euro area, which likely reflects their different economic structures and institutions. This heterogeneity suggests that policy measures seeking to improve competitiveness may have very different effects on economic performance and financial stability in different countries.
Capital and labour (mis)allocation in the euro area: some stylized facts and determinants Elisa Gamberoni, Claire Giordano and Paloma Lopez-Garcia, ECB Working Paper Series No 1981, November 2016 –
Show/Hide Abstract We analyse the evolution of capital and labour (mis)allocation across firms in five euro-area countries (Belgium, France, Germany, Italy and Spain) and eight main sectors of the economy during the period 2002-2012. Three key stylized facts emerge. First, in all countries with the exception of Germany, capital allocation has worsened over time whereas the efficiency of labour reallocation has not changed significantly. Second, the observed increase in capital misallocation has been particularly severe in services as opposed to industry. Third, misallocation of both labour and capital dropped in all countries in 2009 and again for some country-sectors in 2011-2012. We next take stock of the possible drivers of input misallocation dynamics in a standard panel regression framework. Controlling for demand conditions and for the initial level of misallocation, heightened uncertainty, restrictive bank credit standards and tight product and labour market regulation are found to have boosted input misallocation, whereas the Great Recession per seexerted a cleansing effect.
Is corruption efficiency-enhancing? A case study of nine Central and Eastern European countries Elisa Gamberoni, Christine Gartner, Claire Giordano and Paloma Lopez-Garcia, ECB Working Paper Series No 1950, August 2016 –
Show/Hide Abstract We investigate the role of corruption in the business environment in explaining the efficiency of within-sector production factor allocation across firms in nine Central and Eastern European countries in the period 2003-2012. Using a conditional convergence model, we find evidence of a positive relationshipbetween corruption growth and both labour and capital misallocation dynamics, once country framework conditions are controlled for: the link between corruption and input misallocation dynamics is larger the smaller the country, the lower the degree of political stability and of civil liberties, and the weaker the quality of its regulations. As input misallocation is one of the determinants of productivity growth, we further show that the relationship between changes in corruption and TFP growth is indeed negative. Our results hold when we tackle a possible omitted variable bias by instrumenting corruption with two instrumental variables (the percentage of women in Parliament and freedom of the press).
Export characteristics and output volatility: comparative firm-level evidence for CEE countries Urška Cede, Bogdan Chiriacescu, Péter Harasztosi, Tibor Lalinsky and Jaanika Meriküll, ECB Working Paper Series No 1902, May 2016 –
Show/Hide Abstract The literature shows that openness to trade improves long-term growth but also that it may increase exposure to high output volatility. In this vein, our paper investigates whether exporting and export diversification at the firm level have an effect on the output volatility of firms. We use large representative firm-level databases from Estonia, Hungary, Romania, Slovakia and Slovenia over the last boom-bust cycle in 2004-2012. The results confirm that exporting is related to higher volatility at the firm level. There is also evidence that this effect increased during the Great Recession due to the large negative shocks in export markets. In contrast to the literature and empirical findings for large or advanced countries we do not find a statistically significant and consistent mitigating effect from export diversification in the Central and Eastern European countries. In addition, exporting more products or serving more markets does not necessarily result in higher stability of firm sales.
2015
The Exchange rate, asymmetric shocks and asymmetric distributions Calin-Vlad Demian and Filippo di Mauro, ECB Working Paper Series No 1801, June 2015 –
Show/Hide Abstract The elasticity of exports to exchange rate fluctuations has been the subject of a large literature without a clear consensus emerging. Using a novel sector-level dataset based on firm level information, we show that exchange rate elasticities double in size when the country and sector specific firm productivity distribution is taken into account in empirical estimates. In addition, exports appear to be sensitive to appreciation episodes, but rather unaffected by depreciations. Finally, only rather large changes in the exchange rate appear to matter.
Assessing European firms’ exports and productivity distributions: the CompNet trade module Antoine Berthou, Emmanuel Dhyne, Matteo Bugamelli, Ana-Maria Cazacu, Calin-Vlad Demian, Peter Harasztosi, Tibor Lalinsky, Jaanika Meriküll, Filippo Oropallo and Ana Cristina Soares, ECB Working Paper Series No 1788, May 2015 –
Show/Hide Abstract This paper provides a new cross-country evaluation of competitiveness, focusing on the linkages between productivity and export performance among European economies. We use the information compiled in the Trade module of CompNet to establish new stylized facts regarding the joint distributions of the firm-level exports performance and productivity in a panel of 15 countries, 23 manufacturing sectors during the 2000’s. We confirm that exporters are more productive than non-exporters. However, this productivity premium is rising with the export experience of firms, with permanent exporters being much more productive than starters. At the intensive margin, we show that both the level and the growth of firm-level exports rise with firm productivity, and that the bulk of aggregate exports in each country are made by a small number of highly productive firms. Finally, we show that during the crisis, the growth of exports by high productive firms sustained the current account adjustment of European “stressed” economies. This last result confirms that the shape of the productivity distribution within each country can have important consequences from the point of view of the dynamics of aggregate trade patterns.
Assessing European competitiveness: the new CompNet microbased database P. Lopez-Garcia, F. di Mauro and the CompNet Task Force, ECB Working Paper Series No 1764, March 2015 –
Show/Hide Abstract Drawing from confidential firm-level balance sheets for 17 European countries (13 Euro-Area), the paper documents the newly expanded database of cross-country comparable competitiveness-related indicators built by the Competitiveness Research Network (CompNet). The new database provides information on the distribution of labour productivity, TFP, ULC or size of firms in detailed 2-digit industries but also within broad macro-sectors or considering the full economy. Most importantly, the expanded database includes detailed information on critical determinants of competitiveness such as the financial position of the firm, its exporting intensity, employment creation or price-cost margins. Both the distribution of all those variables, within each industry, but also their joint analysis with the productivity of the firm provides critical insights to both policy-makers and researchers regarding aggregate trends dynamics. The current database comprises 17 EU countries, with information for 56 industries, including both manufacturing and services, over the period 1995-2012. The paper aims at analysing the structure and characteristics of this novel database, pointing out a number of results that are relevant to study productivity developments and its drivers. For instance, by using covariances between productivity and employment the paper shows that the drop in employment which occurred during the recent crisis appears to have had “cleansing effects” on EU economies, as it seems to have accelerated resource reallocation towards the most productive firms, particularly in economies under stress. Lastly, this paper will be complemented by four forthcoming papers, each providing an in-depth description and methodological overview of each of the main groups of CompNet indicators (financial, trade-related, product and labour market).
Assessing the financial and financing conditions of firms in Europe: the financial module in CompNet Annalisa Ferrando, Matteo Iudice, Carlo Altomonte, Sven Blank, Marie-Hélène Felt, Philipp Meinen, Katja Neugebauer and Iulia Siedschlag, ECB Working Paper Series No 1836, August 2015 –
Show/Hide Abstract This paper provides an encompassing description of the various indicators compiled in the financial module of CompNet using balance sheet information of European firms. We investigate whether and to which extent the heterogeneous financial positions of firms have affected firms’ investment decisions, especially during the recent crisis. Our results confirm the relevance of leverage for investment, in addition to other common determinants, such as cash flow or sales growth. In particular, we find evidence that higher levels of indebtedness act as a drag on investment. We investigate cash holding policies and find significant differences across firm sizes and degrees of financial constraints. Furthermore, our data confirm the pro-cyclicality of firm profitability and its negative association with financial constraints. Finally, we exploit the richness of this new dataset to document the relationships between firms’ financial and financing conditions and their productivity.
2014
Euro area external imbalances and the burden of adjustment Filippo di Mauro and Francesco Pappadà, ECB Working Paper Series No 1681, May 2014 –
Show/Hide Abstract The objective of this paper is to explore the consequences of the correction of Euro area trade imbalances on real exchange rates. This analysis requires one additional dimension with respect to the standard Global Imbalances framework à la Obstfeld and Rogo(2005),since the adjustment takes place within and outside the Euro area.Both types of adjustments are analyzed in a three-country general equilibrium model with a tradable and a non-tradable sectors,and heterogeneous firms built upon Pappadà(2011).ECB(CompNet)data are used to measure the differences in firm size and productivity dispersion across Euro area countries.With respect to the surplus country(Germany),countries running a trade de cit(Spain,Italy)are characterised by a productivity distribution with a lower mean and a less fat right tail.This increases the relative price movement associated with the external adjustment because of the limited role played by the extensive margin.We show that the real exchange rate movements are underestimated when the cross-country differences in terms of productivity distributions are neglected.
Micro-based evidence of EU competitiveness: the CompNet database CompNet Task Force, ECB Working Paper Series No 1634, February 2014 –
Show/Hide Abstract Drawing from confidential firm-level balance sheets in 11 European countries, the paper presents a novel sectoral database of comparable productivity indicators built by members of the Competitiveness Research Network (CompNet) using a newly developed research infrastructure. Beyond aggregate information available from industry statistics of Eurostat or EU KLEMS, the paper provides information on the distribution of firms across several dimensions related to competitiveness, e.g. productivity and size. The database comprises so far 11 countries, with information for 58 sectors over the period 1995-2011. The paper documents the development of the new research infrastructure, describes the database, and shows some preliminary results. Among them, it shows that there is large heterogeneity in terms of firm productivity or size within narrowly defined industries in all countries. Productivity, and above all, size distribution are very skewed across countries, with a thick left-tail of low productive firms. Moreover, firms at both ends of the distribution show very different dynamics in terms of productivity and unit labour costs. Within-sector heterogeneity and productivity dispersion are positively correlated to aggregate productivity given the possibility of reallocating resources from less to more productive firms. To this extent, we show how allocative efficiency varies across countries, and more interestingly, over different periods of time. Finally, we apply the new database to illustrate the importance of productivity dispersion to explain aggregate trade results.
back
