Gazelles, Industry Growth and Structural Change

This paper examines to what extent gazelles are the drivers of the growth of industries and structural change. To this purpose we analyze gazelles over a 12 year period (annually from 1997 until 2008) in the Netherlands, and relate them to the dynamics in employment per industry. We use a panel vector autoregressive (PVAR) model to explore the relations between the presence of gazelles and industry (employment) growth (with 43 two digit industries). An increase in the presence of gazelles in an industry appears to have a positive effect on the subsequent growth of the industry. We do not find evidence foran inverse causal relation: there are no long run positive effects of increases in industry growth on the presence of gazelles. There is also no relation between the over-representation of gazelles and subsequent industry growth.industrial organization ;

Trends in Competition and Profitability in the Banking Industry: A Basic Framework

This paper brings to the forefront the assumptions that we make when focusing on a particular type of explanation for bank profitability. We evaluate a broad field of research by introducing a general framework for a profit maximizing bank and demonstrate how different types of models can be fitted into this framework. Next, we present an overview of the current major trends in European banking and relate them to each model’s assumptions, thereby shedding light on the relevance, timeliness and shelf life of the different models. This way, we arrive at a set of recommendations for a future research agenda. We advocate a more prominent role for output prices, and suggest a modification of the intermediation approach. We also suggest ways to more clearly distinguish between market power and efficiency, and explain why we need time-dependent models. Finally, we propose the application of existing models to different size classes and sub-markets. Throughout we emphasize the benefits from applying several, complementary models to overcome the identification problems that we observe in individual models.

Specialization in the Presence of Trade and Financial Integration: Explorations of the Integration-Specialization Nexus

In this paper we investigate the economic integration - industrial specialization nexus and unravel the relationship between trade and financial openness and industrial specialization. For a panel of 31 countries over the period 1970 to 2005, we find that trade integration relates negatively to specialization, while financial integration relates positively tospecialization. Furthermore, the relationship between trade (financial) integration and specialization is further deepened by the level of financial (trade) integration. Lastly, trade integration has a stronger connection to industrial specialization in countries with a high degree of intra-industry trade, whereas financial integration has a stronger connectionto specialization in countries with a relatively underdeveloped financial system. Our findings are robust to various measures and alternative model specifications.financial economics and financial management ;

Competition and Innovation: Evidence from Financial Services

In this paper we seek to contribute to the literature on competition and innovation by focusing on individual firms within the U.S. banking industry in the period 1984-2004. We measure innovation by estimating technology gaps and find evidence of an inverted-U relationship between competition and the technology gaps in banking. This finding is robust over several different specifications and is consistent with theoretical and empirical work by Aghion, Bloom, Blundell, Griffith, and Howitt (2005b). The optimal amount of innovation requires a slightly positive mark up. Also, we find that the U.S. banking industry as a whole has consolidated beyond this optimal innovation level and that state-level interstate banking deregulation has lowered innovation.competition, innovation, stochastic frontier analysis, technology gap ratio, banking

A Fallacy of Division: The Failure of Market Concentration as a Measure of Competition in U.S. Banking

Empirical literature and related legal practice using concentration as a proxy for competition measurement are prone to a fallacy of division, as concentration measures are appropriate for perfect competition and perfect collusion but not intermediate levels of competition. Extending the classic Cournot-type competition model of Cowling and Waterson (1976) and Cowling (1976) used to derive the Hirschman-Herfindahl Index (HHI) of market concentration, we propose an adaptation of this model that allows collusive rents for all, none, or some of the firms in a market. Application of our model to data for U.S. commercial banks in the period 1984-2004 confirms that concentration measures are unreliable competition metrics. While collusion is prevalent in the banking industry at the state level, the critical market shares at which market power is achieved, rents earned from collusion, and collusive concentration levels vary widely across states. These and other results lead us to conclude that a fallacy of division exists in concentration-based competition tests.SCP hypothesis, competition, Cournot, conjectural variation, efficiency hypothesis

Banking on industry: the impact of financial services on regional industrial structure and development

We investigate the extent to which local banking market characteristics can explain where small enterprises (SEs) are located and how they thrive. We start from a simple theory that explains the channels along which local banking market structure can affect the growth of SEs. Subsequently, we make use of a highly detailed data set, exploit unique features of the Italian banking system and find that the structure of the banking system explains the regional distribution of SEs in Italy, in particular through the historical presence of small banks

In the Nick of Time: A Heteroskedastic SVAR Model and Its Application to the Crude Oil Futures Market

Many economic analyses revolve around the identification of shocks. However, this becomes difficult if we do not have enough information, for example because we do not observe the underlying process at a high enough frequency. As a result, if the response of one variable to a shock to another takes place `in the nick of time' this shock remains unidentified. We introduce a structural vector-autoregression model with Markov-switching heteroskedasticity in the data generating process that allows us to study instantaneous impulse-response relationships with the proper selection of a supporting `catalyst', which can be easier to find than an instrumental variable

Destabilizing or passive? The impact of commodity index traders on equilibrium prices

We examine the price impact of traders on commodity futures markets. Following the framework of De Long et al. (1990), we empirically identify the existence of positive feedback traders, passive investors, and rational speculators in major global commodity futures markets. Our results show that index trader demand is negatively related to past commodity returns and is positively related to future commodity returns, as De Long et al. (1990) model predicts for passive investors. Furthermore, “non-reportable traders,” who are not obligated to report their positions to the regulators, behave like positive feedback traders, and interact significantly with commodity futures returns as well