The Trade and Welfare Effects of Mergers in Space

This paper analyzes the consequences of cross-border mergers in a spatial framework, thereby distinguishing three channels of influence: a price increase due to the elimination of product market competition, an adjustment in plant location which reduces overall transportation cost expenditures, and a harmonization in production costs due to a technology transfer within the firm. The welfare analysis illustrates that larger countries are better off after the merger. By contrast, smaller countries may lose, if the pre-merger production cost differential across firms is negligible and/or a post-merger technology transfer across production sites is infeasible. Furthermore, the analysis provides novel insights into the trade pattern effects of a merger. In this respect, the main result of the paper is that an adjustment of plant location in space can reverse the direction of (net) trade flows.spatial competition, cross-border merger, trade pattern, welfare analysis

Outsourcing and Trade in a Spatial World

This paper provides an analysis of outsourcing and trade in a spatial model à la Hotelling. In this setting, we discuss the trade-off between transport cost related disadvantages and outsourcing-induced production cost advantages of a large economy. The model gives a rich picture of possible trade and welfare effects of a movement towards free trade. For example, if there is international outsourcing, both countries may gain from free trade, independently of who exports the consumption good. However, if specialized input production only occurs in the large economy and the small country exports the final good, overall world welfare may even decline, when moving towards free trade.International outsourcing; International trade; Spatial competition

Outsourcing and Trade in a Spatial World

This paper provides an analysis of outsourcing and trade in a spatial model à la Hotelling. In this setting, we discuss the trade-off between transport-cost-related disadvantages and outsourcing-induced production cost advantages of a large economy. The model gives a rich picture of possible trade and welfare effects of a movement towards free trade and points to the role of national transport costs for explaining these effects. Moreover, it gives economic insights in the countries’ incentives to lower tariffs and to participate in free trade agreements with partner countries that differ in size and economic capacity.international outsourcing, international trade, spatial competition

Outsourcing and skill-specific employment in a small economy: Austria and the fall of the Iron Curtain

We present a model, in which a small industrialised economy outsources part of its production into a small foreign country which is well endowed with low-skilled labour. We analyse under which conditions sinking trade costs stimulate outsourcing activities, thereby increasing the wage dispersion and, if labour markets are unionised, also the employment of high-skilled relative to low-skilled labour. For a panel of Austrian industries, we find first that decreasing trade barriers, which can be associated with the fall of the Iron Curtain, indeed stimulate outsourcing to Eastern Europe and the former Soviet Union, and second, that outsourcing to these countries significantly shifts relative employment in favour of high- skilled labour.fragmentation; skill-specific employment; simultaneous equations

European Integration in Trade and FDI: A Dynamic Perspective

EU-Erweiterung, Europäische Integration, Direktinvestition, Europäische Wirtschafts- und Währungsunion, Osteuropa, EU enlargement, European integration, Foreign direct investment, European Economic and Monetary Union, Eastern Europe

SUR Estimation of Error Components Models With AR(1) Disturbances and Unobserved Endogenous Effects

This paper focuses on the estimation of error components models in the presence of a correlation of the disturbances across equations and AR(1) of the remainder disturbances for panel data with endogenous unobserved effects. Additionally, the set-up allows for unequally spaced panel data and differences in the autocorrelation parameters across equations. The derived procedure is a feasible generalized least squares (GLS) estimator, which provides estimates of the variance components in the spirit of Hausman & Taylor (1981).Panel Econometrics; Serial Correlation; Seemingly unrelated regressions; Endogenous effects

Trade, wages, and profits

This paper formulates a structural empirical model of heterogeneous firms whose workers exhibit fair-wage preferences. In the underlying theoretical framework, such preferences lead to a link between a firm's operating profits on the one hand and wages of workers employed by this firm on the other hand. The latter establishes an exporter wage premium, since exporters have higher profits, given their productivity, than non-exporting firms. We estimate the parameters of the model in a data-set of five European economies and find that, when evaluated at these parameter values, the model has a high level of explanatory power. The estimates also enable us to quantify the exporter wage premium and the consequences of trade for the main variables of interest. According to our results, openness to international trade contributes to greater inequality across firms in terms of both operating profits and average wages. We also find evidence for gains from trade for all five countries, which go along with negative, but quantitatively moderate, aggregate employment effects. --structural models,heterogeneous firms,fair wages,labour market imperfections,exporter wage premium

International Capital Market Integration, Educational Choice and Economic Growth

This paper examines the impact of capital market integration (CMI) on higher education and economic growth. We take into account that participation in higher education is non-compulsory and depends on individual choice. Integration increases (decreases) the incentives to participate in higher education in capital-importing (-exporting) economies, all other things equal. Increased participation in higher education enhances productivity progress and is accompanied by rising wage inequality. From a national policy point of view, education expenditure should increase after integration of similar economies. Using foreign direct investment (FDI) as a measure for capital flows, we present empirical evidence which largely confirms our main hypothesis: An increase in net capital inflows in response to CMI raises participation in higher education and thereby fosters economic growth. We apply a structural estimation approach to fully track the endogenous mechanisms of the model.capital mobility, capital-skill complementarity educational choice, education policy, economic growth, wage income inequality

Long Run and Short Effects in Static Panel Models

For short and fat panels the Mundlak model can be viewed as an approximation of a general dynamic autoregressive distributed lag model. We give an exact interpretation of short run and long effects and provide simulations to assess the quality of the approximation of the long run and short run effects by the parameters of the Mundlak Model.Random Effects Models, Mundlak Model, Panel Econometrics

Government Spending and Legislative Organization: Quasi-experimental evidence from Germany

This paper presents empirical evidence of a positive effect of council size on government spending using a data set of 2,056 municipalities in the German state of Bavaria over a period of 21 years. We apply a regression discontinuity design to avoid an endogeneity bias. In particular, we exploit discontinuities in the legal rule that relates population size of a municipality to council size to identify a causal relationship between council size and public spending, and find a robust positive impact of council size on spending. Moreover, we show that municipalities primarily adjust current expenditure in response to a rise in council size.Legislative organization; Regression-discontinuity design; Government spending; Mayor-council system