José Manuel Montero

Debt Sustainability and Procyclical Fiscal Policies in Latin America

The computation of structural primary balances for the nine main Latin American countries and the comparison of their changes with their cyclical position during the period 1981-2004 confirm that fiscal policy is procyclical in the region. From this evidence, the paper shows strong evidence that the fiscal behavior is closely linked to the financial vulnerability position of the economies and, in particular, to the perception on the sustainability of public debt. The current threshold balance, defined as the primary balance that would render the debt stable under the existing economic and financial conditions, is used as our gauge for measuring debt sustainability concerns at each point in time. The empirical analysis reveals that fiscal stance tightens when the perceptions of debt sustainability worsen, that the impact is stronger the less sustainable debt is perceived, and that when controlling for these effects fiscal policy loses its procyclical stance. The results are robust to different specifications and estimation methods.

Price-Cost Mark-Ups in the Spanish Economy: A Microeconomic Perspective

This paper explores the dynamics of price-cost mark-ups using firm-level data, paying particular attention to the crisis period 2008-2011. To this end, we apply the econometric framework developed by Klette (1999) to a comprehensive sample of Spanish non-financial corporations in order to estimate price-cost mark-ups for the period 1995-2011 at the aggregate and sectoral levels. The results reveal a widespread pattern of increasing price-cost mark-ups since 2008, both by industry and firm size. Moreover, with the aim of interpreting the pattern identified in our findings, we also relate the changes in our industry-level estimates of price-cost margins between 2007 and 2011 to some relevant industry characteristics suggested by the literature, with an emphasis on the extent of market power and of financial pressure. We find a positive and statistically significant association between the growth rate of estimated mark-ups and both our direct measure of market power and our proxy of financial pressure.

Business Cycles and Investment in Productivity-Enhancing Activities: Evidence from Spanish Firms

This paper tests the opportunity-cost theory on the long-run effects of business cycles using a panel of Spanish firms during the period 1991–2010. Under this theory, the share of productivity-enhancing activities (PEAs), such as R&D investment or on-the-job training, relative to production activities should increase during downturns because of the fall in their relative cost — in terms of forgone output. This would imply that business cycles may have a (positive) long-term impact on firms productivity growth. In the spirit of Aghion et al. (2008), we allow the impact of the cycle on PEA to vary between firms with different access to external funding. We find that, in accordance with the opportunity-cost approach, the share of R&D investment and training expenditures on total investment outlays follow a countercyclical pattern, which in the case of R&D may be reversed by the presence of credit constraints. However, the share of investment in other non-R&D-related intangible investments is found to be acyclical, which could suggest some kind of substitution across different PEAs over the cycle.

Spillovers and absorptive capacity in the decision to innovate of Spanish firms: the role of human capital

This paper investigates whether the existence of knowledge spillovers and the capacity of firms to assimilate them, which we relate with R&D intensity and some human resource management practices, are associated with the decision to innovate of Spanish firms. In order to do this, we employ data from the ‘Central de Balances’ database, which covers both manufacturing and services firms during the period 2003–2007, and use an estimator proposed by Wooldridge [2005. Simple solutions to the initial conditions problem in dynamic nonlinear panel data models with unobserved heterogeneity. Journal of Applied Econometrics 20, no. 1: 39–54] for dynamic random effects discrete choice models. The empirical exercise provides evidence on the positive link between spillovers and the innovative behaviour of companies, not just for the knowledge generated in the same industry, but also for that generated in the same region or by the public sector. Moreover, this link is stronger for those firms with a higher capacity to absorb those spillovers. This ability not only works through firms’ R&D capabilities, but also through factors such as the quality of the labour force, the share of temporary employment and the amount of resources spent in training. In addition to these factors, we find that innovation performance exhibits a high degree of inertia. Further, some other observed firm characteristics, such as size, sales growth, export behaviour, sector capital intensity or financial structure variables, are also found to be relevant determinants of the likelihood of innovation.

R&D Investment and Endogenous Growth: A SVAR Approach

We develop the barebones of a highly stylized theoretical endogenous growth model for analyzing the impact of R&D investment on long run growth. We use this framework to identify a structural vector autoregressive (SVAR) model on GDP growth, inflation and R&D investment, along with the (exogenous) flows of global knowledge, for the period 1970-2006 for the six more developed economies plus Spain. Besides, we also study the impact of private and public R&D on economic activity and prices or whether public R&D investment crowds out private one. Overall, we find that R&D shocks have a positive impact on economic activity, but a heterogeneous effect on prices. Moreover, public R&D disturbances tend to crowd out private R&D investment, except in the less innovative economies. And finally, demand shocks tend to have a negative impact on private R&D spending in the short- to medium-run.

Understanding the Spanish Business Innovation Gap: The Role of Spillovers and Firms’ Absorptive Capacity

This paper investigates whether the existence of knowledge spillovers, differences in the capacity of f rms to assimilate them and disparities in some human resource management practices are related with the decision to innovate of Spanish f rms. In order to do this, we employ data from the “Central de Balances” database, which covers both manufacturing and services f rms during the period 2003-2007, and use an estimator proposed by Wooldridge (2005) for dynamic random effects discrete choice models. The empirical exercise provides evidence on the positive link between spillovers and the innovative behaviour of companies, not just for the knowledge generated in the same industry, but also for that generated in the same region or by the public sector. Moreover, this link is stronger for those f rms with a higher capacity to absorb those spillovers. This ability not only works through f rms’ R&D capabilities, but also through such factors as the quality of the labour force, the share of temporary employment and the amount of resources spent in training. In addition to these factors, we f nd that innovation performance exhibits a high degree of inertia. Further, some other observed f rm characteristics, such as size, sales growth, export behaviour, sector capital intensity or f nancial structure variables, are also found to be relevant determinants of the likelihood of innovation.

I Will Survive. Pricing Strategies of Financially Distressed Firms

We consider a standard result of customer market theory: if firms have stable customer relations and face financial frictions, they may keep prices relatively high in times of low demand and vice versa. Indeed, during recessions, when firms have low cash flow and greater difficulty in raising external funds, they may set higher prices on their locked-in shoppers to maintain short-term profits at the expense of future market shares. We extend this theoretical framework so that the countercyclical behaviour of price margins is strengthened by the expected persistence of the downturn and the procyclicality of competitive pressures. We test these predictions for Italian firms participating in the 2014 Wage Dynamics Network Survey. All things being equal, financially constrained firms charge higher markups when faced with low demand; this behaviour is more evident when demand is perceived as being persistent. Our findings suggest that the severity of financial constraints in Italy was one of the causes of the sustained growth of prices in 2010-2013, notwithstanding the considerable slack in the economy.

Pricing Decisions under Financial Frictions: Evidence from the WDN Survey

I test the predictions from Duca, Montero, Riggi and Zizza (2017), who develop a customermarket model with consumer switching costs and capital-market imperfections in which price-cost markups behave countercyclically, with a subsample of European firms participating in the Wage Dynamics Network 2014 survey. I use a novel empirical approach developed by Aakvik, Heckman and Vytlacil (2005) for estimating discrete choice models with binary endogenous regressors that allows for selection on unobservables. Results show that firms subject to financial constraints had a significantly higher probability of raising markups than in a counterfactual scenario without such constraints. Moreover, the estimated partial effects for the main variables are in overall accordance with the predictions from the theoretical model.