Michael Pfaffermayr

A generalized design for bilateral trade flow models

Abstract This paper suggests a full interaction effects design to analyze bilateral trade flows. This is illustrated with an unbalanced panel of bilateral trade between the triad (EU15, USA and Japan) economies and their 57 most important trading partners over the period 1986–1997. Our full interaction model finds empirical support for the New Trade Theory and Linder’s hypothesis. We show that the omission of one or more interaction effects can result in biased estimates and misleading inference.

Foreign outward direct investment and exports in Austrian manufacturing: Substitutes or complements?

Foreign Outward Direct Investment and Exports in Austrian Manufacturing: Substitutes or Complements? — The relationship between foreign outward direct investment and exports is crucial for assessing the impact of increased internationalization by foreign outward direct investment on a country’s welfare. Three models of trade and FDI are reviewed to generate hypotheses on their direct relationship over time as well as on common determinants. The propositions are empirically examined with time-series cross-section data for Austrian manufacturing. The results indicate a significant complementary relationship between FDI and exports in the eighties and early nineties. Moreover, long-run multipliers of exogenously increased FDI and exports are calculated. They are found to be positive but small in magnitude.Zusammenfassungösterreichische Direktinvestitionen im Ausland und die Exporte der österreichischen Industrie: Substitute oder Komplemente? — Die Beziehung zwischen österreichischen Direktinvestitionen im Ausland und den österreichischen Exporten ist entscheidend für die AbschÄtzung der Auswirkungen, welche eine verstÄrkte internationale Verflechtung mittels Direktinvestitionen im Ausland auf die Wohlfahrt eines Landes hat. Der Verfasser betrachtet drei Modelle für den Au\enhandel und die Direktinvestitionen im Ausland, um Hypothesen über die direkte Beziehung im Zeitablauf und auch über gemeinsame Determinanten zu gewinnen. Diese werden empirisch getestet mit Hilfe von kombinierten Zeitreihen und Querschnittsdaten für die österreichische Industrie. Die Ergebnisse zeigen, da\ es eine signifikante komplementÄre Beziehung zwischen Direktinvestitionen im Ausland und Exporten in den 80er und frühen 90er Jahren gab. Dabei wurden langfristige Multiplikatoren für exogen erhöhte Direktinvestitionen im Ausland und den Exporten berechnet. Sie erwiesen sich als positiv, aber von geringer Grö\enordnung.

The Hausman test in a Cliff and Ord panel model

This paper studies the spatial random effects and spatial fixed effects model. The model includes a Cliff and Ord type spatial lag of the dependent variable as well as a spatially lagged one-way error component structure, accounting for both heterogeneity and spatial correlation across units. We discuss instrumental variable estimation under both the fixed and the random effects specification and propose a spatial Hausman test which compares these two models accounting for spatial autocorrelation in the disturbances. We derive the large sample properties of our estimation procedures and show that the test statistic is asymptotically chi-square distributed. A small Monte Carlo study demonstrates that this test works well even in small panels.

A Generalized Spatial Panel Data Model with Random Effects

This paper proposes a generalized panel data model with random effects and first-order spatially autocorrelated residuals that encompasses two previously suggested specifications. The first one is described in Anselins (1988) book and the second one by Kapoor et al. (2007). Our encompassing specification allows us to test for these models as restricted specifications. In particular, we derive three Lagrange multiplier (LM) and likelihood ration (LR) tests that restrict our generalized model to obtain (i) the Anselin model, (ii) the Kapoor, Kelejian, and Prucha model, and (iii) the simple random effects model that ignores the spatial correlation in the residuals. For two of these three tests, we obtain closed form solutions and we derive their large sample distributions. Our Monte Carlo results show that the suggested tests are powerful in testing for these restricted specifications even in small and medium sized samples.

The international fragmentation of Austrian manufacturing: The effects of outsourcing on productivity and wages

Abstract Since the fall of the Iron Curtain, Austria and other small, open Western European countries have increasingly outsourced part of their production to the Eastern transition countries. This study assesses the effects of fragmentation of Austrian manufacturing on total factor productivity and mandated factor prices. Outsourcing to the East significantly improves domestic growth in total factor productivity, but possibly less in low-skill, labor-intensive industries and more in capital-intensive ones. Estimates of the mandated wage regressions suggest that in the presence of perfect factor markets wages would be lower for low-skilled workers and higher for high-skilled workers as a result of outsourcing.

The impact of endogenous tax treaties on foreign direct investment: theory and evidence

This paper investigates the effect of tax treaties on bilateral stocks of outward FDI. For this purpose we employ a numerically solvable general equilibrium model of trade and multinational firms to study the impact of tax treaties on both welfare and outward FDI. The model indicates under which factor endowment configurations countries gain in welfare when implementing a tax treaty. This motivates an empirical specification of the endogenous selection into implementing new tax treaties. Using data of bilateral OECD outward FDI between 1985 and 2000, we find a significant negative impact of newly implemented tax treaties on outward FDI stocks.

Estimating Long and Short Run Effects in Static Panel Models

Abstract This paper assesses the biases of four different estimators with respect to the short run and the long run parameters if a static panel model is used, although the data generating process is a dynamic error components model. We analytically derive the associated biases and provide a discussion of the determinants thereof. Our analytical and numerical results as well as Monte Carlo simulations illustrate that the asymptotic bias of both the within and the between parameter with respect to the short run and long run impact can be substantial, depending on the memory of the data generating process, the length of the time series and the importance of the cross-sectional variation in the explanatory variables.

Farm income, market wages, and off-farm labour supply

ZusammenfassungNebenerwerbslandwirtschaft entwickelt sich immer mehr zur vorherrschenden Form der Erwerbstätigkeit von Landwirten. Die Erwerbsentscheidung zwischen Voll-, Zu- und Nebenerwerb wird im Rahmen eines statischen Arbeitsangebotsmodells untersucht und mit Hilfe eines “Ordered-probit”-bzw. eines “Tobit”-Ansatzes für 1.842 landwirtschaftliche Haushalte in Oberösterreich getestet. Das Arbeitsmarktverhalten von Landwirten ist gekennzeichnet durch eine hohe Lohnelastizität vergleichbar den Ergebnissen für das Erwerbsverhalten von Personen auf dem sekundären Arbeitsmarkt. Darüber hinaus läßt sich ein signifikanter Einfluß der Betriebsgröße, der Struktur des landwirtschaftlichen Haushaltes sowie der Art und des Umfangs der Ausbildung des Betriebsleiterehepaares erkennen.AbstractIn most developed countries we observe an increasing share of part-time farming at the expense of full-time farmers. In the present paper, we develop a theoretical labour supply model which accounts for the specific decision problem of a farmer. The empirical analysis uses the ordered probit and a Tobit model to explain labour supply behaviour for a sample of farm households in Upper Austria. Farm size, household characteristics, as well as education significantly influences off-farm labour supply behaviour. The obtained wage elasticities for male farmers are comparable in magnitude to those obtained in labour supply studies for adult females or elderly people.

FDI versus Exports: Multiple Host Countries and Empirical Evidence

There are two main options for companies to serve foreign markets: exports and foreign direct investment (FDI). Based on the Helpman, Melitz and Yeaple (2004) model for multiple host countries this paper derives a clear theoretical prediction for the decision between both strategies. A bivariate probit model is estimated using a large data set of European companies to analyze the probability of using one or the other strategy. The empirical evidence indicates that more productive rms less (more) probably use the export (FDI) strategy to serve foreign markets. Moreover, a considerable number of companies use a combination of both strategies to serve foreign markets, which is in line with a multiple country model.

The Pure Effects of European Integration on Intra-EU Core and Periphery Trade

This paper analyses the effects of EU integration on intra‐EU trade volumes with a special focus on the evolution of trade within and between the core and the periphery countries. In the early phases of EU integration, there have been sizable trade creation and diversion effects with respect to EFTA countries. Both the creation and the diversion effects of EU membership have declined as the EU and EFTA have integrated. In all phases of EU integration, both core–periphery and intraperiphery growth of trade have experienced stronger positive effects than intracore trade. Hence, the EU enlargements did not cause any kind of intra‐EU ‘peripherality’.