Public Export Credit Guarantees and Foreign Trade Structure: Evidence from Austria

The topic of this paper is quite a novel one – it is one of few empirical academic papers dealing with export credit. Moreover, it is the first analysis of this kind which focuses on transition economies. The paper deals with export credit promotion in the Czech Republic. The development and structure of Czech trade and export support is presented first, followed by an econometric analysis of the gravity model of Czech Republic trade. A panel of 160 countries in 1996–2008 is analysed and two gravity models of exports for the Czech Republic are estimated, the static model by fixed effects (LSDV estimator) and the dynamic model by System GMM. Due to ambiguous conclusions we assume that the behaviour of our explanatory variables is not uniform and our data set behaves as a mixture of countries with heterogeneous behaviour. This means that traditional techniques of estimation which include all observations into one model do not give significant results. Thus, we use robust techniques of estimation that solve the problem of heterogeneous patterns in data sets. Out of several possibilities we use the Least Trimmed Squares estimator (LTS) with a leverage point. We show that guarantees are a significant factor that influences positively the volume of exports in the Czech Republic. Moreover, there exist more variables that affect the size of exports in the Czech Republic. Market forces described by GDP, distance, political risk or gross fix capital formation are significant in our econometric model. We find that higher GDP, shorter distance or lower political risk have a positive impact on Czech exports.

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“…In comparison with some other countries (i.e. Austria by Egger and Url, ) this ratio is not high and moves between 0.5 and 2.5 per cent.…”

Section: Czech Republic Export Promotioncontrasting

confidence: 55%

Credit Support for Export: Robust Evidence from the Czech Republic

2013

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“…1 Leaving aside macroeconomic measures such as exchange rate policy, some of these instruments provide firms directly with financial resources or help them indirectly to cope with a credit crunch. These include direct subsidies associated with export requirements (Helmers and Trofimenko, 2013;Defever and Riaño, 2014) and export credit guarantees (Abraham and Dewit, 2000;Egger and Url, 2006;Moser et al, 2008;Felbermayr and Yacin, 2013). Some other policies that subsidize firms directly do not target exports, but are likely to affect them, for example production subsidies , support to invest in technology, training, and physical capital (Görg et al, 2008), VAT reimbursement rules (Gourdon et al, 2014), and preferential regulation and taxation in economic development zones (Schminke and Van Biesebroeck, 2013).…”

Section: Defining Export Promotionmentioning

confidence: 99%

“…To further illustrate the evolution over the crisis, we plot for a number of variables the residual from a regression (in logarithms) on a linear time trend over the 2006(Belgium) or 2006 periods. The two crisis years, 2009 and 2010, are omitted when determining the trend.…”

Section: Evolution Of Exports Over the Crisismentioning

confidence: 99%

Did export promotion help firms weather the crisis?

Biesebroeck

Konings

Martincus³

2016

Econ Policy

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In the global recession of 2009, exports declined precipitously in many countries. We illustrate with firm-level data for Belgium and Peru that the decline was very sudden and almost entirely due to lower export sales by existing exporters. After the recession, exports rebounded almost equally quickly and we evaluate whether export promotion programs were an effective tool aiding this recovery. We show that firms taking advantage of this type of support did better during the crisis, controlling flexibly for systematic differences between supported and control firms. The primary mechanism we identify is that supported firms are generally more likely to survive on the export market and, in particular, are more likely to continue exporting to countries hit by the financial crisis. We would like to thank Carlos Salamanca Malagón and Victoria Valente for excellent research assistance, the National Bank of Belgium, FIT and PROMPERU for access to the Belgian and Peruvian data respectively, and Heather Booth di Giovanni for helpful suggestions. The views and interpretations in this paper are strictly those of the authors and should not be attributed to the Inter-American Development Bank, its executive directors, its member countries, the National Bank of Belgium, PROMPERU, or FIT. Executive SummaryThe academic literature as advanced and tested several explanations for the notable decline in the volume of international trade during the Great Recession of 2008-2009. Shocks to both demand and trade costs have been suggested as important channels. There has, however, been surprisingly little discussion how governments could help firms cope with the fallout from foreign demand or with the increase in trading frictions.In this paper we first document for Belgium and Peru that trade volumes rebounded remarkably quickly. By 2010 exports had regained their pre-crisis levels and by 2011 they were even back on the pre-crisis trend. Using firm-level information for both countries, we investigate whether export promotion programs played a role in this recovery. A growing literature has documented the success of such programs in raising exports in general and they could be a valuable tool to help the private sector recover from a large trade decline as well.Most countries now run active export promotion programs to facilitate domestic firms' entry into the export market and support subsequent export sales. Rather than provide direct subsidies, these programs work mainly as an information depository or a way to share fixed information acquisition costs between exporters. They help firms to learn about foreign demand for their products, establish relationships with importers, identify promising new distribution channels, and overcome administrative or trade frictions such as customs procedures and differences between domestic and foreign regulations or product standards.The evidence suggests export promotion has indeed been an effective tool to help firms survive on the export market. We show that firms active on the export ma...

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“…The former typically captures the short-run, while the latter reflects the long-run impact of the explanatory variables (Egger and Url, 2006).…”

Section: Resultsmentioning

confidence: 99%

“…Both 15 See also Egger and Pfaffermayr (2004), Egger and Url (2006) and Moser et al (2008) for further applications of the Mundlak-random effects specification. 16 The specification in Table 3 contain only time averages for size while Mundlak (1978) suggested to use all averages for all explanatory variables.…”

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confidence: 99%

Does Banks' Size Distort Market Prices? Evidence for Too-Big-To-Fail in the CDS Market

Völz

Wedow

2009

SSRN Journal

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This paper examines the potential distortion of prices in the CDS market caused by too-big-to-fail. Overall, we find evidence for market discipline in the CDS market. However, CDS prices are distorted due to a size effect which arises when investors expect a public bail-out as a result of too-big-to-fail. A one percentage point increase in size reduces the CDS spread of a bank by about two basis points. We further find that some banks have already reached a size that makes them too-big-to-be-rescued. While the price distortion for these banks decreases the existence of banks that are considered to be toobig-to-rescue raises important new issues for banking supervisors.Keywords: Market Discipline, Too Big To Fail, Too Big to Rescue CDS Spreads JEL: G14, G21, G28 Non-echnical summaryThe information content of banks' security prices assumes an increasingly larger role in supervisory monitoring. The interest in this issue is twofold. Investors that share the business risk of banks have an incentive to discipline the business activities of a banks' management. They can exercise direct market discipline through an adjustment of refinancing conditions. If market prices reflect banks' riskiness supervisors can use this information to exert indirect market discipline.The general consensus in the academic literature is that security prices adequately reflect risks of the underlying bank. However, an important concern is that banks' security prices may be distorted when a bank becomes large enough to threaten overall financial stability and a public bail-out becomes likely. These banks are called "too-big-to-fail" banks (TBTF). Consequently, investors are less concerned about the failure of a TBTF bank given that losses are limited which reduces their incentive to exercise market discipline. This paper examines the information content of CDS spreads for a sample of 91 banks from 24 countries. CDSs have gained increasing prominence in the derivative market and have become a core instrument for the transfer of risk. Additionally, several papers show that CDS markets reflect new market information more rapidly than bond markets and that they are also leading indicators such as ratings. For these reasons, CDS spreads have become an important tool for supervisory risk assessment.Overall, we find that CDS spreads reflect banks' risk. However, we further detect an important size effect that vindicates the existence of a distortion due to toobig-to-fail. A one percentage increase in the mean size of a bank relative to the home country's GDP reduces the CDS spread by about two basis-points. While this appears small, one has to keep in mind that mergers can involve substantially larger increases in size.In addition, our results confirm that some banks may already have reached a size that makes them too-big-to-rescue. In other words, we find that the distortion of CDS spreads declines for banks beyond a threshold size of about 10 percent market capitalization relative to the home country's GDP.

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Public Export Credit Guarantees and Foreign Trade Structure: Evidence from Austria

Cited by 69 publications

References 14 publications

Credit Support for Export: Robust Evidence from the Czech Republic

Credit Support for Export: Robust Evidence from the Czech Republic

Did export promotion help firms weather the crisis?

Does Banks' Size Distort Market Prices? Evidence for Too-Big-To-Fail in the CDS Market

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