Focus on European Economic Integration Q1/11

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• Focus on European Economic Integration Q1/11 (PDF, 2,7 MB) März 2011.

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• Call for Entries Olga Radzyner Award 2011 for Scientific Work on European Economic Integration (PDF, 1,5 MB) en 31.03.2011, 00:00:00

• Households’ Exposure to Foreign Currency Loans in CESEE EU Member States and Croatia (PDF, 5,9 MB) Steiner. Steiner – Focus on European Economic Integration Q1/11 Most Central, Eastern and Southeastern European (CESEE) countries saw a substantial rise in foreign currency lending to households during the last decade. This involved risks to macrofinancial stability, in particular because most of these borrowers were unhedged. This paper provides evidence on eleven CESEE countries regarding (1) the extent of foreign currency lending to households from 1995 to 2009, (2) the supply and demand factors at work in the period before the crisis and (3) the regulatory responses to address the situation. Panel data estimates covering the period from 1996 to 2007 reveal that, on the demand side, foreign currency borrowing was attractive because interest rates for foreign currency loans were lower than those on domestic currency loans, and private sector consumption as well as housing prices were on the rise. Mitigating factors on the supply side were higher interest margins on domestic currency loans than on foreign currency loans and banking sector reforms. Regulatory measures account at least partly for the different patterns of currency structures according to descriptive evidence. en Financial development in transition, foreign currency loan, supply and demand, currency substitution, emerging markets C23, E41, F31, G19, P20 31.03.2011, 00:00:00

• How the Crisis Affected Foreign Currency Borrowing in CESEE: Microeconomic Evidence and Policy Implications (PDF, 1,7 MB) Beckmann, Scheiber, Stix. Beckmann, Scheiber, Stix – Focus on European Economic Integration Q1/11 Micro data collected in the OeNB Euro Survey show that in the aftermath of the global economic and financial crisis, households have come to perceive foreign currency loans as riskier, above all in those Central, Eastern and Southeastern European (CESEE) countries that experienced depreciations during the crisis. Despite this perceived increase in risk, a majority of respondents in six out of nine countries sill regard loans in euro as more attractive than loans in domestic currency. Data about the motives indicate that both supply and demand factors drive foreign currency loans. The mutual interest of banks and households and the still high attractiveness of foreign currency loans suggest that foreign currency borrowing is unlikely to vanish without policy intervention. If foreign currency borrowing were to be curbed in the short run, the only option for policymakers would be the implementation of regulatory and supervisory measures. en Foreign currency loan, financial crisis, survey data, behavior of households, Central, Eastern and Southeastern Europe D14, G01, G18, G21 31.03.2011, 00:00:00

• The Refinancing Structure of Banks in Selected CESEE Countries (PDF, 3,1 MB) Lahnsteiner. Lahnsteiner – Focus on European Economic Integration Q1/11 In this paper, we present systematic regional and cross-country information about the refinancing structure of the banking sector in selected Central, Eastern and Southeastern European (CESEE) countries. We use the most recent data available (from mid-2008 until end-2009) to focus on the situation of CESEE banking sectors following the intensification of the financial crisis triggered by the collapse of Lehman Brothers. At that time, there were fears of spillover effects, given the strong reliance of most of these countries’ banking sectors on foreign funding. Our analysis shows that in the second half of 2008, most CESEE banking sectors received additional funds from abroad, while in the course of 2009, net capital flows to banks turned at least temporarily negative in all countries under review except Poland. However, the size of net outflows on the liability side of banks’ balance sheets differed substantially across countries. Looking at the whole period from mid-2008 to end-2009, our findings suggest that outflows affected above all banking sectors that had very high net foreign liabilities at the onset of the crisis (i.e. in the Baltic countries, particularly Latvia and Estonia) and banking sectors with comparatively low levels of foreign ownership (Slovenia, Ukraine and Russia). en Financial stability, banking sector, Central and Eastern Europe, refinancing, capital flows, financial crisis G15, G21, G32, O16, O52 31.03.2011, 00:00:00

• FDI, Trade and Growth in CESEE Countries (PDF, 3,3 MB) Fidrmuc, Martin. Fidrmuc, Martin – Focus on European Economic Integration Q1/11 Central, Eastern and Southeastern Europe (CESEE) had experienced an export boom as well as a surge in capital inflows up to the outbreak of the economic and financial crisis, which had a major negative impact on these two facets of the CESEE growth model. Did the long-term growth prospects of the CESEE countries deteriorate, too? To answer this question, we estimate the long-run relationship and test the causality between capital flows, exports and industrial production. Vector error correction models show that exports and the stock of FDI in the CESEE region are positively related to industrial production and thus economic growth. By contrast, portfolio investment is only weakly related to the region’s industrial growth performance. These findings imply that the CESEE countries should pursue two objectives: remain attractive locations for inward FDI and enhance their export prospects. en Export-led growth, FDI, capital inflows, heterogeneous firms, cointegration, weak exogeneity test F43, F21, C32 31.03.2011, 00:00:00

• Determinants of Migrants’ Earnings and Remittances: Evidence from Kosovo (PDF, 1,7 MB) Havolli. Havolli – Focus on European Economic Integration Q1/11 This paper is an attempt to find the main determinants of migrants’ earnings and analyze what makes migrants remit money to their home countries. We use the dataset on migrants compiled by the Riinvest Institute2 in 2006. Ordinary least squares (OLS) and interval regression methods are used to estimate the migrants’ earnings model, while for the remittances model we use OLS and Tobit estimation methods. The results suggest, inter alia, that the returns to education are positive for migrants; also, migrants in countries with higher per capita GDP have higher family earnings. Among the most important determinants of remittances are migrants’ investments in their home countries, migrants’ perceptions of the business environment, migrants’ earnings, gender and the duration of migration. This paper tries to fill the gap in the literature, especially for the case of Kosovo, by exploring what determines the earnings of migrants and what makes migrants remit part of these earnings. en Remittances, migration, personal income D31, F22, F24 31.03.2011, 00:00:00

• EBRD Transition Report 2010: Focus on Local Currency Finance in Emerging Europe (PDF, 1,6 MB) Focus on European Economic Integration Q1/11 en 31.03.2011, 00:00:00

• Lucrezia Reichlin Gives 15th Global Economy Lecture at the OeNB (PDF, 1,5 MB) Focus on European Economic Integration Q1/11 en 31.03.2011, 00:00:00

• Notes (PDF, 1,6 MB) en 31.03.2011, 00:00:00