Breaking down the barriers to firm growth in Europe: The fourth EFIGE policy report. Bruegel Blueprint 18, 28 August 2012

Large firms contribute disproportionately to the economic performance of countries: they are more productive, pay higher wages, enjoy higher profits and are more successful in international markets. The differences between European countries in terms of the size of their firms are stark. Firms in Italy and Spain, for example, are on average 40 percent smaller than firms in Germany. The low average firm size translates into a chronic lack of large firms. In Italy and Spain, a mere 5 percent of manufacturing firms have more than 250 employees, compared to a much higher 11 percent in Germany. Understanding the roots of these differences is key to improving the economic performance of Europe’s lagging economies. So why is there so much variation in firm size in different European countries? What are the barriers that keep firms in some countries from growing? And which policies are likely to be most effective in breaking down those barriers? This policy report aims to answer these questions by developing a quantitative model of the seven European countries covered by the EFIGE survey (Austria, France, Germany, Hungary, Italy, Spain and the UK). The EFIGE survey asked 14,444 firms in those countries about their performance, their modes of internationalisation, their staffing decisions, their financing structure, and their competitive environment, among other topics.

Authorisations under EU internal market rules. Research Paper in Law, 05/2013

From the Introduction. That the requirement of a prior authorisation, as a precondition for the exercise of any economic activity, may restrict the freedom of establishment and the free provision of services is a truism. If an authorisation is required in the Member State where establishment is to take place or the service is to be offered (host Member State), then operators who lack such authorisation are in no right to proceed to the projected activity. Therefore, as soon as it is being accepted that the EU internal market rules are not only about discriminatory measures, but also cover mere restrictions, it comes as no surprise that national authorisation systems come to be scrutinized under the Internal Market rules.

Corporate social responsibility: a European perspective. Jean Monnet/Robert Schuman Paper Series Vol. 13 No. 6, June 2013

From the Introduction. CSR grows at different rhythms. CSR varies from continent to continent, country from country, sector from sector and corporation from corporation. The Responsible Competitive Index (RCI) from the UK NGO Accountability and the Brazilian Business School, Fundaçao Dom Cabral, looks at how countries are performing in their efforts to promote responsible business practices and issues periodical indexes about such performances. The RCI’s index for 2007 analysed 108 countries (96% of global GDP). The analysis showed that more advanced economies do better in this area. The top 20 countries, by the ranking order of best performance, were the following: 1 Sweden, 2 Denmark, 3 Finland, 4 Iceland, 5 UK, 6 Norway, 7 New Zealand, 8 Ireland, 9 Australia, 10 Canada, 11 Germany, 12, Netherlands, 13 Switzerland, 14 Belgium, 15 Singapore, 16 Austria, 17 France, 18 USA, 19 Japan, and 20 Hong Kong, etc. However, it is important to bear in mind that advanced economies have often moved their more dirty industries to other parts of the world where there are less stringent environmental and social standards. As a result, other countries may be polluting on their behalf, and the indexes do not factor those in.2

Paving the Way for Micro-, Small- and Medium-Sized Enterprises in the Southern Mediterranean. CEPS Policy Brief No. 314, 14 January 2014

The upheavals of the Arab Spring in the southern Mediterranean led to domestic and international demands on the governments in the region to implement reforms aimed at enhancing business and investment conditions especially for micro, small- and medium-sized enterprises (MSMEs), which carry out an overwhelming majority of the region’s economic activity. A comprehensive survey among some 600 high-growth potential MSMEs in Algeria, Egypt, Morocco and Tunisia identified and ranked the key obstacles impeding their high-growth potential. This Policy Brief summarises the main results and policy recommendations that can be drawn from this survey, which has been analysed in depth by Ayadi & De Groen (2014).

Micro-, Small- and Medium-Sized Enterprises with High-Growth Potential in the Southern Mediterranean: Identifying Obstacles and Policy Responses. CEPS Paperbacks. January 2014

The Arab Spring, which took root in Tunisia and Egypt in the beginning of 2011 and gradually spread to other countries in the southern Mediterranean, highlighted the importance of private-sector development, job creation, improved governance and a fairer distribution of economic opportunities. The developments led to domestic and international calls for the region’s governments to implement the needed reforms to enhance business and investment conditions, modernise their economies and support the development of enterprises. Central to these demands are calls to enhance the growth prospects of micro-, small- and medium-sized enterprises (MSMEs), which represent an overwhelming majority of the region’s economic activity.

Macroeconomic and Financial Crisis Management in the Southern and Eastern Mediterranean: Diagnosis and Prospects. CEPS Paperbacks. December 2013

The global financial crisis, which started in the summer of 2007 and deepened in the aftermath of the Lehman failure in September 2008, has led to a virtual collapse in economic activity and increased financial volatility worldwide. For the developing countries, the main channel of transmission has been a drop in external transactions, such as trade, financial and capital flows, and remittances. The emerging economies in the southern and eastern Mediterranean have also faced declining economic activity, although there seems to be considerable variation in the relative magnitude and timing. Most of these economies have shown a delayed but more lasting response to the crisis, driven mostly by their close trade and investment ties with the EU and the Gulf Cooperation Council (GCC) countries. This book explores the fiscal, monetary and financial effects of the crisis in the region and provides an in-depth analysis of the fiscal, monetary and banking policies in the post-crisis era, the viability of their exit strategies and the future of reforms in the region. These analyses not only provide a comprehensive comparison between the countries but also provide a solid basis for assessing future economic and financial developments and reforms in the region.

Time to Set Banking Regulation Right. CEPS Paperbacks. March 2012

Excessive leverage and risk-taking by large international banks were the main causes of the 2008-09 financial crisis and the ensuing sharp drop in economic activity and employment. World leaders and central bankers promised that it would not happen again and, to this end, undertook to overhaul banking regulation, first and foremost by rectifying Basel prudential rules. This study argues that the new Basel III Accord and the ensuing EU Capital Requirements Directive IV fail to correct the two main shortcomings of international prudential rules: 1) reliance on banks’ risk management models for the calculation of capital requirements and 2) the lack of accountability by supervisors. Accordingly, the authors propose the calculation of capital requirements without risk adjustment and creation of a system of mandated action by supervisors modelled on the US framework of Prompt Corrective Action (PCA). They also recommend that banks should be required to issue large amounts of debentures that are convertible into equity in order to strengthen market discipline on management and shareholders.

The OTC derivatives markets after financial reforms. CEPS ECMI Commentary No. 36, May 2014

Over the past five years, over-the-counter (OTC) derivatives markets have received heightened regulatory attention, due to their opaqueness, size and interconnectedness, with a view to improving the robustness, safety and resilience of this market segment. There has been continued progress in the follow-up to the G-20 commitments, with the EU (EMIR, MIFID II, CRD/CRR IV, MAD) and the US (Swap Execution Facility or SEF, Title VII of Dodd-Frank Act, Basel III) leading in the implementation timelines and capturing approximately 80-90% of the overall market. Based on the data compiled for the yearly ECMI Statistical Package, this commentary provides a snapshot of the current status of the global OTC derivatives markets by: i) identifying general trends over the past decade, ii) looking at the changes in the market structure (instruments and participants), iii) estimating the uncollateralised derivatives exposure and iv) examining the relationship between OTC derivatives and exchange-traded derivatives (ETD).

Flexibility clauses in the Stability and Growth Pact: No need for revision. CEPS Policy Brief No. 319, 24 July 2014

This Policy Brief offers an in-depth review of the Stability and Growth Pact (SGP) and looks at whether the margins of flexibility within existing rules are sufficient in the current climate of low growth, or whether there is a need to broaden them. The issue is especially relevant as the changing economic environment is raising fresh questions about whether the EU’s current common economic policies are able to manage dismal growth and low inflation. The fragile state of confidence in financial markets and the unresolved but inevitable questions of moral hazard linked to lax fiscal policies mean that no large-scale fiscal expansion to support the recovery of economic activity is feasible. The discussion may therefore only concern the scope within the SGP to accommodate an unexpected drop in economic activity and to provide room for the implementation of structural reforms. Here, we analyse the flexibility clauses of the Stability and Growth Pact under three headings; namely “exceptional circumstances”, “structural reforms and other relevant factors”, and the “investment clause”. Recommendation: Our main conclusion is that the SGP contains sufficient flexibility to accommodate an unexpected drop in economic activity and has the margins needed to finance structural reforms during the transition to the new regime. We therefore see no need to change the existing rules of the SGP. We believe that the ongoing debate about a fresh growth strategy for the eurozone and the European Union would greatly benefit from removing from the Council table ill-formulated and unnecessary demands for greater flexibility in the SGP.

Ukraine - Romania: a sustained deadlock. OSW Commentary No. 68, 2011-12-29

The decision passed by the International Court of Justice in The Hague in February 2009, which finally determined the status of the Snake Island and the delimitation of the borders of Ukraine’s and Romania’s exclusive economic zones on the Black Sea’s continental shelf removed the major dispute from the agenda of relations between the two countries but it failed to reduce their mutual distrust. The sources of this distrust include the difficult history of Ukrainian-Romanian relations in the 20th century which is still adversely affecting political and economic co-operation between these two countries and preventing them from being free from resentments. Romania is the only EU member state and neighbour with which Ukraine has strained relations, which have been seriously deadlocked for years. There are a few political and economic reasons for this. Bucharest’s actions taken with regard to the Romanian and Moldovan national minorities in Ukraine are interpreted in Kyiv as a threat to Ukraine’s national security, and Romania’s political and economic activity in the Black Sea basin is perceived as contrary to Ukrainian interests in this region. In effect, although Romania supports Ukraine’s efforts to build closer relations with the Western structures in the international arena, it cannot be ruled out that Romania’s support will depend on the resolution of bilateral disputes in a way which is favourable to Romania.

Latvia and Greece: Less is more. CEPS Hi-level Brief, 12 February 2014

Despite considerable differences, there were also many similarities in economic performance between Latvia and Greece before their respective adjustment crises. After the immediate crisis, however, economic activity rebounded sharply in Latvia but continued to contract in Greece. This paper argues that this difference was due primarily to developments in credit. In Latvia credit growth fell sharply, and the economy was deleveraging aggressively by 2009. When the pace of deleveraging started to stabilise, the rebound in the credit impulse caused domestic demand growth to recover. Real GDP has increased about 20% since reaching its trough in the third quarter of 2009.

Developments in the Agricultural and Rural Capital Market of the Former Yugoslav Republic of Macedonia. Factor Markets Working Paper No. 9, October 2011

The undeveloped rural capital market in the Former Yugoslav Republic of Macedonia is constrained by an urban–rural development gap, with limited capacities for rural development and imperfections in the rural capital market. Among the most striking hindrances are the illegal status of a large share of agricultural buildings and other real estate in rural areas, particularly on the individual family farms that prevail in the country, and the insufficient knowledge and abilities of individual farmers in applying for credit. National, EU and other donor funds are being used to improve knowledge, skills and other human resources, and to address the illegal status of buildings and facilities. In recent years, government support for agricultural, rural and regional development has been introduced to promote good agricultural practices, production and economic activity in rural areas. The elimination of imperfections and improvements to the functioning of the capital market – making access to credit and funds easier, especially for small-scale family farms and for rural development – are seen as measures contributing to agriculture and more balanced rural and regional development.

Measuring firm innovativeness: towards a composite innovation index built on firm innovative posture, propensity and performance attributes. ACES Working Paper No. 12, 2008

The ability to innovate is generally accepted as a critical success factor to growth and future performance of firms. Yet, this acceptance obscures a comprehensive perspective on how firms can influence their innovation capacity and resulting performance. This paper proposes a '3P' construct of innovation measurement that simultaneously considers the Posture, Propensity and Performance related to a firm's innovation capabilities. We propose and provide empirical support showing that robust measurement of the performance implications of innovation requires the consideration of input, throughput and output factors simultaneously. Single or more limited indicators do not offer the degree of fine-tuning to a firm's innovation system that managers require. Thus, we propose the development, and future research into contingent variations, of a Composite Innovation Index (CII). We further demonstrate its use in comparing innovators and allowing managers to design a firm's innovation system.

Horizontal and Vertical Interdependence in the Multinational Subsidiary Networks. ACES Working Paper No. 7, July 2008

Existing theoretical studies have predicted that a multinational firm's location choices are interdependent across countries. Little has, however, been done to test the hypothesis at individual subsidiary level. This paper uses a detailed French multinational subsidiary dataset and estimates how a firm's decision to invest in a foreign country is not only conditional on the characteristics of that country but also the firm's existing subsidiary network Using a structural spatial econometric model, the paper finds evidence of both horizontal and vertical interdependence in multinationals' location decisions. The results indicate that while multinational firms have little incentive to duplicate their production in countries with low bilateral trade costs, they are motivated to build a vertical subsidiary network in these countries ~ especially when the countries have complementary comparative advantages.

Market clusters for international franchising. ACES Working Papers, August 2009

While many studies of franchising have examined the organizational antecedents of internationalization, few have examined how differences among markets lead to this internationalization. Studies linking environmental factors to the companies' decision to internationalize showed that various political, social and economic factors either attract or repel international franchising investment. We build on these studies' selected variables to understand the similarities and differences among international franchising markets. Using these variables, our results show that countries divide into eight clusters with similar international franchising market characteristics. A discussion of each cluster follows with implications for franchising research.