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The Research and Service Departments
Business Cycle Analyses and Financial Markets
The work of this research department focuses
on forecasting the business cycle in Germany, the
European Union and in other industrialised countries.
This presupposes constant observation and analysis of
economic developments on the macroeconomic level.
The systematic collection and methodological analysis
of the Institute’s own survey findings and the official
statistics provide the empirical basis for the forecasting
work. Particular weight is given to the results of the Ifo
Business Survey, the Ifo Investment Survey and the Ifo
World Economic Survey (WES). The economic
indicators from Ifo surveys and the official statistics are
constantly examined for their usefulness in macroeconomic analysis and forecasts. This applies to both
the forecasting instruments of the Ifo Institute, such as
econometric approaches for business-cycle and
growth-trend forecasts, and to model analyses of the
macroeconomic effects of alternative economic-policy
measures.
Economics and Labour, along with the Deutsches
Institut für Wirtschaftsforschung, DIW, Berlin, the
HWWA-Institut für Wirtschaftsforschung, Hamburg,
the Institut für Wirtschaftsforschung Halle, IWH, the
Institut für Weltwirtschaft an der Universität Kiel, IfW,
as well as the Rheinisch-Westfälisches Institut für
Wirtschaftsforschung, RWI, Essen.
Alongside these more nationally oriented activities, the
department also collaborates in international projects.
For example, together with INSEE (Paris) and ISAE
(Rome) a short-term forecast of important macroeconomic variables for the euro area is published.
New euro-zone forecast
The theoretical models of the business cycle and
economic growth are also examined for their
suitability and relevancy. For this the department
conducts various macroeconomic investigations either
as self-initiated or contract research.These include the
analysis of the links between long-term growth and
economic development, the examination of the
interaction of international economic activity, the
analysis of the impact of institutional regulations,
particularly on the labour market, on employment and
output as well as the development of forecasting
systems on the basis of modern, econometric timeseries methods. Special attention is placed on the
importance of international financial markets, including
the institutions of the European Monetary Union and
the policy decisions of the European Central Bank.The
analysis of the transmission mechanisms of monetarypolicy decisions is a particular focus of the department.
In order to depict the business cycles reliably, analyses
are made not only of the short-term fluctuations but
also of longer-term growth processes of national
economies, in particular in Europe. This includes the
systematic comparison of policy measures and the
special conditions in the individual countries, which can
provide information on available policy options in
Germany and Europe. The relationships between
the business cycle and growth between countries are
analysed and included in the forecasting.
Business Cycle Forecasts
Four times a year the Ifo Institute provides projections
of the gross domestic product (by origin, disposition
and distribution), the labour market, prices,
and government revenues and expenditures. The
quantification of the acceleration or weakening of
economic activity as well as the diagnosis of business
cycle turning points receive special attention. Economic
policy, especially monetary, fiscal and wage policy, is
examined for its effect on economic activity.
The department frequently uses the media to
address various economic-policy issues. These include
questions of wage setting, the reform of financial
institutions (Stability and Growth Pact) or the effects of
commodity prices and exchange rate fluctuations on
macroeconomic developments. The media resonance
to the economic forecasts is great, but the press also
regularly reports on the department’s other research
studies.
In the middle and at the end of the year, Ifo publishes
its own forecasts. In spring and autumn the forecasting
department participates in the Joint Forecast of
the Working Group of German Economic Research
Institutes, commissioned by the Federal Ministry of
Media resonance
The co-operation with universities is an important
element of the department’s work. Two doctoral
students are involved in the graduate programme of
the LMU. Lectures and seminars in time-series eco-
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Ifo Annual Repor t 2004
Business Cycle Analyses and Financial Mar kets
nometrics are also conducted by members of the
departments. Co-operation with the Ifo research
professors (H. Berger, H. Rottmann, J.-E. Sturm,
F. Westermann, U. Woitek) and Ifo research directors
(G. Illing, S. Mittnik) is intense and finds expression in
common projects and publications.
equipment at 4 % was only slightly stronger than in
Germany as a whole. In the last two years the relative
drop in eastern Germany was more prominent. This
relatively positive development for eastern Germany
was the result of an increase in investments in eastern
German manufacturing. While the investment activities
of western German industry in 2003 were still affected
by the general economic weakness, eastern German
industry used its locational advantages vis-à-vis
western Germany to disengage itself somewhat from
the all-German business-cycle trend. In total, the share
of eastern Germany in the total volume of investment
in new plant and equipment, which had declined
since 1995, stabilised in the past three years to a level
of 16 %.
Projects Completed in 2004:
Estimation of Expenditures for Plant and
Equipment in Eastern and Western Germany
for 2003
E. Langmantel for the Federal Ministry of Economics
and Labour, April 2004 to October 2004.
In the official statistics, information on investment developments in eastern and western Germany is incomplete.The aim of this project is to fill the data gaps in the
official statistics and to present an estimate of investment in plant and equipment in eastern and western
Germany for 2003, divided into economic sectors. The
study relies heavily on the Ifo Investment Survey. It also
evaluates official and federation statistics, harmonising
them with the key data of the Federal Statistical Office
using a balance-mechanical consistency check.
Exchange Rate Changes and Trade Flows –
Evidence from Emerging Market
Economies
T. Wollmershäuser for the United Nations Conference
on Trade and Development (UNCTAD), February
2004 to March 2004.
This project examined the connection between
changes in real effective exchange rates and indicators
of foreign trade for a number of emerging market
countries. The study provided the commissioner,
UNCTAD, background information for the preparation
of its Trade & Development Report 2004, and
expanded and updated the study prepared for
UNCTAD entitled Exchange Rate Shocks and Trade
Flows in Developing Countries
Share of Eastern Germana) Investment in Total
Investment
The main results were published in UNCTAD’s Trade
and Development Report 2004, in Chapter IV (in particular in Appendix 2 to Chapter IV). Independently of
the extent of change of real effective exchange rates, it
was determined that most variables that were used as
indicators of competitiveness behaved as expected.
A real appreciation impairs competitiveness, a devaluation improves it. Major exchange rate fluctuations, in
contrast to smaller ones, display a considerably higher
exchange rate elasticity of the examined trade flows.
A 10 % real effective revaluation, for example, worsens
the balance of trade in goods, measured as a percentage of GDP, by 0.9 percentage points in the year of the
revaluation. It should be kept in mind that with the
Slight increase in
investments in eastern
German manufacturing
Source: Ifo Institute.
In eastern Germany in 2003, investments totalled
EUR 67.5 billion, EUR 2.8 billion less than in the
previous year. The drop in investments in plant and
Ifo Annual Repor t 2004
18
Business Cycle Analyses and Financial Mar kets
employed data set a quarter of all changes of the real
effective exchange rate exceeds the 10-percent level.
Such great changes occur all the more frequently
the more flexible the underlying exchange rate regime
is. On the other hand, very rigid exchange rate regimes
(fixed exchange rates, crawling pegs) are frequently
ended by speculative attacks that are accompanied
by strong nominal and real devaluations. The implications for UNCTAD are clear. In the negotiations for
the liberalisation of world trade, attention is paid
too much to the reduction of tariff and non-tariff
trade barriers. Here exchange rate policies can lead
at least temporarily to similar distortions in the
trade relations. For this reason monetary stability
also be on the agenda of future trade negotiation
rounds.
Joint Economic Forecast
G. Flaig, H. Bandholz,A. Gebauer, S. Henzel, O. Hülsewig,
A. Kaltschütz, E. Langmantel,W. Nierhaus, M. Ruschinski,
T. Wollmershäuser G. Flaig, A. Gebauer, S. Henzel,
E. Langmantel,W. Nierhaus, M. Ruschinski, B. Schimpfermann, T. Wollmershäuser in co-operation with the
Deutsches Institut für Wirtschaftsforschung, DIW,
Berlin, the HWWA-Institut für Wirtschaftsforschung,
Hamburg, the Institut für Wirtschaftsforschung Halle,
IWH, the Institut für Weltwirtschaft an der Universität
Kiel, IfW, as well as the Rheinisch-Westfälisches Institut
für Wirtschaftsforschung, RWI, Essen, for the Federal
Ministry of Economics and Labour, published regularly
in ifo Schnelldienst.
Study conducted
for UNCTAD
Forecast of the economy in Germany,Western Europe
and the world up to 2005.
Real Effective Exchange Rate und Trade Balance –
Chile
Estimation of Expenditures for Plant and
Equipment in Eastern and Western Germany
for 2004
E. Langmantel for the Federal Ministry of Economics
and Labour, April 2005 to October 2004.
An estimate of investment in plant and equipment in
eastern and western Germany, divided into economic
sectors.
Forecasting German GDP:The Role of
Inventory Assessment as Leading Indicator
E. Langmantel in co-operation with Ifo research
director, S. Mittnik, LMU Munich, autonomous research
project, June 2004 to May 2005.
Source: Ifo Institute.
Using data collected by the Ifo Business Survey, this
study assesses the suitability of firms’ assessments of
order stocks for business-cycle forecasting.
Current Projects:
Ifo Economic Forecasts
G. Flaig, H. Bandholz, A. Gebauer, S. Henzel,
O. Hülsewig, A. Kaltschütz, O.-E. Kuntze, E. Langmantel,
W. Nierhaus, M. Ruschinski, B. Schimpfermann, H.-W. Sinn,
T. Wollmershäuser, published regularly in: ifo Schnelldienst.
Institutions and Labour Market Performance
G. Flaig in co-operation with Ifo research professor,
H. Rottmann, University of Applied Science, AmbergWeiden, publication of interim results in: ifo Schnelldienst no. 17/2004.
On-going analyses and forecasts of the economic
situation in Germany, in Western Europe, and in the
world.
In this project the employment effects of labour
market institutions are analysed in an international
comparison. The focus is on dismissal protection laws,
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Hiring hindered by
protection against
dismissal
Ifo Annual Repor t 2004
Business Cycle Analyses and Financial Mar kets
the determinants of wage formation, wage substitutes
from unemployment aid as well as the taxation system.
The empirical results should show where the
German labour market system has the greatest need
for reform.
The Euro Zone Economic Outlook is a European joint
initiative between the Ifo Institute, INSEE in Paris
and ISAE in Rome.The focus is on an estimate (for the
past quarter) and a forecast (for the current and
following quarters) of real GDP, private consumption,
industrial output and inflation in the euro zone.
The forecasting is primarily carried out using
econometric forecasting methods. These projections
are then rounded off using the personal appraisals
of the project team as well as other department
researchers.The Euro Zone Economic Outlook is published quarterly – in January, April, July and October –
as a two-page press release in German and English.
The release date is on the day that Eurostat
announces its second revision of the national accounts
for a specific quarter.
Macroeconomic Results of Asset Bubbles in
an International Comparison
H. Bandholz, O. Hülsewig, T. Wollmershäuser in cooperation with Ifo research director, G. Illing, LMU
Munich, for the Federal Ministry of Finance, August
2004 to April 2005.
Impact comparison of asset
bubbles
Strong fluctuations in asset prices are among the
stylised facts of developed and globalised financial
markets. Whereas exchange rate bubbles play an
important role particularly in small, open national
economies, stock-market and real-estate bubbles are
components of all liberalised financial markets. The
US stock-market crash of 1987, the bursting of the
Japan bubble at the end of the 1980s, the Asian
crisis of 1997 and the bursting of the New Economy
bubble in 2000 are some prominent examples.
The latter caused hard economic adaptation processses, also in Germany and the euro zone, since stock
markets attained a stronger importance in the 1990s
here as well. Private households increasingly turned
to stocks as an investment option, and enterprises
increasingly financed themselves by initial public
offerings on the stock market. From a theoretical
viewpoint changes in asset prices can influence the
development of a national economy in various ways.
In addition to theoretical reasons, this study aims to
provide empirical evidence for the influence on
macroeconomic activity from changes in asset prices
in Germany, Britain, Japan and the United States.
Using econometric time series, various relationships
between GDP and its components, on the one
hand, and asset stocks and prices, on the other hand,
are estimated. Finally the economic-policy implications
of the results are discussed for monetary and
fiscal policies as well as for the regulation of financial
markets.
Gross Domestic Product Eurozone
seasonally and workday adjusted
1.5
Forecast
1.0
4
0.5
2
0.0
0
-0.5
-2
1999 1999
2000
2001
2002 2002
2003
2004
2005 2005
against previous quarter (left-hand scale)
against previous year (right-hand scale)
Source: Eurostat and Ifo-INSEE-ISAE forecasts.
European Economic Advisory Group (EEAG)
O.-E. Kuntze, W. Nierhaus, H. Bandholz, published
regularly in: EEAG Report on the European Economy.
Analysis and forecast of economic developments in
Europe and in the world. Published as a separate
chapter in the Report on the European Economy.
Credit Supply of the Banks and MonetaryPolicy Transmission
O. Hülsewig and T. Wollmershäuser in co-operation
with E. Mayer, University of Würzburg, autonomous
research project.
Euro Zone Economic Outlook
H. Bandholz, B. Schimpfermann, T. Wollmershäuser
in co-operation with INSEE, Paris, and ISAE, Rome.
Ifo Annual Repor t 2004
6
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Business Cycle Analyses and Financial Mar kets
The project examines the role of bank lending in the
transmission of monetary impulses in Germany.
The analysis is based on a dynamic model that specifies
the credit supply of the banks against the background
of their expectations with regard to future monetarypolicy measures. The model parameters are estimated
empirically by means of aggregated data to simulate
the dynamic behaviour of credit supply and credit
demand according to restrictive monetary-policy
impulses.
short-term, business-cycle forecasting. An empirical
comparison of the prognostic capability of a large
factor model vis-à-vis alternative time-series methods
is offered for the euro area and Germany. Furthermore, the suitability of the model for the analysis of
survey data at the dissaggregated level is examined.
The structural interpretation and/or identification
of the factors are the subject of the third module.
Large structural factor models allow, for example,
the simultaneous analysis of a large number of international transmission channels of economic shocks.
The Interest-rate Structure of the Euro
Interbank Money Market
O. Hülsewig, B. Schimpfermann, autonomous research
project.
Short-term economic
forecasting using factor
models
Investor Sentiment and the Stock Market
O. Hülsewig, B. Schimpfermann, autonomous research
project.
Using a co-integration method, the interest-rate structure between money-market rates of various maturity
periods in the euro area is empirically illustrated. The
research deals in particular with the adaptation process to long-term equilibrium, which is modelled both
symmetrically and asymmetrically. The results should
help optimise the forecasting of short-term moneymarket rates.
The reciprocal relationship between the sentiment
of private and institutional investors, measured by a
new survey, and the price formation process in
important European stock markets is the subject of
this research project. By means of a GARCH model
the data will be examined with regard to specific
implications in the theoretical literature on bubble
formation in financial markets through limited
arbitrage possibilities of professional investors and the
existence of a group of irrational investors (noise
traders).
Macromodel for the Euro Area
O. Hülsewig, T. Wollmershäuser, autonomous research
project.
The Quantification of Qualitative Inflation
Expectations and an Examination of Inflation
Dynamics in the Euro Area, Great Britain
and the USA: Results of the Ifo World
Economic Survey
S. Henzel, autonomous research project, PhD thesis.
On basis of a vector auto regression (VAR) a macromodel for the euro area, in which the price level and
real output form the key variables, is empirically
estimated.The research pursues two goals.The model
is to be used both for forecasting and for the simulation of shocks (for example, interest- and exchangerate shocks as well as oil price shocks).
Traditional quantification methods of qualitative survey
data presuppose relatively restrictive assumptions
concerning the expectation formation process of
the survey participants. In particular, these methods
assume undistorted expectations, on average – a
necessary condition for rational expectations. In this
study this assumption is avoided in order to create
subjective expectation data that do not have to be
rational a priori. For the quantification, threshold values
are determined that must exceed the underlying
variable for the survey to indicate a change. Instead of,
as previously, deriving these thresholds from the
Macroeconomic Applications of Large
Dynamic Factor Models
B. Schimpfermann, autonomous research project, PhD
thesis, 2004 to 2006.
The research uses three modules. In the first module,
the competing models in the category of large
dynamic factor models and estimating methods are
documented and analysed. The second module deals
with the use of factor models as an instrument of
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How to quantify WES
inflation expectations
Ifo Annual Repor t 2004
Business Cycle Analyses and Financial Mar kets
properties of past realisations, the values are
determined independently using a special question in
the Ifo World Economic Survey. The threshold values
derived in this way are then used for computing
expectations about the future development of
the inflation rate and then examining them for their
properties.
Phillips Curve revisited
Ifo Annual Repor t 2004
In the next step, the obtained expectation data are
used for presenting inflation development in different
countries. For every country we estimate a neoKeynesian Phillips Curve by using the subjective
(quantitative) expectations of the World Economic
Survey. The result is that the backwards-looking
element in the Philips Curve is of greater importance
than with assumed rational expectations.
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Public Finance
Analysing the German tax system, government financial
equalisation systems, and overall fiscal policy under
considerations of allocation, growth and distribution
is the key task of the Public Finance department. The
research comprises model-based theoretical and empirical analyses, which also include international experience
with fiscal reforms. Efficiency and redistributive effects
of fiscal policy are examined and concepts developed
for assessing the consolidation of government budgets.
the German economic research institutes and by
providing input to the European Economic Advisory
Group (EEAG).
Projects Completed in 2004:
Study on the Justification of Major Inhabitantweighting and the Subsidiary Pupil-weighting
Schemes Applied for the Determination of
Unconditional Grants in the Saxon Municipal
Fiscal Equalisation System
R. Parsche, Ch.W. Nam for the Saxon State Ministry of
Finance, Dresden, December 2003 to February 2004,
published in: ifo Forschungsberichte no. 22, Ifo Institute,
Munich, April 2004.
In the area of tax systems, the department researchers
develop procedures for estimating tax revenue in the
short and medium term as well as models for forecasting taxes on profits and elasticities of individual
taxes. The fiscal studies deal with the theoretical and
econometric assessment of tax equalisation systems at
the municipal and Länder levels. Studies are also
prepared on tax competition and mixed financing
between the Länder and municipal levels. An important aspect of the work of this department concerns
financial relationships within the EU. The department
has also investigated the harmonisation of indirect
taxes in the EU, having worked together often with the
European Commission in this area.
Efficiency of revenue
sharing in Saxony
The municipal fiscal equalisation scheme in Saxony
is subject to continuous examination and adjustment
since regional reforms but also changes in municipal
tasks, and their spending and revenue situations
produce a necessity for reallocation of the funds of
municipal fiscal equalisation. Previously insignificant
local requirement can develop into major burdens
for municipal budgets that should be taken into
consideration in the allocation of fiscal equalisation
funds. Since the distribution criteria in fiscal equalisation
law are general out of necessity and are not able
to adjust to fundamental structural change, an on-going
examination and up-dating of the regulations is
necessary. This is especially the case in times in which
local structural problems emerge because of budget
restrictions at all levels of government not only
become more manifest but are also more difficult to
overcome.
As a member of the working group for tax revenue
estimation for the Federal Ministry of Finance, the Ifo
Institute contributes its competence to the official
forecasts of German tax revenue. In spring 2004, the
meetings of this group dealt with the mid-term forecasts of German tax revenue up to 2008. In autumn
2004, the forecasts were updated for 2004 and 2005.
In addition, researchers in this department give expert
testimony at hearings of the Finance Committee of the
German Parliament.
For this reason, the research project commission
by the State Ministry of Finance in Saxony examined,
from a public finance perspective, the key elements
of the municipal fiscal equalisation system in Saxony.
In preparation for the equalisation 2005 and 2006,
the appropriateness of the allocation key was analysed
and adaptation requirements identified. It was
especially examined whether the main distribution
standards such as the main appropriation scale and
pupil weighting still correspond with the current
local requirements.
Studies have been conducted on the municipal fiscal
equalisation system in the individual Länder in recent
years. Department researchers have completed
studies for several Länder and have gained expertise
on the functioning and economic impact of these
equalisation systems. This expertise is the foundation
for substantiated and authoritative analyses.
The department contributes to the analysis and forecasting of the business cycle in Germany by participating in the semi-annual Joint Economic Forecast of
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Ifo Annual Repor t 2004
Public Finance
Changed needs call for
adjustments
The first part of the study is an examination of the
extent to which adjustment requirements have arisen
since the last reform in the major weighting system of
the governmental units of the municipalities in regions
and in the independent cities. Because of the changed
local requirements, concrete proposals are made for a
re-adjustment of the major weighting system on the
basis of the subsidy requirement relations of the years
1999 to 2001. Due to the fluctuating values for these
years, a slightly modified major weighting system is
proposed for both the municipalities as well as the
independent cities, based on an average of the years
1999 to 2001.
Empirical Study on the Assessment of the
Control System, Standards and Financing the
Supra-local Social Welfare Scheme as well as
Alternatives for Present Distribution of Tasks
and Cost Unit Group for Social Welfare
Benefits
R. Parsche,Th. Fester, Ch. W. Nam for the Saxon State
Ministry of Social Affairs, Dresden, March 2003 to
January 2004, published in: ifo Forschungsberichte
no. 21, Ifo Institute, April 2004.
In many German Länder, the spending of regional
social welfare agencies increased clearly in recent
years. A significant reason for this development is the
increasing number of relevant care-cases in the area of
the so-called integration aid. This is also the case in
Saxony. Here the numbers in 2002, at 25,464 cases,
were almost twice as high as in 1993, at 13,410. In
addition to this are the cost increases per case through
increasing personnel costs and increasingly more
extensive aid measures. Both effects have lead to a cost
explosion in integration aid.
Comparison of the Inhabitant-weighting
and the Proposal Average
of 1999 to 2001
The Ifo Institute, in co-operation project with consens
(Hamburg), dealt with the above-mentioned issue.The
focus of the Institute was specifically on the second
part of the task, i.e., an evaluation of alternatives to the
current distribution of responsibilities and financing of
regional social welfare services in Saxony.
Source: Calculation by the Ifo Institute.
Expenditures (Gross) on Aid
for Special Circumstances, 1998 – 2001
Reform requirements also result from the calculations
of the current subsidy requirement relation to the
subsidiary weighting system for pupils. Here the computed values of the year 2001 are proposed for a readjustment of the pupil weighting. By means of the
changes that result from the adjustment of the main
weighting system for the municipalities and the
independent cities, but also indirectly for the regional
districts, effects occur on the multipliers that are to
correlate the subsidy requirements of a pupil with the
subsidy requirements of an inhabitant in the three
communal pillars.
Source: Federal Statistical Office.
Ifo Annual Repor t 2004
24
Public Finance
The structure of the regional carrier of social welfare in
Saxony, the Saxon State Welfare Association (Landeswohlfahrtsverband) was closely examined in the study.
Both the organisational structure as well as the financing system, i.e. the distribution of costs, were the focus
of the study. In addition the situation of regional social
welfare in other Länder is examined, such as Brandenburg,Thuringia, Bavaria (District of Upper Palatinate and
Lower Franconia), Baden-Wuerttemberg (LWV Baden
and Wuerttemberg-Hohenzollern) and Hessia.
This research builds on the above-mentioned study
and will present an international comparison of how
non-profit organisations are taxed in other countries
(EU 25, USA, Japan).The particular aim is to document
and compare the various profit, sales, inheritance and
donation tax laws. In this way positive impulses for tax
reform in Germany can be provided to strengthen
civic commitment in future.
Taxation of non-profit
organisations
Structural Policy of the European Union:
Allocative and Distributive Effects of the
Provision of Regional Public Goods in a
Federal System
(Part of the programme: “Institutional Design of
Federal Systems”)
H.-W. Sinn, R. Fenge for the Deutsche Forschungsgemeinschaft (DFG), August 2003 to August 2005.
On the basis of the preparatory work and the current
structure of regional social welfare in Saxony, alternative
proposals for a suitable distribution of individual
responsibilities and costs are developed in the main
part of the study, which are then discussed with
representives of the Social, Finance and Interior
Ministries, the main municipal agencies and the LWV.
In addition to a status-quo presentation, the experts
consider obligatory unification of the implementation
and financing competencies at the level of the rural
districts and independent cities with the simultaneous
retention of central tasks with the regional social
welfare agencies as a possible, feasible alternative as
well as a suitable option model that could be
implemented in several stages. The alternatives are
described in detail and evaluated in terms of financial
and general criteria, and compared with each other in
order to present well-founded recommendations for
the proper distribution of individual tasks and costs of
regional social welfare in Saxony.
Structural policy is a main task of the European Union,
with a third of the EU budget allocated for it. Its
importance will increase with EU Eastern enlargement.
The EU supports the infrastructure in European
regions with the goal of increasing economic strength
and achieving a convergence of the economic
performance of the regions. An economic analysis of
the efficiency and the redistribution effects of
European structural policy is the goal of this research
project. With a view to the future organisation of a
European finance system, the study examines the
federal level of the EU to which this task should be
assigned in terms of both efficiency and redistribution.
Different aspects of structural policy must be
considered: the financing instruments of federal
regional authorities; the mobility of households,
enterprises and factors of production that can be
taxed for the financing of structural policy; the
information of supra-regional authorities concerning
regional preferences and regional tax strength. The
analysis of vertical fiscal relations between federal
levels that are involved in structural is a special focus of
the study.
Current Projects:
The Taxation of Non-profit Organisations in
an International Comparison
R. Parsche, Ch. W. Nam, A. Kaltschütz for the Federal
Ministry of Finance, June 2004 to February 2005.
Civil commitment in Germany, i.e. the political, social
and cultural activities of the population, is to receive
more support. One option is to use the tax system to
encourage civil commitment. The Federal Ministry of
Finance has already commissioned a study on the role
the federal government can play in the design of the
legal and fiscal framework conditions.
Ifo proposals for EU
structural policy
General Equilibrium Model for the Taxation
of Capital Income in Germany
D. M. Radulescu in co-operation with Ch. Keuschnigg,
University of St. Gallen, and M. Stimmelmayr, CES,
November 2002 to October 2005.
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Ifo Annual Repor t 2004
Public Finance
The goal of this research project is to develop a
computable, dynamic general equilibrium model that
allows simulations to be made of reforms in the areas
of capital earnings taxation in Germany. This would
make it possible to quantitatively register the effects on
capital, investments, job demand, growth and welfare
that result from the introduction of a dual earnings
taxation.
Ifo Annual Repor t 2004
26
Social Policy and Labour Markets
The Department of Social Policy and Labour Markets
carries out high-level academic research and is engaged in policy advising in the areas of social protection, labour market institutions, and employment, mainly focussing on long-term trends and structural aspects
in the latter field. Particular attention is being paid to
potential interactions between phenomena that are
relevant in each of these areas, like repercussions of
social policies on labour supply or demand or the
effects of labour market regulations for financing social
security via their impact on actual employment.
Research in these areas involves extensive cooperation with other divisions of Ifo, researchers based
at the Center for Economic Studies (CES) at the
University of Munich and, increasingly, the international
research community. The department has particular
exper tise in collecting and assessing micro-data
through special surveys conducted at a firm level. It
participates in Ifo’s service activities by making these
data accessible for external researchers, contributing to
the Institute’s Database for Institutional Comparisons
(DICE), and preparing reports on the economic
performance in particular branches of industry. Results
of the department’s research activities are regularly
presented at international conferences and published
in refereed journals.
absence of fundamental labour market reforms, expectations that these problems will be cured simply
through the decline in the active population that is
expected to take place after 2010 may prove to be
wrong. Increasing mobility of both goods manufactured
and inputs used for production implies that systems
competition is getting more and more intense. This
places strong demands on the flexibility of national
labour markets already today. Against this background,
the department pays particular attention to analysing
public transfers which may affect the level and structure of wages and wage-setting arrangements. In addition, the department is long experienced in doing
empirical research using micro-data collected among
private households or taken from surveys targeted at
the firm-level. Building on these data, it is possible to
evaluate the impact of a diversity of social policy
measures and labour market regulations on the level
and structure of employment, both on an aggregate
level and for specific labour market segments (by sectors of industry, professions, qualifications, regions, etc.).
Effects of social and labour
market policy regulations
Next to the institutional framework, labour market
outcomes are also influenced by structural changes in
labour demand and labour supply. Therefore, analysing
the impact of technological progress and sectoral shifts
on employment and vocational training, at a regional,
national and a European level, is an important aspect in
the department’s activities. In turn, the role of human
capital in spreading new technologies and promoting
aggregate growth is also examined, along with the issue
of how to successfully manage international labour
mobility, which may increase considerably in the future.
In Germany, persistent high-level unemployment,
prospective changes in the demographic structure, and
long-term shifts in the patterns of labour force participation indicate that, in general, the demand for social
protection will increase.At the same time, the scope for
financing social security in its traditional form may well
shrink in the future. The growing tension between
claims and budgetary restrictions necessitates reforms
in virtually every branch of the German welfare state.
The department is running projections on the financial
viability of several schemes of social insuranc and social
assistance in order to identify where reforms are most
urgent. Also, the incentives established by the measures
that are currently in place are analysed, often in a comparative perspective, focussing on their employment
effects. In the light of these findings, policy options and
the scope for further reforms are discussed.
In spite of recent reforms, “structural” unemployment
appears to be extremely high in Germany. In the
27
Ifo Annual Repor t 2004
S o c i a l Po l i c y a n d L a b o u r M a r k e t s
Projects Completed in 2004:
(2004) 42.0 % of taxable gross wages to 45.5 % in
the initial scenario, 48.9 % in the risk scenario. Following
a methodology developed by the OECD and the
EU Economic Policy Committee, these results point to
“sustainability gaps” in German public finances which –
depending on the scenario considered and on
the precise definition of the indicator – would only
disappear if other public expenditure were cut by
1.2 % to 2.9 % of GDP immediately and on a
permanent basis.
Simulations Regarding the Long-term
Sustainability of Public Finances
M. Werding, A. Kaltschütz for the Federal Ministry
of Finance, December 2003 to November 2004,
publication in: ifo Beiträge zur Wirtschaftsforschung
no. 17, Ifo Institute, Munich 2005.
Demographic change will be one of the most important challenges for economic policy and public finance
during the coming decades. Among its consequences,
particular attention should be given to the long-term
effects on the sustainability of public finances in areas
where expenditure is likely to be most sensitive
to changes in the age structure of the population.
Based on simulations for the future development
of public expenditure on old-age provision, health
care, long-term care, education and unemployment
insurance, the project aimed at determining the
potential dimension of these effects, thus providing a
framework for continuously monitoring the impact of
current political decisions on the sustainability of public
finances.
Public Debt
if social security contributions are not adjusted to projected expenditure
% of GDP
220
2050:
200.0%
200
180
160
140
Risik variant
120
100
80
2050:
111.1%
2006:
67.4%
2018:
58.9%
60
40
Initial variant
2003:
64.2%
2022:
54.5%
20
0
1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Ifo recommends retirement
age of 67
Ifo Annual Repor t 2004
Source: Calculations by the Ifo Institute.
First, the simulations focus on two variants: a so-called
“initial scenario” based on assumptions suggested by
a government commission (Rürup Commission) for
long-term projections regarding the statutory pension
scheme and statutory health insurance that were prepared in 2003; and a “risk scenario” that is based on
less optimistic assumptions regarding long-term trends
in labour force participation and employment.
Projections for both these scenarios refer to the legal
framework as of summer 2004, including future
changes that have already been legislated. In the
initial scenario, the sum of all categories of public
expenditure covered in the simulations goes
up from a current (2003) 25.3 % of GDP – with some
fluctuations during the projection period – to 27.8 %
of GDP in 2050. In the risk scenario, the end-ofprojection level of the relevant expenditure is 29.8 %
of GDP. If higher expenditure were entirely
debt-financed, public debt would have to go up to
111 % of GDP until 2050 in the initial scenario, to
200 % in the risk scenario. Alternatively, social security
contributions have to be increased from a current
Sensitivity analyses show that the existence of a substantial sustainability gap is very robust if assumptions
regarding relevant demographic and economic parameters are altered within plausible ranges. In a series of
policy simulations, a number of options for closing the
sustainability gap through reforms in the different
branches of public expenditure are then looked at. It is
shown that recent reforms regarding public old-age
provision (2004) and the public health care system
(2003) have definitely improved the sustainability
of German public finances. Yet, further reforms
are urgently needed. Considerable progress could
be made, for instance, by gradually increasing the
statutory retirement age (from 65 to 67) or by reductions of public health expenditure (through increased
efficiency of services and/or a partial privatisation of
the risks covered) as measures of this kind would
strongly contribute to limiting expenditure of these
systems.
28
S o c i a l Po l i c y a n d L a b o u r M a r k e t s
Social Security Contributions
benefits, and active support for searching and taking up
work. Research focuses on a theoretical understanding
of how these new elements of welfare programmes
are expected to affect individual behaviour and labour
market performance. In addition, the results are interpreted against the background of existing empirical
evidence. While the existing literature mainly looks
at how similar reforms affect work incentives for
beneficiaries, the present study also takes into account
consequences for those already employed, assuming
that unemployment is largely involuntary. As a
consequence, employment does not so much respond
to changes in labour-supply behaviour but to changes
in labour demand that follow from the new framework
or to modifications of the matching process.
with continuous adjustments to projected expenditure
% of gross earnings
50
Risik variant
2050:
48.9%
48
46
44
Initial variant
2050:
45.5%
effekt of recent reforms
of public health insurance
and public pensions
42
40
long-term effekt of
demographic change
2003:
42.0%
38
36
1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Source: Calculations by the Ifo Institute.
Welfare-to-work policies
in an international
comparison
The theoretical analysis highlights the impact of the
new elements of welfare programmes on unemployment, factor prices, income distribution taxes and
welfare of all the groups affected – capital owners,
workers, and unemployed benefit recipients. In particular, it explains under which conditions reforms will
stimulate employment. Among the results obtained,
two aspects are truly remarkable. First, imposing time
limits on welfare receipt as well as introducing work
obligations can lead to a Pareto improvement if, as a
consequence of declining gross wages and reduced tax
rates, net wages remain constant or even increase.
Second, on relative terms, benefit recipients who are
immediately affected by the reforms considered turn
out to be the winners when compared to those
already in employment.
Welfare to Work: A New Approach to
Reforming Welfare Programmes? Theoretical
Results and Evidence from Selected
Industrialised Countries
M. Werding, C. Holzner,V. Meier, W. Ochel, Ifo research
project, funded by a research grant by Deutsche
Forschungsgemeinschaft (DFG, German Research
Foundation), May 2003 to September 2004, publication in: C. Holzner,V. Meier und M.Werding,Time Limits
on Welfare Use under Involuntary Unemployment,
CESifo Working Paper no. 1220; C. Holzner, V. Meier
und M. Werding, Workfare, Monitoring and Efficiency
Wages, CESifo Working Paper (in preparation); C.
Holzner, V. Meier und M. Werding, Job Search
Assistance in a Model with Multiple Applications,
CESifo Working Paper (in preparation); W. Ochel,
Welfare-to-Work Experiences with Specific Work-First
Programmes in Selected Countries, CESifo Working
Paper no. 1153; W. Ochel, Welfare Time Limits in the
United States – Experiences with a New Welfare-toWork Approach, CESifo Working Paper no. 1210.
The analysis is augmented by a survey of the relevant
experience based on welfare-to work reforms
enacted in the US, the UK, Denmark and the
Netherlands; also, a number of experiments conducted
in Germany at a state or local level are looked at.
Existing evaluations are summarised and compared to
the theoretical predictions.
The project aims at analysing the effectiveness of
a welfare-to-work approach to reforming existing
welfare programmes. Reforms of this kind that have
been enacted in a number of countries are characterised by the introduction of a new set of incentives
for welfare recipients through the introduction of time
limits for benefit payments, obligations to work in
public employment programmes in return for receiving
Developments in Part-time Employment
S. Munz, H. Hofmann, C. Holzner in co-operation with
the Institut zur Erforschung sozialer Chancen (ISO),
Cologne, for the Federal Ministry of Economics
and Labour, September 2001 to December 2004,
publication in preparation.
29
Ifo Annual Repor t 2004
S o c i a l Po l i c y a n d L a b o u r M a r k e t s
Impact of part-time
employment laws
In Germany, the legal framework for a reduction of
individual working hours changed considerably at the
beginning of the year of 2001 through the Teilzeitund Befristungsgesetz (Part-Time and Fixed-term
Employment Act, “TzBfG”). The Chamber of State
Representatives (Bundesrat) obliged the Federal
Government to submit an evaluation of the new law
two years after it became effective. The Federal Dept.
of Economics and Labour commissioned the Ifo
Institute to prepare the evaluation study.
Fertility and Prosperity: Links between
Demography and Economic Growth in
Selected OECD Countries
M. Werding, V. Gács, S. Munz, Ifo research project,
funded by Deutscher Arbeitskreis für Familienhilfe,
December 2003 to July 2005.
The project aims at detecting links between demographic characteristics, such as the age-structure of the
active population, on the one hand, and productivity
growth, on the other, which, in turn, may have affected
aggregate economic growth.These links, given they exist,
might become even more important in the course
of demographic ageing. The inquiry is based on a
macro-econometric analysis for a large panel of
both industrialised and developing countries and a
longer time series of data. Using the same set of data,
potential repercussions of the economic performance
on current fertility are also looked at. In a second step,
the institutional framework for parental fertility
decisions will be examined, focussing on a smaller
selection of industrialised countries in order to identify
instruments that may be suited to influence fertility and,
hence, economic growth.
Current Projects:
German Outward FDI and its Impact on
Domestic Labour Markets
S. Becker, Center for Economic Studies (CES), R. Jäckle
in co-operation with K. Ekholm, Stockholm, and
M.-A. Mündler, San Diego, Ifo research project, funded
by VolkswagenStiftung, December 2003 to June 2005,
publication in: CESifo Working Paper no. 1374 and ifo
Schnelldienst no. 1/2005.
Over the past decades, globalisation has led to
an increased international division of labour. As a
consequence, high-income countries like Germany face
changes in labour demand and structural shifts in their
labour markets. Based on micro-econometric analyses,
the research project investigates how outward foreign
direct investment alters the multinational division of
labour within German enterprises, and how it affects
parent employment and home labour markets. In
doing so, a unique, new data set is exploited in which
anonymised worker data from the Federal Labour
Office are matched with firm-level data on foreign
direct investment from Deutsche Bundesbank. The
following questions are addressed. How do labour
forces and salaries differ across firms and time,
depending on foreign direct investments? How
does the displacement likelihood change? At what
salaries and in which jobs do displaced workers find
new jobs?
The Fiscal Balance of Children in the
German Tax-transfer System
M. Werding, H. Hofmann for the Robert Bosch
Foundation, December 2004 to May 2005.
The Robert Bosch Foundation has installed a commission on Family and Demographic Change which will
prepare a report on options for stimulating a recovery
of fertility rates in Germany, that are currently low and
still continue to decline. Ifo supports the commission
by preparing comprehensive calculations regarding the
“fiscal balance” of children under the current German
tax and transfer system. Results are expected to
indicate which fraction of the total cost of rearing and
educating children is typically covered by public transfers and how this cost share relates to fiscal net returns
arising from taxes and social security contributions
paid by the children at later stages of their life cycles.
Assuming that the overall result is a fiscal externality of
considerable size, parental fertility decisions would be
distorted. In turn, this should be corrected through
changes in the existing tax-transfer system.
Influencing demographic
developments
Ifo Annual Repor t 2004
30
S o c i a l Po l i c y a n d L a b o u r M a r k e t s
The Impact of Family Policies on Fertility:
An International Comparison
V. Meier for the Robert Bosch Foundation, January
2005 to April 2005.
In addition to the aforementioned project, Ifo
also contributes to the activities of the commission
on Family and Demographic Change, initiated by the
Robert Bosch Foundation, by surveying instruments of
family policies and their impact on levels and structural
features of fertility in a small number of industrialised
countries. All relevant kinds of cash transfers and
transfers in-kind paid to families and children are
covered. In addition to average fertility rates, potential
effects for the timing of births, group-specific fertility
behaviour, and the distribution of families with differing
numbers of children are looked at.
31
Ifo Annual Repor t 2004
Human Capital and Structural Change
New Ifo department
focuses on:
– educational economics
and knowledge
The research department of Human Capital and
Structural Change, set up at the beginning of 2004,
focuses on research in educational economics and
knowledge generation, innovation and technological
change as well as competition and industrial economics. The service tasks of the department consist
particularly in the construction and maintenance of a
network of European educational economists funded
by a long-term project, in policy advice for ministries
and international organisations as well as in the
organisation of workshops and conferences for the
main research areas of the department.
ning the causes and consequences of international
differences in educational performance was launched.
The research department also co-ordinates the European Expert Network on Educational Economics
(EENEE), a European expert pool financed by the
European Commission. At the end of 2004 the
department organised the first European symposium
on educational economics on the subject, Efficient
Use of Investments in Education and Training, in
Brussels. In summer 2004 the department organised a
workshop in Bonn, Investment in Human Capital, for
the Federal Ministry of Education and Research. In
autumn, together with the Program on Education Policy
and Governance of Harvard University, the department
conducted a CESifo conference on Schooling and
Human Capital Formation in the Global Economy.
generation
– innovation
and technological change,
– competition and
industrial economics
Human capital accumulation and knowledge generation, as well as the innovations and dynamic structural
changes in the economy that they induce, are of key
importance for success in global competition and for
the long-term growth outlook of a modern national
economy. Only superior knowledge can help an economy escape the maelstrom of low-wage competition
world-wide.
With research on the costs and benefits of vocational
training, the department made a contribution to the
discussion on the causes of the shortage of training
facilities. Related topics, such as the economics of research and development (R&D), entrepreneurship and
qualification-specific technological progress, are linked
with research on innovation and technological change,
whereas other topics, such as the adaptability of
human capital and the regulation of the “educational
industry”, overlap with research on competition and
industrial economics.
Accordingly the department researches in the area of
educational economics and knowledge generation,
examining areas such as the formation of skills and
knowledge, the institutional efficiency of the educational system, equal opportunity in education and the
relative importance of basis competencies and specific
knowledge. In the year under review, the department
submitted some studies that were carried out on basis
of extensive micro-data records of different international, comparative pupil tests such as TIMSS, PISA and
IGLU. These projects, some carried out for the World
Bank and the Volkswagen Foundation, supply microeconometric evidence on the most important determinants of pupil performance. In addition to the influence of family background and educational resources –
for instance with respect to class sizes and computer
equipment – important questions are how different
educational institutions, centralised examinations,
school autonomy and school competition influence
pupil performance. As a basis for policy recommendations the results can contribute to an improvement of
public management in the educational sector. In cooperation with Prof. E. A. Hanushek, Stanford
University, who visited the department in the summer
as Ifo visiting professor, a long-term project for exami-
Ifo Annual Repor t 2004
In the research on innovation and technological
change, three project areas stand in the foreground.
The first is the economics of innovations and patents.
The research department carries out micro-econometric research on the determinants and effects of
innovations, drawing on the unique panel data of the
Ifo Innovation Survey with more than 20 years of survey data from manufacturing companies in Germany.
This allows, for example, an estimation of the effects of
innovations on exports and employment – and vice
versa. In preparation for the construction of the extensive micro-panel data set, a cross-sectional analysis
of the effects of innovations on the export activity
of enterprises was presented, using specific survey
components of the Ifo Innovation Survey in the
context of a variable instrument estimation. In 2004
the department also submitted a study to the German
32
Human Capital and Structural Change
Office of Patents and Trademarks on indicators of
patent systems, patent activities and patent rights.
The results of the research projects of the department
for Human Capital and Structural Change were presented at numerous international conferences with
selection procedures and also at several CESifo conferences. Many articles were accepted for publication
in international, peer-reviewed journals. The national
and international press and radio/TV also reported on
the various research results of the department. The
department head holds lectures at the Faculty of
Economics of the LMU, and four doctoral students
participate in the LMU graduate seminar.
The second project area covers the economics of the
information society and B2B transactions, in which
the department is currently heading an EU-financed
project on statistical indicators for the information
society. The third project area deals with the growth
effects of investments in information technology (IT),
the New Economy and structural change. Here the
department works on a joint research project with Ifo
research professor Th. Eicher, University of Washington,
on the influence of IT investments on productivity
differences in German manufacturing.The department
also contributed to a study on the state and outlook of
the New Economy in selected EU member states.
A joint project with Prof. J. Temple, Bristol University,
who visited the department in 2004, also as an Ifo
visiting professor, examined the influence of structural
change on long-term economic growth. Intersecting
topics that link the department with research on
competition and industrial economics are, for instance,
the structure of electronic markets and the connection
between market dynamics and structural change.
Projects Completed in 2004:
Educational Institutions and Pupil
Performance
L. Wößmann,T. Fuchs in co-operation with J. H. Bishop,
Cornell University, M. Weiß, German Institute for
International Pedagogical Research, Frankfurt am Main,
and E. Gundlach, Institute for World Economics, Kiel, for
the Volkswagen Foundation, October 2002 to
September 2004, publications in: Education Economics,
vol. 12, 1/2004; CESifo Working Paper no. 1235;
Brussels Economic Review, vol. 48, (forthcoming);
Education Economics, vol. 13, 2/2005.
In addition to the already mentioned intersecting
topics, the department devotes some of its work to
competition policies, regulation and deregulation, and
the privatisation of network industries, all in the field of
competition and industrial economics. Examples are
mergers in the energy market, the co-operation of
regulatory authorities in telecommunications, and the
liberalisation of the Californian electricity market. In
co-operation with the Center for Information and
Network Economics (CINE) of the Munich Ludwig
Maximilian University (LMU) and the Kiel Institute for
World Economics, the department conducted the KielMunich Workshop on the Economics of Information
and Network Industries. The research department
also examines problems of structural change in
construction. Here, two expert opinions on fluctuations
in real-estate markets and the economic importance
of real estate were worked on in the year under
review. Also the advisory services for the European
construction industry at the semi-annual Euroconstruct
conferences is a responsibility of this department and a
long-standing emphasis of the Ifo Institute.
The efficiency of the
educational system
The research project helped improve the state of research with regard to the influence of institutional
conditions on the educational system and on pupil
performance. A theoretical model was developed that
can depict the influence of different educational
institutions on pupil performance. In the empirical part
the theoretical hypotheses were empirically validated
to a large extent using the data of the international
pupil performance test, Programmes for International
Student Assessment (PISA). In addition the connection
between the availability of computers and pupil
performance was examined.The academic publications
that resulted from the research project have already
been presented at several top international conferences – the annual conference of the American
Economic Association, the Verein für Socialpolitik, the
European Association of Labour Economists and the
Australasian Meeting of the Econometric Society –
and have already been accepted in part for publication
in leading international journals.
33
Ifo Annual Repor t 2004
Human Capital and Structural Change
The research project succeeded in confirming the
initial hypotheses with regard to the connection
between educational institutions and pupil performance. Accordingly, educational institutions, such as
central examinations, influence the distribution of responsibilities between schools and school administrations, the influence of parents and teachers on
educational measures or the co-existence of private
and public schools and average pupil performance, and
this in a manner foreseeable from the model and to a
significant extent quantitatively. This result offers an
alternative perspective on the current debates for
the reform of the educational system that have been
focused to a large extent on a discussion of additional
educational costs.
Why some schools are
successful
School Autonomy, Central Examinations and Pupil
Performance
In total, student performance in TIMSS and TIMSS-Repeat is significantly
higher in countries with central examinations than in states without central examinations. School autonomy regarding teacher's pay has a negative effect in systems without central examinations, which reverses into a
positive effect in systems with central examinations.
Source: Ifo Institute.
Using the PISA micro-data it was shown that countries
with central final examinations, such as a central Abitur,
were considerably better with respect to pupil performance. External and comparable examinations
inform the participants about achieved performance
and in this way create stimulus for improving performance. As soon as an external account is given, performance is promoted if the schools receive autonomy in
decision-making areas such as the selection and remuneration of teachers, the local administration of
a school’s budget, and questions such as textbook
selection. Competition from privately administered
schools also proves to be performance enhancing.
An efficient educational policy should accordingly
combine central examinations with school autonomy
and competition, that is to have standards determined
and examined externally, and let the schools decide
how they wish to achieve these standards.
Use of International Pupil Performance
Comparisons for the Improvement of Public
Administration in the Educational Sector
L.Wößmann,T. Fuchs for the World Bank, January 2004
to August 2004, publication as: World Bank Policy
Research Working Paper, no. 3537, March 2005;
further external publication planned.
This project analysed the connection of family background and school qualities, on the one hand, and
performance of elementary school pupils, on the other.
Micro-econometric estimates using the pupil data of
the Progress in International Reading Literacy Study
(PIRLS, or IGLU in Germany) were conducted. The
IGLU study is an internationally comparable, pupil
performance study that tests the reading competence
of fourth-grade pupils. In accordance with the
commissioner’s specifications, the analysis focused on
Argentina, Colombia and selected comparative
countries.
The better-performing countries tend to have neither
smaller classes nor better equipment of the schools
with computers, and they spend only slightly more.
Reform proposals that merely argue for more
spending on a given educational system are thus short
sighted. From a policy viewpoint the emphasis should
be on designing the educational system institutionally
in such a way that all participants receive stimulus
for the promotion of pupil performance, that is
that performance-supporting behaviour is rewarded
and that performance restricting behaviour is
sanctioned.
Ifo Annual Repor t 2004
The results of the analysis indicate a strong connection
between the socio-economic background of the pupils
and their performance in the IGLU study. The
equipment level of the schools proved to be hardly
correlated with pupil performance. In an international
34
Human Capital and Structural Change
comparison, the estimated effects of family background
on pupil performance are relatively high in Colombia
and relatively low in Argentina.The results also showed
that in both countries immigrated pupils that do not
speak Spanish at home performed particularly poorly.
This study was the first part of a larger international
project in which the European, British, French and
German patent offices are involved.The task of the Ifo
Institute in this project was the evaluation of the
existing literature for patent research with regard to
existing economic analyses of patent data with the goal
of identifying available and suitable indicators for the
patent system, patent activities and for patent rights.
Both Latin American educational systems also display
particular effects. In Argentina, unlike most countries,
there is no difference in performance between rural
and urban areas. In Colombia, unlike most countries,
there is no significant difference in performance
between boys and girls.With regard to the institutional
design of the educational system, the positive influence
of a centralised curriculum and ability-based class
composition on pupil performance proved to be the
case in Argentina.
Patents as innovation
indicators
Patent data can serve as indicators for innovations.
Since the mid-1980s the economic analysis of patent
data has been advanced and constantly refined and
improved by the inclusion of additional information on
patents, for example by the consideration of the
duration of patents and the number of citations in
subsequent patents. A summary and presentation is
made of the theses found in the literature, the
employed measurement variables as well as the results
achieved using these variables.
Level and Dispersions of Student Performance in
the IGLU Primary School Study
The subproject forms the basis for a further examination by the patent offices, whose goal is to extract and
develop the indicators with the greatest economic
relevance and to create new indicators. The analysis
showed that indicators for the patent system itself are
not available; likewise, indicators for the patenting
process are also lacking in the literature. The patent
literature concentrates on the analysis of the economic
importance of patent rights.The indicators used up to
now make only an ex-post analysis at the end of a
patent duration.
In contrast to the PISA results of the junior high school level, the IGLU
results show that the performance of German students in primary
school are, no average, way above the international average of
500 points.The dispersion of the test results is also still relatively small in
primary school, quite in contrast to PISA.
Source: Ifo Institute.
B2B Metrics: Statistical Indicators for the
Information Society
H. Schedl, K. Sülzle in co-operation with the Nomura
Research Institute, Tokyo, PREST, Manchester, RCS
Conseil, Paris, and VATT, Helsinki, for the European
Commission, January 2002 to July 2004, publication in:
ifo Schnelldienst no. 19/2004.
Identification of Available and Suitable
Indicators for the Patent System, Patent
Activities and for Patent Rights
S. Lachenmaier, L. Wößmann for the German Patent
and Trademark Office (DPMA), April 2004 to June
2004, publication in: Identification of Economic
Indicators for Patent Research, mimeo, Ifo Institute.
The development of indicators for the measurement
of electronic business transactions between enterprises (hereafter B2B) was the task of the B2B Metrics
project. The goal was to present the present stage of
development, to identify factors that support or
restrict development, to test the applicability of the
approach and to develop tools for statistical surveys.
35
Measuring B2B activity
Ifo Annual Repor t 2004
Human Capital and Structural Change
The project developed a clear definition of B2B and
a questionnaire that offers the commercial user the
possibility of determining his own position, that enables
statisticians to develop short questionnaires for various
objectives and that allows politicians to examine the
assumptions for the development of B2B and the
efficiency of political planning.
reflected in statistics and if there was a common
pattern of structural change, but also if this would
change the competitive situation, contribute to the
development of export-linked clusters in the accession
states and create spill-over effects on exports into non
EU countries.
Structure Change and Long-term Economic
Growth
L. Wößmann in co-operation with J. Temple, Bristol
University, April 2003 to September 2004, publication
in: CESifo Working Paper no. 1290.
Preceding studies frequently neglected the conditions
for a successful application of B2B: standardisation,
organisational adaptation, process integration and data
exchange between partners.Together with the defined
basic processes of the enterprise (procurement,
production planning and logistics, sales as well as
planning and development), these factors form the
structure of the project's measurement approach.
Barriers to
B2B development
In this joint project with Prof. J. Temple of Bristol
University, visiting researcher at the department in
summer 2004, the influence of the structural change
between the agriculture sector and other sectors of
the economy on long-term economic growth was
examined. Three linked observations served as a
starting point for the research project. Firstly, models of
the dual economy have for some time been a key
component of developmental economics. Secondly,
development economists in the 1960s and 1970s have
thoroughly discussed the role of structural change on
economic growth, and in particular the re-allocation of
labour from the agricultural sector. Thirdly, these two
aspects of economic development processes, dualism
and structural change, have been largely neglected in
empirical growth research in recent years.
The project defined three stages of development in
terms of the use of B2B: early – the use of simple,
isolated transactions, expanded – including initial steps
of process automatisation, and advanced – the use of
collaborative processes via the network. For the
surveyed firms in the automotive value chain in
Germany, 72 % were advanced users, 20% expanded
users and 7 % early users. The results also reveal no
standard development path in B2B. A trend towards
process-oriented B2B applications stimulated by enterprises with the power to shape markets was evident,
but there was also a trend towards transactionoriented e-business between smaller enterprises. Major
hindrances for a homogeneous B2B development
include the low-level dissemination of standards and
the reluctance to engage in external data exchange.
The research project firstly determined analytically
how structural change can be represented in an
empirical growth model. Differences in the marginal
product of labour between sectors can result in
structural change being able to increase the aggregated
total factor productivity of an economy in a non-linear
manner. Empirical estimates of the model with the aid
of growth regressions with international cross-sections
show that the re-allocation of labour from agriculture
to other sectors explains a significant part of the
international variations in growth in total factor
productivity between 1960 and 2000. In addition the
empirical results imply that in many developing
countries large inter-sectoral differentials in the
marginal product of labour exist, which seems to
be much less the case in developed countries. The
results of the project were presented in 2004 at the
The Integration of Accession States into
Multinational Production Networks and their
Effects on Exports and Development
H. Schedl for the Tokyo Club Foundation for Global
Studies, March 2004 to March 2005, publication in:
Tokyo Club Foundation Papers, forthcoming.
Tokyo Club study
Ifo Annual Repor t 2004
By means of detailed evaluations of OECD foreign
trade statistics, the project examined the impact of EU
eastern enlargement and the associated foreign investments for the trade of the eastern European accession
countries. The goal was not only to see how the
integration into existing co-operation networks was
36
Human Capital and Structural Change
European conference of the Econometrics Society as
well as at the annual conference of the Verein für
Socialpolitik.
income levels as well as real-estate prices and sales
are positively correlated.
Data differentiated according to the age of a household's breadwinner were taken from the SocioEconomic Panel (SOEP) of the DIW for the empirical
estimates. In all regression approaches a higher
explanatory content was achieved, especially with the
earnings of young households (up to 80 %), but the
hypotheses were only confirmed with reservations.
Scope still remains for a more thorough examination
of the data base as well as for additional research.
Division of Construction Activity and Real
Estate
Fluctuations on the Real-estate Market
V. Rußig in co-operation with S. Rady, LMU, et al.,
for the Bavarian State Ministry of the Economy,
Infrastructure,Traffic and Technology, October 1999 to
February 2004, publication in: ifo Forschungsberichte
no. 23, Ifo Institute, Munich, April 2004; extracts in: ifo
Schnelldienst no. 11/2004.
Causes of real-estate price
fluctuations
Business Activity and the Structure of the
Construction Sector in Europe
(Euroconstruct Network)
V. Rußig for the partner institutes and organisers and
participants of the Euroconstruct conferences as well
as for the subscribers of the conference proceedings
and for presentations at conferences, January 2004 to
December 2004, publications in: ifo Schnelldienst
no. 5/2004; no. 6/2004; no. 13/2004; no. 15/2004.
Building on an empirically tested model of the housing
market developed by S. Rady and Ortalo-Magné in the
United States and Britain, this co-operation project
between the Ifo Institute and the LMU first undertook
an adaptation of this microeconomically based model
to the situation in Germany. In the model housing
market three active groups of buyers are found: creditlimited first buyers, credit-limited repeat customers
and non-credit limited repeat customers. Activity in
the housing markets, according to this model, is
dominated particularly by young households as well as
by older and more prosperous households. This
formal, theoretical approach is used to explain the
causes of the volatility of prices and sales of real
estate and to formulate operational hypotheses for
an empirical investigation for Germany (and Bavaria).
The European research and consultancy network,
Euroconstruct, in existence since 1975, presents at its
semi-annual conferences in different European cities a
standardised forecast of the value and quantity of construction activity for 15 western and 4 eastern European countries. At these conferences (June 2004
in Stockholm; December 2004 in Paris) special construction issues were also discussed: at the Stockholm
conference R. Flanagan, University of Reading, UK,
talked on the subject of Creating Competitive
Advantages for Organisations in the Construction
Sector; in Paris enterprise relocations and their effects
on the building sector was the featured problem.
Since Germany has no official data on real estate
sales and prices, the data base was compiled from
other sources with supplementary estimates and their
informative value was examined. The most suitable
data with long time-series for new residential buildings
after 1975 were provided by Bulwien AG, Munich,
which contain prices for standard row houses
and owner-occupied flats. Also the price indicators for
the housing market published by the German
Bundesbank (for the first time in 2003) are based on
these data. With these data the model-supported
hypotheses were tested that the earnings of young
households have a par ticularly strong impact
on the dynamics of the real-estate market and that
Recession in new
residential construction
continues
The forecasts now use the nominal data for 2003 as
the base for forecasting. Construction volume in the
Euroconstruct area in the base year amounted to EUR
1.13 trillion.The broadly aggregated building volume is
broken down into finer subdivisions for all the 19
member states according to building sectors and types
of building services. The great structural differences
between the two sub-areas are striking: In western
Europe home building is clearly dominant (about
half for the renovation of old buildings), and civil
37
Ifo Annual Repor t 2004
Human Capital and Structural Change
Change in Housing Completionsa) in Europeb) from
2002 to 2004 and 2005 to 2007c)
2003 in new residential buildings. Up to 2005 an increase of 2.23 million units is expected; thereafter
the housing completion numbers will again decline.
The downward trend will be especially noticeable in
owner-occupied homes, but also in apartment
buildings the slightly increased level will not be
maintained. Performance will differ greatly in the individual countries: whereas growth will continue in central
and eastern Europe, the recession in western Europe in
new residential construction, especially in owneroccupied houses and flats, will continue. Strong
declines were recently recorded in Germany and
Portugal in particular; but for these countries a significant improvement is expected for the forecast period.
Construction Industry Forum at the Ifo
Industry Colloquium 2004
V. Rußig in co-operation with the Chamber of Industry
and Commerce for Munich and Upper Bavaria with
support from the Bavarian State Ministry of the
Economy, Infrastructure, Traffic and Technology, report
in: ifo Schnelldienst no. 22/2004.
Ifo construction forecast
In continuation of the tradition of the ifo Baugespräche,
a short- and medium-term forecast of construction
activity in Germany was presented at the Construction
Industry Forum (Forum 3) at the Ifo Industry
Colloquium. The “lull” in construction has lasted – with
a short interruption in 1999 – for ten years. In eastern
Source: Euroconstruct/Ifo Institute (Paris, December 2004).
engineering is of comparably small importance; in the
eastern European member states non-residential construction and civil engineering achieve considerably
higher shares, and in all building sectors new construction dominates. After stagnation in 2002, European
building volume rose marginally in 2003 and somewhat
more strongly in 2004. In the forecast years 2005
and 2006 as well as in 2007, a moderate increase is
forecast with slightly falling rates of growth. The
decisive stimulus here is from the four central and
eastern European countries, despite their low weight
overall. In contrast, the recovery will flatten again in the
15 western European countries; here the construction
sector will again be a main constraint in overall economic growth up to the end of the forecast period.
Building Investment in (Western and Eastern)
Germany, 1991 to 2006a)
In the 19 Euroconstruct countries, approximately 2.15
million housing units were completed in the base year
Ifo Annual Repor t 2004
Source: Federal Statistical Office; calculations and forecasts by the Ifo
Institute.
38
Human Capital and Structural Change
Germany especially, construction has declined significantly and also in western Germany investment in new
buildings and in renovation fell again in the year under
review. The forecast presented was greeted with approval at the forum, but sceptical comments were made
by some of the 100 participants. In particular it was
pointed out construction investment as the key forecast
variable for industry development paints a bright picture
because an additional estimate is made of personal
building activity.The decline in construction output is far
more dramatic if, for example, it is analysed and forecast
in terms of commercial construction turnover.
contains an extensive researcher database in the field
of educational economics in Europe that allows the
user to find relevant experts and research centres on
specific topics and countries. In the further course of
the project it is planned to expand the website with a
comprehensive bibliography on various sub-disciplines
in educational economics.
For the improvement of the exchange of ideas between researchers and politicians, EENEE organised for
the European Commission the first European symposium on educational economics on the subject, The
Efficient Use of Investments in Education and Training,
which took place in November 2004 in Brussels. The
symposium intensified the dialogue between high-ranking politicians and exceptional educational researchers
on the state of research, policy-relevant research results
and future research emphases. Within the framework
of the project, these symposiums will occur annually.
Current Projects:
European Expert Network of Educational
Economists (EENEE)
L. Wößmann, T. Fuchs, G. Schütz in co-operation with
experts of leading European and overseas universities,
research institutes and international organisations for
the European Commission, General Directorate of
Education and Culture, December 2003 to December
2005.
New network created for
the European Commission
The EENEE Website
This project advises the European Commission on
questions of educational-economic relevance, promotes educational-economic research in Europe and
transfers the knowledge attained to political decision
makers and the general public. To achieve this a
network of leading European centres and experts in
educational economics was created. The network
supports and advises the European Commission as an
expert pool in the area of educational policies and
reform from an economic viewpoint.
A major component of the EENEE project is a European exchange
platform for educational economists on the website www.educationeconomics.org.
Source: Ifo Institute.
A website has been created, www.education-economics.org, to promote and strengthen joint European
research in educational economics.This offers a forum
for educational economists in Europe to exchange
research results, to deepen and expand existing cooperations and numerous other possibilities to receive
information on current developments in educational
economics.The website is also addressed to politicians,
journalists and the general public. These groups can
receive a quick overview of the state of educationaleconomic research in Europe. The website also
The network also advises the European Commission
on concrete issues in educational economics, and it
provides support in the drafting of policy documents,
conference materials or replies to advice requests.
Empirical Studies in Educational Economics
L. Wößmann, habilitation thesis and further current
research projects, various publications.
39
Ifo Annual Repor t 2004
Human Capital and Structural Change
International pupil
performance
and educational systems
Numerous current and concluded projects deal
with how human capital can be produced best. The
extensive micro data of different international pupil
performance tests are analysed for this purpose using
modern micro-econometric research methods. In
addition to work on the project Educational
Institutions and Pupil Performance, funded by the
Volkswagen Foundation (see pp. 33 – 34) and the
project for the World Bank on the use of international
pupil performance comparisons (see pp. 34 – 35), work
was also carried out in the following research areas in
2004.
Together with the leading international educational
economist, Prof. Hanushek of Stanford University, research is being conducted on a long-term project that
examines the determinants and effects of international
differences in pupil performance. Micro-econometric
estimates are carried out using the extensive data sets
of several international pupil performance tests such as
PISA, IGLU and TIMSS. A part of this study, which deals
with the effects of a multi-faceted structure of the
educational system on school performance and its
distribution, was published under the title “Does
Early Tracking Affect Educational Inequality and
Performance? Difference-in-Difference Evidence across
Countries” as NBER Working Paper no. 11124 and
CESifo Working Paper no. 1415.
A study, which was revised in 2004, examines the
influence of class sizes on pupil performance in
different countries using the international TIMSS data
set, which was accepted for publication by the
European Economic Review ("Class-Size Effects in
School Systems Around the World: Evidence from
Between-Grade Variation in TIMSS, together with M. R.
West, Harvard University). At the 40th panel meeting
of Economic Policy in Amsterdam, a subsequent article
on resources and institutional effects on pupil performance in various western European countries was
presented (“Educational Production in Europe”). A
further study on educational production in eastern
European countries has been accepted for publication
in the Economics of Education Review (“Schooling
Quality in Eastern Europe: Educational Production
During Transition”, together with A. Ammermüller,
ZEW Mannheim, and H. Heijke, Maastricht University).
Two more studies that focus on East Asian countries
were accepted for publication in East Asian Economic
Perspectives and the German Economic Review
(“Family Background, Schooling Resources, Institutional
Features: What Determines Student Performance in
East Asian Countries?”, together with E. Gundlach,
Institute for the World Economy, Kiel, as well as
“Educational Production in East Asia”). A further
project examined the development of firms training
costs and benefits as a possible cause of the shortage
of training facilities in Germany.
School Competition, School Choice and
School Autonomy
T. Fuchs, autonomous research project, PhD thesis.
The effects of school choice, competition and
autonomy form a central and growing area of educational-economic research, which has been largely limited to the United States.This project, as part of a DFG
research group, will examine the distribution aspects of
school choice and competition using a computable
general equilibrium model calibrated to the European
educational systems. It will also empirically estimate the
efficiency effects of school competition and autonomy
by applying a non-parametric estimating model
to international PISA micro-data sets. Ifo research
professor K. Konrad, Berlin WZB, is project advisor.
Equal Opportunity in the Educational System
G. Schütz, autonomous research project, PhD thesis.
Providing equal opportunity is an important task of an
educational system. In this research the question of
how equal opportunity can be measured is examined.
The determining factors of equal opportunity are
analysed using international micro data sets for educational systems.
The Human Capital of Nations
L. Wößmann in co-operation with E. A. Hanushek,
Stanford University, tandem project, CESifo MIT
Press book project, January 2004 to December 2006.
Ifo Annual Repor t 2004
Effects and Determinants of Innovations in
Germany
S. Lachenmaier, autonomous research project,
PhD thesis.
40
Human Capital and Structural Change
The panel structure of the micro-data set of the Ifo
Innovation Survey, which has been conducted for 20
years, is unique in its field. Using this detailed data set
at the company level, a new micro-econometric
contribution to the growth and innovation literature
will be made. The causal connection between innovations on the one hand, and employment and sales
growth as well as exports on the other, will be examined. A preliminary study was presented in 2004 as a
micro-econometric, cross-sectional view entitled
“Does Innovation Cause Exports? Evidence from
Exogenous Innovation Impulses and Obstacles Using
German Micro Data”.The CESifo Working Paper 1178
examines the influence of innovation activity on the
export success of German manufacturing companies
by means of an instrument-variable specification that
uses particular data on innovation stimulus and constraints from the Ifo Innovation Survey. This research
was accepted for presentation at the International
Industrial Organisation Conference, the Australasian
Meeting of the Econometric Society and annual conferences of the European Association for Research in
Industrial Economics and the Verein für Socialpolitik.
Germany in the period 1970 to 2001. The data is
derived from the Federal Statistical Office and from
the Ifo Investment Calculation, which contains more
detailed, sector-specific information than the official
statistics. The first research projects that use the database (constructed in 2004) for a growth-accounting
analysis deal with the macroeconomic and sectoral
development of (labour) productivity in Germany as
well as the influence of international and national outsourcing on the development of sectoral productivity.
Sector-specific productivity
analyses using the “Ifo
Productivity Data-base”
Strategic Behaviour and Allocative Efficiency
on Electronic Business-to-Business Markets
K. Sülzle, autonomous research project, PhD thesis.
This project is an economic analysis of the use, provision and development of electronic business-to-business (B2B). A B2B market is an inter-organisational
information system that supplies market information
on prices and products to the participating firms (both
sellers and buyers) and provides the platform for business interaction. The analysis focuses on applications
from industrial and network economics in the area of
electronic B2B markets. The project will investigate
trends and features of B2B markets, together with their
effects on allocation efficiency, market structures and
competition from an economic perspective. Preliminary results were presented in 2004 as a Dresden
Discussion Paper in Economics (09/04) entitled,
“Duopolistic Competition between Independent and
Collaborative Business-to-Business Marketplaces”. The
same research was also presented at conferences of
the American Economic Association, the Verein für
Socialpolitik and the European Association for
Research in Industrial Economics as well as at the
International Industrial Organisation Conference and
the European Meeting of the Econometric Society.
The Determinants of Investments in
Research and Development in British
Manufacturing
B. Becker, autonomous research project, PhD thesis at
Birkbeck College, London.
The study examines the determinants of investments
in research and development in British manufacturing.
A part of the research was carried out at the National
Institute of Economic and Social Research (NIESR),
London, with funding from the Economic and Social
Research Council (ESRC). Interim results of the project
were published in several discussion papers of the
NIESR.
Conference participation
Privatisation of Network Enterprises
A. Kuhlmann, autonomous research project, PhD
thesis.
Ifo Productivity Database
T. Fuchs, A. Kuhlmann in co-operation with Ifo research
professor Th. Eicher, University of Washington, Seattle,
November 2003 to the end of 2005.
The aim of this project is to show conditions under
which privatisation can be promising in selected
network industries. In addition to the general question
of why governments should privatise, the study will
primarily examine problems that arise in the electricity
The research project will create and use an Ifo
Productivity Database, which will allow macroeconomic and sector-specific productivity analyses for
41
Ifo Annual Repor t 2004
Human Capital and Structural Change
and gas supply industry. The question will also be
examined as to the extent to which the interests of national regulation authorities are in accord with deregulation intentions of the EU and to what extent harmonisation is reasonable at the EU level. In 2004 a study
was published by the List Forum for Economic and
Fiscal Policy entitled “The Electricity Crisis in California
– How Risky is Deregulation in Network Sectors?”
Initial project results were reported in 2004 at the
European Meeting of the Econometric Society and the
annual conferences of the International Institute of
Public Finance and the Verein für Socialpolitik.
old-age provision and supply, and as security for loans
(examined in detail in the study).
Net assets in property, at replacement prices,
amounted to EUR 5.6 trillion at the beginning of 2004.
More than half of this went to residential buildings and
a little more than two fifths for non-residential structures (structural and civil engineering). The official
statistics provide data in a sectoral differentiation – in
which building land and residential property have an
enormous share – but no further sub-division
according to building categories.
Composition of the Net Building Assets 2004
by Building Category
Division of Construction Activity and Real
Estate
Civil engineering projects
Economic importance of
real estate: Ifo fills
an information gap
The Economic Importance of the Real-estate
Sector
V. Rußig, L. Dorffmeister, A. Kuhlmann, H. Schedl for gif,
the society for real estate research, and other realestate organisations, June 2004 to March 2005.
1 6
One-family homes
3
26
5.6 Bill.€
10
26
Two-family Homes
4
Multi-family houses
5
Residential establisments
Private civil engineer. projects
4
Public civil engineer. projects
3
Educational buildings
4
Healthcare buildings
3
Factories and shops
21
We all live and work in buildings.We use real estate for
mobility and communication as well as for training, leisure activities, sports and cultural events. Monuments
are important identification points and trigger tourism.
More than four fifths of the capital stock, in terms
of replacement prices, amounting to more than
EUR 6.5 trillion, is in construction (structural and civil
engineering). For every individual and for the overall
economy, real estate is of exceptional importance.This
fact stands in strong contrast to conventional opinions
in society and politics. Moreover, data and information
as well as a solid analysis of this important section of
the economy are lacking.
Trade and storage build.
Office, adminstrat. buildings
Non-residential buildings
Residential
buildings
Sports, cultural, leisure build.
Other buildings
Valued at replacement prices; Beginning of year.
Source: Federal Statistical Office; calculations and estimates by the Ifo
Institute.
The study presents, for the first time, a consistent
estimate of the share of building types in residential
assets and for private and public non-residential buildings and civil engineering structures. The value of the
non-residential structures is divided into six or seven
building types. Further estimates lead to an assessment
of built-on sites and to a fictitious operating potential,
including the wide-spread “own-administration” of real
estate.
This research project will help fill the existing information gaps. The macroeconomic information from
the official statistics on the size of the present stock
(stocks of buildings and capital stock in buildings) and
on the flow variables (construction spending, gross
value added, turnover in land and housing) provide a
starting point. In addition to its primary function for
living and working, real estate has a number of supplementary functions, such as for education, in the
transport of persons and goods, as monuments, in
Ifo Annual Repor t 2004
10
Construction Activity in Western and Eastern
Germany According to Sectors
V. Rußig, E. Gluch, E. Langmantel for federal and Länder
ministries, government offices, research and consultancy institutes, businesses and federations, on-going
project, excerpts published in ifo Schnelldienst and in
external publications, working tables on request.
42
Human Capital and Structural Change
The Ifo Institute regularly forecasts German construction activity differentiated according to sectors:
residential, commercial and public construction. The
forecasting of the value and quantity variables relevant
to the construction sector (construction spending,
construction volume, completions of residential and
non-residential buildings) are presented to the working
group Bau- und Wohnungsprognostik as well as at the
Ifo Industry Colloquium.The forecast estimates for the
construction sector are used in the Joint Economic
Analysis of the economic institutes and in the forecasts
of the Ifo Institute; they are the basis for the German
contribution to forecasts of European construction
(Euroconstruct).
No construction recovery
in 2005
A revival of construction activity in Germany is also not
expected in 2005, but a bottoming-out has probably at
last occurred. Competition pressure in the building and
supplier industries – also from abroad and especially
after EU enlargement – remains intense. The number
of the employees in construction will decline even
further. The structural adaptation process in German
construction continues.
Business Activity and the Structure of the
Construction Sector in Europe
(Euroconstruct Network)
V. Rußig, see page 37 for details.
The 59th Euroconstruct conference is scheduled for
23 and 24 June 2005 in Cardiff (Wales/UK). In addition
to the updated construction forecast, regional renewal
processes and developments in China are special
programme features. Information on the conference is
available at www.euroconstruct.org or from the Ifo
Institute. The winter conference will take place in
Barcelona at the end of 2005.
Construction Industry Forum at the Ifo
Industry Colloquium 2005
V. Rußig, see page 38 for details.
For the presentation at the fifth Ifo Industry Colloquium,
in autumn 2005, the assumptions underlying the construction forecasts and early estimates will be critically
examined and adapted to new factors.The forecast horizon presented will be extended by one year: to 2007.
43
Ifo Annual Repor t 2004
Industry Branch Research
This department provides analyses of economic developments in industry sectors, such as manufacturing,
the skilled trades and services as well as their various
individual sectors. The analysis is meso-economic.
Ex-post analyses form the basis for showing the
reciprocal relationships and for forecasting future
developments, also taking into consideration the latest
data for the evaluation of short- and long-term developments. The analyses, statistics and forecasts for
industries are just as much a part of the services of the
department as feeding this information into the
industry-branch information systems.
Conference and the Ifo Industry Colloquium. The
two-day, International Spring Conference occurs
annually in Berlin. It provides a discussion forum for a
European audience of business leaders and policy
makers. On the first day the development of the world
economy is the focus. The second day is devoted to
developments in selected European industries. In 2005
the focus is on the regulatory setting for businesses in
Europe.The German viewpoint on the Lisbon goals to
make Europe a more dynamic economic region was
presented by Dr. Bernd Pfaffenbach, under-secretary
on the Ministry of Economics and Labour.
Dr. Reichenback, General Director of the European
Commission’s Directorate for Enterprises and Industry,
presented the European position. The Ifo Industry
Colloquium occurs in the autumn of year in Munich
and offers a forum for representatives from business,
federations and political organisation to discuss the
current economic situation as well as the sales and
employment forecasts for the coming two years in
selected industries from the sectors manufacturing,
construction, commerce and services. In addition a
main topic is chosen every year: in 2004 is was the
“innovation offensive”. A further on-going task of the
department is the Ifo Construction Forecast.This is an
annual updating and extension of short- and long-term
forecasts of construction developments in western and
eastern Germany according to construction sectors.
Industry branch research has traditionally been a
speciality of the Ifo Institute and distinguishes it from
the other large German economy research institutes.
The departmental structuring of industry branch research was often changed in the past and adapted to
the changing requirements. Up to the end of the
1990s, there were separate departments for industry,
commerce and construction. With the reorganisation
of the Ifo Institute in 2000 these three departments
and the research area on structural change were incorporated into a new department: Structural and
Industrial Analyses. From the beginning of 2004,
industry branch research became an independent
department, with the creation of a new research
department: Human Capital and Structural Change.
Industry branch expertise
One of the core activities of industry branch research
is the special contribution that the Ifo Institute has
made in the design and construction of the information system Branchen special. This information
system consists of reports used by co-operative and
agricultural banks to evaluate industry branches.
Twice a year a report is prepared of each of more than
100 industries. Most of the reports are written by researchers in this department, and the remainder by
other Ifo staff and by external experts.The administration and final editing is the exclusive task of this department. The project is financed by the publisher, DG
Verlag (Wiesbaden). The industry branch research
department is responsible for the updating and further
development of this industry information system.
In addition to these on-going tasks the department
also conducts contract research primarily for the public
sector. Studies are taken on that require an industrysector expertise. Examples are contract research in
the area of trade-fair research, medium-term forecasts
for the German machine tool industry as well as an
industry-specific evaluation of the “New Economy”
in Germany in comparison to selected EU member
states. In 2005 the emphases of the new studies are on
the competitiveness of European mechanical engineering in a global perspective and on the possible effects
of the planned EU services directive on the German
economy. In the field of trade-fair and real-estate research, new studies are also being prepared.
The success of the Ifo Institute in the field of mesoeconomic research is particularly based on the knowhow of department staff and their on-going obser-
Another major responsibility of the department is the
organisation of the annual CESifo International Spring
Ifo Annual Repor t 2004
44
Industr y Branch Research
vation of economic developments in their special
areas. Their expertise is a major prerequisite for the
skilful examination of industry-sector-specific issues,
so that their results and recommendations will be
accepted as authoritative by both the principals of the
studies and by industry representatives.
in two parallel sessions. The forums for manufacturing
and commerce were in the late morning; after the lunch
hour the forums for construction and services occurred.
At the moderated sessions, Ifo researchers presented
the major industry developments and forecasts,
which were supplemented and commented on by
two external experts. Then the floor was open for
discussion. The program included the following four
forums:
Projects Completed in 2004:
Industry sector analyses
Forum 1: Manufacturing (Introduction: R. Hild, Ifo
Institute; moderator: Dr. R. Kudiss, BDI; external
experts: Dr. H.-J. Frank, Deutsche Bank Research, and
Dr.Th. Becker, German Automotive Federation).
Ifo Industry Colloquium 2004
R. Hild, G. Nerb, V. Rußig, H. Blau, J. Gürtler, J. Lachner,
H. Ruß in co-operation with the Chamber of Industry
and Commerce for Munich and Upper Bavaria with
support from the Bavarian State Ministry for the
Economy, Infrastructure, Traffic and Technology, report
in: Ifo Schnelldienst no. 22/2004.
Forum 2: Commerce (introduction: J. Lachner and
H. Ruß, Ifo Institute; moderator: W. Fisher, CityPartner,
Munich; external experts: N. Malanowski, Federation
of Retailers and Wholesalers and Dr. Th. Nassua,
s’Oliver.
The 4th Ifo Industry Colloquium took place on 26
October 2004. This annual conference of the Ifo Institute is in co-operation with the Chamber of Industry
and Commerce for Munich and Upper Bavaria with
support from the Bavarian State Ministry for
the Economy, Infrastructure, Traffic and Technology.
The Ifo Industry Colloquia provide a platform
for competent and controversial discussions of economic and structural trends.They also critically discuss
the economic analysis provided by the joint forecast of
the German research institutes and apply it to the
industry level.
Forum 3: Construction (introduction: Dr V. Rußig,
Ifo Institute; moderator: R. Scholl, Federal Ministry
for Transportation, Construction and Housing; external
experts: Dr. H. Stiepelmann, German Construction
Federation and Dr. R. Häufele, Grohe Water
Technology.
Forum 4: Services sector (introduction: H. Blau and
J. Gürtler, Ifo Institute; moderation: Dr. G. Nerb,
Ifo Institute; external experts: Dr. H. Hildebrandt,
Federation of Materials Management, Procurement
and Logistics, and P. Polzer, Fujitsu-Siemens.
“Germany’s Innovation
Offensive”
The one-day event, attended again by approximately
300 participants, took place at the IHK Academy
in Munich and was divided into three parts. After a
welcome by the executive director of the IHK for
Munich and Upper Bavaria, Dr. Reinhard Dörfler, the
president of the Ifo Institute, Prof. Hans-Werner Sinn
spoke on “The Economic Situation in Germany and
Europe – Competitive Position in an International
Context”, and examined the economic and structural
problems of the German economy. He discussed the
reasons for the decoupling of the German economy
from the world-wide economic trend.
In the afternoon a plenary session was devoted to the
subject, “Germany’s Innovation Offensive – Concept,
Implementation, Impact”.The feature presentation was
given by Dr. O. Wiesheu, Bavarian State Minister for
Economic Affairs, Infrastructure,Traffic and Technology,
who, using the example of innovation in Bavaria,
explained how government can influence the
competitiveness of the economy by promoting
new products, processes, companies and markets.
In the subsequent panel discussion, moderated by
N. Piper, chief business editor of the Süddeutsche
Zeitung, participants, Dr. R. Dörfler, IHK for
Munich and Upper Bavaria, Dr. C. Kreklau, Federation
of German Industry, M. Schöller, Schöller Holding,
Dr. M. Weigoldt, IZB SOFT GmbH and Dr. E. Wurzel,
OECD.
The second part of the event provided a detailed analysis and forecasts of developments in individual
branches of industry. Four industry forums were present
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Ifo Annual Repor t 2004
Industr y Branch Research
CESIfo International Spring Conference 2004
H.-G. Vieweg (project head) and B. Hebele organised
the spring conference on economic activity on 18 and
19 March 2004 in Berlin.
Ifo in the nation’s capital
scriptive presentations and interpretations of selected
economic data, providing an extensive overview of the
major developments in Bavarian industry for 2004.
R&D and Innovation Behaviour of Small and
Large Enterprises under the Influence of the
Business Cycle
H. Penzkofer in co-operation with the Zentrum für
Europäische Wirtschaftsforschung (ZEW), Mannheim,
Stifterverband für die Deutsche Wissenschaft and
the Deutsches Institut für Wirtschaftsforschung (DIW),
Berlin, for the Federal Ministry for Education
and Research, July 2002 to June 2004, publication
in: Bundesministerium für Bildung und Forschung,
Schwerpunktstudie zur technologischen Leistungsfähigkeit Deutschlands 22/2004.
The International Spring Conference in Berlin has
established itself as a forum for the presentation and
discussion of economic developments.The first day was
devoted to world economic activity. The speakers Jim
O’Neill, Goldman Sachs, and John Llewllyn, Lehman
Brothers, were featured presenters. Hans-Werner Sinn,
Ifo Institute, presented the outlook for Europe in light
of the prevailing economic and political conditions.
A special topic was direct investments, which were an
important stimulus for the development of many newly
industrialised countries in the 1990s. The introduction
to the subject was given by Torbjörn Fredriksson, UNCTAD.The second day was dedicated to changes on the
financial markets. Presenters were Karl Cordewener,
Bank for International Settlements, Jochen Flach,
Bundesbank, and Dieter Glueder, KfW. Then the business trends for selected European industries were examined. Simon Hallamon, Cambridge of Econometrics,
provided a medium-term forecast, and industry experts
looked more closely at the auto-motive industry,
mechanical engineering and the chemical industry.
The study investigates the influence of the economic
situation on the R&D and innovation behaviour of
small and large enterprises located in West Germany
for the period 1980 to 2002.The changes in behaviour
between the 1980s and the 1990s was also analysed.
For the investigation, different databases were selected
and combined: business data on the scope and the
structure of R&D expenditures (business statistics of
the Stifterverband für die Deutsche Wissenschaft),
business data of the Ifo Business and Innovation
Surveys, business data of the ZEW and data on international R&D expenditures (OECD).
Industry Report for Bavaria 2004
K. Bien, T. Kiessl, G. Krug, H. Penzkofer for the Bavarian
State Ministry of Economic Affairs, Infrastructure,
Transport and Technology, July 2004 to September
2004, publication in: Bayerisches Staatsministerium für
Wirtschaft, Infrastruktur, Verkehr und Technologie
(eds), Industriebericht Bayern 2004.
New Bavarian industry
report
Ifo Annual Repor t 2004
The innovation activities of West German enterprises
are more strongly affected by factors relating to
the business cycle than the R&D expenditures. This
applies, in particular, if the economic climate of the
enterprises themselves are considered. Enterprises with
a positive estimation of the current economic situation
and with positive anticipations of the economic situation
tend to be prepared to resume innovation activities. In
addition, innovation activities fluctuate more strongly for
smal enterprises than for large entrprises. Comparing
the1990s with the1980s, only few differences are
evident regarding the factors of influence relating to
market conditions. A substantial difference concerns the
importance of the export orientation as well as the
estimate of the economic development on export markets. For both the positive influence on the innovation
activities increased in the 1990s.
The industry report gives a detailed overview of
Bavarian industry, its development as well as the
sectoral, size-specific and area profile. Besides information about the manufacturing industry, the documentation contains analyses of the 24 largest branches of
industry in Bavaria as well as the construction industry,
additional individual presentations of industry in the
Bavarian administrative regions and the innovation
activities of Bavarian industry. Besides general information on the structural importance of the manufacturing
industry in Bavaria, the industry report contains, for
all industry branches and administrative regions, de-
46
Industr y Branch Research
The Economic Impact of the Cologne Trade
Fairs
H. Penzkofer for the Koelnmesse GmbH, November
2003 to August 2004, publication in: ifo Schnelldienst
no. 21/2004.
and logistics processes in distribution, the number of
employees has been reduced in recent years, to a
greater extent in wholesaling than in retailing (based on
commerce statistics). Increasingly retailers are pursuing
the strategy of working time fragmentation in order to
respond to changing customer frequencies with a high
flexibility of the sales force. As in previous years the
trend towards employee reduction will continue in the
coming years, albeit at a slower pace.The reason for the
reductions will include the continued outsourcing
activities of the bigger commercial enterprises particularly in wholesaling (e.g. in logistics and IT).
The task of this project was to calculate the direct and
indirect production and income effects as well as the
resulting tax revenue of the Cologne trade fairs. Based
on surveys conducted for the project among visitors
and exhibitors at selected Cologne trade fairs, the total
volume of visitors and exhibitors for a typical trade fair
year was determined. An additional calculation was
made for the trade-fair year 2003.
Trade fair, commerce and
SME research
Share of Employee Activity Groups in %
In 2003, the visitors of the Cologne trade fairs spent
EUR 394 million; the exhibitors’ costs amounted to
EUR 845 million.The direct costs of the exhibitors and
visitors, totalling EUR 1.24 billion, led to total aggregate output of EUR1.5 billion, 55 % of which went to the
Cologne area, about a quarter to North-Rhine
Westphalia and about a sixth to the rest of Germany.
The distribution of the employment effects (approximately 18,330 jobs) was different: Approximately 60 %
were in the Cologne area and about a quarter in
North-Rhine Westphalia. That supraregional fairs are
also attractive for the public sector is seen in the tax
revenues associated with the fairs. In 2003 this amounted to ca. EUR 300 billion, about half of which went to
the federal government, 37 % to North-Rhine
Westphalia, 8 % to regional authorities outside NorthRhine Westphalia and 4 % to the City of Cologne.
Source: Ifo Institute.
Foreign Success Strategies of Small and
Medium-sized Commercial Enterprises in
Poland, Slovakia, the Czech Republic and
Hungary
U. Chr. Täger in co-operation with R. Spannagel, FfHInstitut für Markt- und Wirtschaftsforschung GmbH,
Berlin, and the Bundesverband des Groß- und Außenhandels, Berlin, July 2003 to November 2004.
Effects of Rationalisation on the Employment
Situation in Commerce
H. Hofmann, U. Chr. Täger, in co-operation with R.
Popien, Geographic Institute of the University of
Munich (LMU) for the Federal Ministry of Economics
and Labour, December 2002 to March 2004.
In the course of the transformation from a planned to
a market economy, the distribution sector has played
an important role in many CEE countries since this
sector was affected by competition at a very early
stage. The extensive direct investments of large
German enterprises had a strong influence since they
transferred their systems of distribution to the countries investigated in the form of modern and attractive
retail company models at an early stage. Small and
The German distribution system is characterised by the
prevalence of intense competition, which has become
notice-able lately in retailing in the form of increased
cost and price pressure. Caused by the advance of the
cost-minimising business and company models – discounters, superstores – in retailing and from rationalisation measure to increase the efficiency of the business
47
Ifo Annual Repor t 2004
Industr y Branch Research
medium-sized enterprises were only partly affected by
this development since they lacked the necessary
financial and personnel resources for establishing
locations in these countries. Factors behind the success
of the large German enterprises were both economies
of scale and the economies of scope. In general, the
large German retail enterprises have gained a strong
market position in these CEE countries.
New Economy, quo vadis?
The Tokyo Club is an initiative of internationally
renowned research institutes, which, with the financial
support of the Nomura Research Institute, examines
overarching economic-policy issues. The Ifo Institute’s
contribution to the main topic in 2004 was an analysis
of the integration of the Central and Eastern European
countries that joined the European Union in 2004.
Joining an advanced economic region is a special
challenge for the countries because their production
structures must be adapted to the changed general
conditions. In this context, risks are addressed from the
transformation in the countries addressed, especially
the issue of inflation tendencies (Balassa-Samuelson
Effect). A further point concerns the intensified
competition from the newly industrialised countries.
Here the merchandise trade between the new EU
countries and China was examined in terms of the
increased pressure in competition, in order to provide
clues for the direction of sectoral adaptation.
State and Outlook of the “New Economy”
in Selected EU Member States from
a German Viewpoint
H.-G. Vieweg, R. Hild, T. Fuchs, A. Kuhlmann, S. Lachenmaier, M. Reinhard, U. Chr. Täger in co-operation with
Cambridge Econometrics and Prof. Jan-Egbert Sturm,
University of Constance, December 2002 to June 2004.
This project continued a series of studies commissioned
by the Federal Ministry for Economics and Labour on
the “New Economy”. It built on the experience and
results of a study conducted by RWI that compared the
“New Economy” in Germany and the United States.
Included along with Germany in the comparison were
Britain, Italy, Sweden, the Netherlands and France. For
these countries industry analyses were carried out for
mechanical engineering, motor vehicle construction,
banking and retailing.The researchers examined whether Germany has fallen behind other European countries
in the introduction of new information and communication technologies and whether this presumed
deficiency can explain Germany's weak economic
growth since the mid-1990s. The study showed that
Germany does not display any appreciable deficiencies
in the diffusion of new technologies. In some industries,
for example in retailing, it is even in the lead. Aggregate
growth will only occur, however, if the diffusion of new
technologies is accompanied by structural change.
Market Data of the Building Technologies
Sector in Germany and in Selected European
Countries
H.-D. Karl for the Vereinigung der deutschen Zentralheizungswirtschaft e.V., Vereinigung Deutsche Sanitärwirtschaft e .V. and Messe Frankfurt GmbH, June 2004
to November 2004.
Continuing the project from past years, the current
development of the German building equipment
sector was studied. For this purpose the important
market data, for example the number of enterprises,
turnover, employees, investments, was collected.
In 2003 the building equipment sector comprised
50,000 enterprises with 438,000 employees. The
consolidated turnover amounted to around EUR 34.3
billion. At present the economic prospects of the
building equipment sector are depressed. The main
reason is the decreasing construction investments
expected in the coming years. Positive impacts arise
from the growing need for replacement of heating and
sanitation systems. Additionally the turnover of the
German building equipment sector was compared
with the corresponding data from Belgium, France,
Britain, Italy, the Netherlands, Austria, Spain and
Switzerland. Publication will be by the commissioning
institutions.
Impact of the Market Economy Sphere on
the Global Structure of Industry and the
Policy Responses of Advanced Economies:
Focus on China
H.-G.Vieweg (with a contribution by H. Schedl) in cooperation with The Brookings Institution, Institut francais des relations internationales, Nomura Research
Institute,The Royal Institute for International Affairs for
the Tokyo Club Foundation for Global Studies.
Ifo Annual Repor t 2004
48
Industr y Branch Research
Ifo Construction Forecast for Germany
2004 – 2009/2014
E. Gluch, K. Behring for subscribers, multi-client study,
January 2004 to December 2004, excerpts published
in: ifo Schnelldienst no. 4/2005 and no. 5/2005.
the very low starting point.The medium- and long-term
development will show only a moderate upward trend.
The analysis indicates that average, real growth in construction demand over the next ten years will only be
about 1 % per annum. In the ten-year period 2005 to
2014, approximately 3.15 million housing units will be
completed, of which only some 1.8 million will be
in one- and two-family houses. In non-residential
construction, public sector construction will continue
to lose importance. In commercial-sector construction,
however, a clear revival in demand will emerge at the
middle of the ten-year period at the latest.
In December 2004 the Ifo Institute published the 4th
edition of its annual, multi-client-construction forecast
for the whole of Germany. The focus of the mediumand long-term forecast of future construction activity is
on the physical variables of residential and non-residential construction (for example, number of housing
units, built space in m3, or floor space in m2) and is
made on the level of six large regions and for eastern
and western Germany. A forecast is made of both
building completions as well as building permissions.
The six large regions consist of the Länder NorthRhine Westphalia, Baden-Wuerttemberg and Bavaria,
and the additional 13 smaller Länder are grouped into
three larger regions, “North”, “Middle” and “East”.
Commercial-sector
construction to rebound
Current Projects:
Information System “Branchen special”
G. Weitzel, inter-departmental with other Ifo researchers; publisher: Bundesverband der deutschen Volksbanken und Raiffeisenbanken (BVR) in conjunction
with the DG Verlag, Wiesbaden.
Construction Volume in German Construction
by Sectors 1991 – 2014
The Branchen special reports provide up-dated information on business development in 100 industry
sectors in agriculture, manufacturing, the trades,
construction and real-estate, retailing/wholesaling, and
the services.The reports are updated twice a year.The
detailed information, with a special emphasis on the
situation of small and mid-sized businesses, are used by
the co-operative banks in their lending activity and for
the advice they provide. The industry composition of
the reports was changed in 2004 so that reports now
appear for facility management, sanitary sales and
installations, retailers of construction and DIY material,
nursing care services, retailers of motorcycles, and
services in the insurance industry.
Source: German Institute for Economic Research (DIW); Ifo Institute.
Information sources are the data of official statistics
as well as primary and secondary statistical sources,
especially federation statistics. Results of the Ifo surveys
as well as surveys of market research institutes are also
used. With this and other information and the knowhow of Ifo experts, the industry-sector-specific weaknesses can be identified and successful enterprise
strategies as well as market potential can be analysed.
The reports provide a quick overview of current
The forecasting on the monetary level (euros, in prices
of 2000) is done on the basis of the building volume, as
is regularly calculated by the Deutsches Institut für
Wirtschaftsforschung (DIW). According to the current
forecast, the German construction industry will leave
behind the lowest point of its ten-year recession in
2005. For the rest of the decade and for the ten year
period to 2014, no buoyant growth is expected, despite
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Ifo Annual Repor t 2004
Industr y Branch Research
market conditions. A list of all available reports with
publication dates is posted on the Website of the Ifo
Institute (www.ifo.de under “Bereiche” and “Branchenforschung”). Individual reports are available from the
Volksbanken und Raiffeisenbanken.
ducer countries.These include the major European states and in particular the United States, Japan and Korea.
The results are presented and discussed with industry
experts at the VDW market research meetings in
spring and autumn every year in Frankfurt.
Ifo Innovation Survey
H. Penzkofer, continuous since 1979, regular publications in: ifo Schnelldienst and ifo Dresden berichtet.
See department of Business Surveys.
MANTYS: A European Research Network for
the Identification of Trends in Production
Engineering and their Economic Assessment
H.-G. Vieweg in co-operation with European research
institutes for the European Commission, Directorate
for Research, September 2001 to October 2005.
Trade-fair Events in Frankfurt
H. Penzkofer for Messe Frankfurt GmbH, November
2004 to October 2005.
Forecasting model for the
machine tool industry
The project examines technical trends both with the
manufacturers and with the customers who have
influence on the demand for technologies and the
resulting investment volumes.The focus is on the future of production engineering, in particular in metal
workmanship.The economic research institutes participating in the project analyse the demand for machinery and equipment over time. Firstly, they determine
the causes for the cyclical fluctuation in order activity.
Secondly, they analyse the customer structures to
explain the investment factors and to show long-term
demand trends. In this research close co-operation
exists between the Ifo Institute and the technological
research institutes in order to estimate the economic
importance of expected technological developments.
Medium-term Forecast for the German
Machine Tool Industry
H.-G. Vieweg for the Association of German Machine
Tool Manufacturers (VDW), March 2004 to October
2005.
Since 1989 the Ifo Institute has prepared forecasts for
the German machine tool industry for the Association
of German Machine Tool Manufacturers (VDW e.V.).
The forecasting for a five-year period is up-dated semiannually and sent to the member firms.The Association
sees itself as a service provider for an industry characterised by medium-sized firms and offers them a
foundation for strategic planning that is too expensive
for them to do on their own.The forecast system consists of three modules: an econometrically supported
short-term forecast based on the development of the
most important customer industries, a medium-term
forecast of trends in the most important sales areas,
and a scenario that presents the most important exogenous variables for the model computation so that
the domestic demand and exports in twelve different
areas can be estimated.The Ifo Investment Survey serves as an important instrument for estimating the
development of the sales of machines and equipment
since it contains vital information on the development
of investment activity – with an industry breakdown –
for the recent past and the near future.
The Arcade Industry Hopes for Better
Business from Changes in Regulatory
Conditions
H.-G.Vieweg for the Association of German Coin-operated Machine Industry (VDAI), November 2004 to
February 2005.
The sales of the arcade industry reached a volume of
EUR 3.82 billion in 2004, which was a decline of about
2 %. A major problem for the firms is that the demand
of private households has not risen in years. It is particularly striking that the industry has not participated in
the high growth rates of the games-of-fortune market
of approximately 3 – 4% per annum, recorded between
1995 and 2004.The reason for this is seen in the regulation density; a lasting improvement of the economic
situation is seen in a comprehensive structural change
In 2004 the forecast was expanded to include not only
future market development but also a prognosis of the
production of machine tools in the most important pro-
Ifo Annual Repor t 2004
50
Industr y Branch Research
of gaming regulations, which have basically re-mained
unchanged since they were enacted in 1953. This
appraisal is also found in a report of the Federal
Ministry of Economics (now: Federal Ministry of
Economics and Labour) at the conference of economic ministers in 2000, which stated that urgent
change of regulations was required to improve the
economic situation of the industry. The results of the
study for the Association were introduced at the
beginning of the International Vending Machine Fair
(IMA) at a press conferences in Nuremberg.
Ifo Economic Activity Report for the
Frankfurt Fair
R. Hild, U. Chr. Täger, four reports per annum for the
Frankfurt Fair GmbH.
In 2004 the Ifo Institute also prepared reports on
business developments in trade fairs, particularly the
Frankfurt Fair, with a view to the state of the economy
and the short- and medium-term outlook at different
levels. The world economic situation is presented as
well as the overall German economy and its most
important components: manufacturing as a whole and
individual industries as well as commerce, broken
down in wholesaling and retailing. Furthermore,
depending on current trade fair schedule, specific
aspects or individual sectors are addressed.The project
will be continued in 2005.
Development of Mechanical Engineering
H.-G Vieweg in co-operation with the German
Mechanical Engineering Federation, VDMA, and the
German Federation of Producers of Electronic and
Electrical Products for the European Commission,
January 2004 to December 2005.
Ifo Industry Colloquium 2005
Planned for Autumn 2005 at the IHK in München.
The goal of this project is the construction of a
European database for the new EU member states,
differentiated according to industry branches and
countries, and the analysis of the competitive position
of European manufacturers in an international comparison, in particular vis-à-vis the United States and
Japan. Assessed factors are the status of transformation, the degree of privatisation and the competitiveness of the new member states.
Chances and Risks of a Modified General
Framework for the Service Enterprises
from the EU Service Directive.
G. Nerb, H. Schmalholz, M. Dischinger, W. Eggert,
Th. Fester, R. Hild, Th. Kiessl, J. Lachner, C. Pohl,
M. Reinhard in co-operation with the German Institute
for Economic Research (DIW), Berlin, for the Federal
Ministry of Economics and Labour, December 2004 to
April 2005.
CESifo International Spring Conference 2005
H.-G.Vieweg organised the CESifo International Spring
Conference, 17 – 18 March 2005 in Berlin.
In the project time-frame it is not possible to carry out
a model-based analysis regarding the prospective
quantitative effects of the directive concerning employment and economic growth in Germany.The focus rather lies on a close study of already existing extensive
estimation models – especially the models of the CPB
Netherlands Bureau for Economic Policy Analysis and
the Danish Institut Copenhagen Economics – in respect of their informational value for Germany. The
main task, however, is to disaggregate the existing global statements and to refer them to a wide range of
service branches.
In 2005 this conference examined a growth-oriented,
European economic policy. On the first day, undersecretary Dr. Bernd Pfaffenbach of the Federal Ministry
for Economics and Labour addressed this topic. On
the second day, the EU “enterprise” General Director,
Dr. Rolf Reichenbach, presented the European viewpoint. In the further course of the first day, the macroeconomic problems of the world economy were
discussed. An introduction was given by John Llewllyn,
Lehman Brothers, the European aspects by HansWerner Sinn and David Walton concentrated on
the euro zone. On the second day, selected industry
branches were analysed.
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EU services directive
examined
Ifo Annual Repor t 2004
Environment, Regions and Transportation
The year 2004 marked a major change in the department of Environment, Regions and Transportation.
Prof. Sprenger, who directed environmental research at
the Ifo Institute for many years, completed his active
service at the Institute in autumn 2004. His successor,
a joint appointment with the LMU, is Prof. Peter Egger,
who will contribute his expertise in the areas of international trade and regional economics. In 2004 the
research department of Environment, Regions and
Transportation at the Ifo Institute dealt with the many
facets of the concept of sustainable development and
its consequences for public policy.
Sustainable development –
a guiding principle
economic systems (e.g. with regard to irreversibilities,
chronological delays, different forms of uncertainty).
– The participation and integration of social groups
into the process of the strategy definition, target
setting, and instrumental implementation are recognised as central elements in the sustainability
discussion (procedural dimension).
– The co-ordination between the ecological, economic and social dimensions of sustainability should
not only be carried out in a “negative” form. Rather,
synergies should be sought out; in particular ecological aspects should be integrated into other
policy areas from the outset.
The North-South debate touched off the sustainability discussion within the framework of the so-called
Brundtland Commission. Accordingly, a development
is sustainable when the contemporary generation
satisfies its needs without compromising the possibility
of future generations to satisfy their needs. The
sustainability concept was not only internationally
popularised by the UN Conference on Environment
and Development in Rio de Janeiro in 1992 but was
also transferred into the policy-making processes of
individual states, countries and municipalities. This
process has recently led in Germany to the implementation of its own sustainability strategy.
Despite the vagueness of the term “sustainable
development” the department of Environment,
Regions and Transportation sees ways of making a
fruitful contribution to a more adequate, contentrelated specification of this demanding concept. It is
not a question of supplying patent remedies that can
be applied immediately but of initiating a meaningful
discussion and a social learning process.
With regard to the concept of sustainability, the goal is
– to provide a concept limitation with the help of
various theoretical approaches in economics, such as
the neo-classical theory of external effects and public
goods or institutional economics approaches (path
dependencies, property rights, transaction costs, etc.);
Sustainability can be primarily understood as a regulative idea. In spite of different viewpoints and individual
assessments, various shifts in emphasis can be observed in recent years:
– to analyse it by using the instruments that have been
established at the Ifo Institute (in particular, the
business surveys), microeconomic methods and the
methods of evaluation research;
– The attempts to operationalise sustainability in the
sense of more intergenerational equity with the
help of economic capital components have led to an
intensive debate as to how the individual capital
components relate to each other (substitutive,
complementary, chronological), what they involve
exactly, how they are to be measured and how
far economic considerations may go.
– and to develop policy proposals that can be
implemented.
In terms of content, current research in the department focuses on the following:
– Impact analyses with respect to instruments and institutions for the promotion of a sustainable economy
– The question of intergenerational allocation, which
has long been an issue in neoclassical resource economics, is more strongly associated with the
question of intragenerational allocation.
– Sustainable development and employment
– Sustainable development and distribution
– A growing co-operation has arisen between the
natural and social sciences to prevent an isolated perspective on the complexity of ecological and socio-
Ifo Annual Repor t 2004
– Resource management in water resource management
52
E n v i r o n m e n t , R e g i o n s a n d Tr a n s p o r t a t i o n
Projects Completed in 2004:
ponent of DANUBIA is to model industrial activity and
water use, population density and household income
on a regionally disaggregated level and to derive rules
for the setting of water prices. For this purpose, the
regional economic model RIWU (Regional Industrial
Water Use) was developed.
GLOWA-DANUBE:A Regional Model of Economic Development and Industrial Water Use
in the Catchment Area of the Upper Danube
R.-U. Sprenger, M. Egerer, E. Langmantel, J.Wackerbauer
in co-operation with the University of Munich for the
GSF and the Federal Ministry of Education and
Research, January 2001 to February 2004, publication
in: Jahrbuch für Regionalwissenschaft no. 24, 2/2004;
International Journal of River Basin Management
no. 1, 2/2003.
The regional economic model RIWU is suitable to
analyse decisions of different actors regarding the use
of water resources. RIWU is based on the assumption
of a representative profit-maximising industrial firm
which uses two local inputs, land and water. Industrial
production and the local service sector dynamics
determine the overall level of economic activity in the
district, which in turn determines household income
and population density. RIWU is integrated into the
DANUBIA system: it provides other components with
data concerning household income, population density
and industrial water demand and uses data on water
demand and supply from other components to set a
water price. The model consists of eight model equations with which seven endogenous variables are forecast (value-added in industry, gross domestic product,
price of land for construction, population, household
income, industrial water demand and industry ownwater supply). The exogenous variables are foreign
sales and the area of land.
The model equations have been developed by drawing
on current results in the field of empirical regionaleconomic research. Data have been collected and the
model equations have been estimated on the district
level. In the outcome industrial activity depends positively on local exports and negatively on the prices of
This project is part of an interdisciplinary research
project with the title: GLOWA-DANUBE – Integrative
Techniques, Scenarios and Strategies Regarding Global
Changes of the Water Cycle. The overall goal of this
project is to develop and validate integration
techniques, integrated models, and integrated monitoring procedures for the functional type of a catchment
in mountain forelands of the humid latitudes and to
implement them in the network-based integrated environmental decision-support system DANUBIA.
DANUBIA contains the essential physical and socioeconomic processes that are required for realistic
modeling of water fluxes in mountain-foreland situations. It will be regionally transferable and thus applicable for a wide range of catchments.The members of
GLOWA-DANUBE cover the disciplines meteorology,
hydrology, remote sensing, ground water, water resources management, glaciology, economy, agricultural
economy, tourism, environmental psychology and
computer science. The aim of the economic com-
Economic regional model
for the catchment area of
the upper Danube
RIWU Simulation of a 1.0% Increase of Regional Exportsa)
(a) Water Price = const.
(in %)
(b) Industrial Water Use = const.
(in %)
Industrial Value Added
0.53
0.49
Gross National Product
0.34
0.31
Population
0.25
0.24
Price of Land
0.12
0.11
Total Industrial Water Use
0.40
0.00
Water Price
0.00
0.68
a) At constant productivity.
Source: Calculations by the Ifo Institute.
53
Ifo Annual Repor t 2004
E n v i r o n m e n t , R e g i o n s a n d Tr a n s p o r t a t i o n
land and water use. The elasticity of industrial production with regard to the price of water use is
markedly lower than with regard to land use. This
reflects the fact that there is no shortage of water in
the Upper Danube Basin up to now.The analysis of the
simulation properties of the model shows satisfactory
results.The regional economic model RIWU proved to
be an appropriate tool to forecast regional economic
development and industrial water use. It turned out
that water scarcity and raising water prices have only a
small impact on the Upper Danube region’s industrial
growth.The reason is that industry will substitute water
extraction by increased water recycling in the case of
water scarcity or increasing water prices. RIWU has
been successfully integrated into the decision-support
system DANUBIA and exchanges a multitude of data
with the other models of social and natural sciences
during the runtime of DANUBIA. In this context
of interdisciplinary research and modelling, RIWU can
be used as a tool for questions of water resource
management and can be transferred to other river
basins.
Only small growth of inland
waterway transportation
The decline is due to structural effects in goods
transportation. Inland waterway transportation is by
nature predestined for the shipping of bulk commodities, but transports of bulk commodities are
increasing at a below-average rate or are declining.
High-growth products, such as intermediate or finished
goods, are not usually transported on the waterways.
In the future as well, inland waterway transportation
will increase at a below-average pace so that its share
in total transport volume will continue to decline.
Also along the Bavarian Main River, transhipments in
inland waterway transportation shrank clearly. After
10.4 million t in 1990, only 4.9 million t was handled
in 2003. In addition to the general decline of bulk commodity transports, specific changes in the regional ecoTransport Output in Germany
Forecasts of Port Handling of the Main Ports
in Bavaria and of the Main-Danube Canal up
to 2015
H. Arnold-Rothmaier, K. Behring for the Bavarian
Ministry for Economy, Infrastructure, Transport and
Technology, May 2003 to October 2004.
up to 2015
The main task of this study was to present the outlook
for inland waterway transportation up to 2015 by
examining transhipments at Bavarian ports on the
Main River.
Ifo Annual Repor t 2004
Source: Federal Ministry of Transport, Building and Housing; Ifo Institute.
nomic structure were also responsible. Furthermore,
in 2003 the slack economy, low water levels and a
poorer harvest worsened the situation.
Inland waterway transportation is characterized by high
volume capacity and low transport costs. Because of
low energy and spatial requirements as well as low
emission values, it is a relatively non-polluting transport
method with a high safety record. Furthermore, there
are still free capacities on the canals. A disadvantage is
that access is limited due to limited amount of navigable canals, and inland waterway ships are relatively slow.
In the ports on the Main River and Main-Danube
Canal, primarily goods for and/or from the region are
handled. The most important goods are non-metallic
minerals with a share of between 40 % and 50 %.
Products of or for agriculture (grain, fodder, fertilizers)
account for a further 30 %. A share of 10 % went to the
handling of petroleum products.
The share of inland waterways in total transportation
has diminished since the 1960s. In 2002 it accounted
for only 15 % of output in long-distance traffic.
The estimates of the future port transhipments
on inland waterways is based on the economic
development potential of the areas around the ports. In
54
E n v i r o n m e n t , R e g i o n s a n d Tr a n s p o r t a t i o n
Cargo Handling in the Harbours of the Bavarian
Main and Main-Danube-Channel
Universität Berlin, for Tamaki Foundation, Seattle/USA,
2002 to 2004, publication in preparation.
The Tamaki Foundation Project on the Global
Environment speaks to the broad themes of the World
Summit. The main aim of the Tamaki Foundation
Project is to assess the concept of “equity” in relationship to environmental protection and sustainable
development initiatives domestically in Japan,
Germany/the European Union, and the United States,
and as they affect China. As the largest economies,
Japan, Germany/EU, and the US have particularly large
impacts (footprints) on the global environment. Their
impact is both direct in terms of resources consumed,
emissions generated, and natural areas that are degraded, and indirect, in terms of the examples they provide other countries of the world. They also can impact
directly environmental conditions in developing
countries through their foreign investment and trade
activities, official development assistance, and formal
and informal cooperative initiatives.
Source: The Bavarian State Office of Statistics and Data Processing; Ifo
Institute.
addition to the relative costs of inland waterway transportation and the competitiveness of the ports with
regard to their infrastructure, also globalisation and
EU enlargement will both increase future cargo
shipments.
Compensation measures
for “losers”
of environmental policies
This project will analyse how these differences influence Japanese, German, and US environmental programmes and laws. We will do this through the lens of
equity.We understand “equity” in its broadest sense to
include relations among individuals and groups within a
state and among states. We also understand it to have
an inter-generational component and do not exclude
the idea that other species have rights as well. In focusing on questions of equity we would like to consider what kind of ecological footprint these states leave
with their economic activities and what kind of
ameliorating affects their environmental policies may
have. Similarly, we are interested in how burdens are
shared. Who bears the cost of environmental degradation? Who bears the cost of environmental clean
up? Who has a voice in economic and environmental
decisions? Related concepts to environmental equity
include sustainable development, environmental justice, burden sharing, ecological democracy, and
ecological modernisation.
The handling volume of inland waterway transportation at the Bavarian Main River ports will be
approximately 6 million tons in 2015.The largest transport category will be non-metallic mineral products
but its share will fall slightly despite come increase in
volume. There will be a clear increase in the shipment
of agricultural products, whose share will increase to
30 %.The shipment share of high-value goods, including
container transport, will also increase, but their share at
2 % will still be relatively low in 2015.
Coping with Actual and Potential Losers
of Environmental Policy Reforms in the
Business Sector: Germany, Japan, and the US
Compared
R.-U. Sprenger in co-operation with K. Yamamura,
University of Washington, M. Schreurs, K. Hiromi,
R. Percival, University of Maryland, K. O'Neill, University
of California at Berkeley, B. Barrett, United Nations
University Tokyo, H. Imura, Nagoya University, H. Ohta,
Aoyama University, A. Igarashi, Rikkyo University,
C. Beuermann, Wuppertal Institut, H. Weidner, Wissenschaftszentrum Berlin für Sozialforschung, E. Rehbinder,
University of Frankfurt am Main, L. Mez, Freie
Alleviating Traffic Congestion
T. Rave in co-operation with R. Arnott, Boston College,
R. Schöb, University Magdeburg, MIT Press Series, 2002
to 2004, publication in preparation.
55
Ifo Annual Repor t 2004
E n v i r o n m e n t , R e g i o n s a n d Tr a n s p o r t a t i o n
Unclogging the roads
Current Projects:
This volume on urban traffic congestion is directed
towards a broader audience. So far the issue has been
dominated by model-based studies from the U.S. with
a strong focus on first-best (and more recently secondbest) pricing of urban auto traffic congestion. However,
the recommendations by economists have been
picked up only partially and slowly. Often congestion
pricing theory has been formulated at too abstract a
level to provide guidance for policy on the ground and
practical implementation. This book argues that transport economists should devote more of their time
to developing a set of microscopic models to complement the canonical macroscopic model first developed
by Vickrey. A number of complementary congestion
alleviation policies (e.g. the multi-mode ticket, staggered working hours or bicycling) are explored.
Design, Management and Evaluation of an
Adequate and Computer-based Informal
Participation Procedure for the Use of
GLOWA-DANUBE by Interested
Stakeholders (“Stakeholder Participation”)
R.-U. Sprenger, U. Triebswetter in co-operation with
W. Mauser, R. Hennicker, Ludwig Maximilian University,
Munich, for the Federal Ministry of Education and
Research, March 2004 to February 2007.
This study highlights the characteristics and structural
features of subsidies and subsidy policy in Germany
from an environmental point of view. It explores the
opportunities and challenges of environmental policy
integration. Methodologically, the study focuses mainly
on the institutional dimension and applies various
concepts developed in institutional economics.
The GLOWA-Stakeholder project intends to design
the development and use of DANUBIA which
explores scenarios of the Danube water household in
the discourse with stakeholders yet to be identified.
Through the participation of stakeholders there will be
a decisive contribution for the validation of the decision model as well as for its actual use. Furthermore,
the usability of DANUBIA by non-experts is supported by the stakeholder project. For this purpose an
adaptive user surface will be created.This will not only
allow an interactive and individual use of DANUBIA
but also ensure transparency of results. A systematically
structured procedure for stakeholder participation will
be developed and carried out. Moreover, there will be
a continuous evaluation of the procedure in order to
improve the results. Results and experiences will be
made available to the public in a suitable form.
Sustainability and Economics –
A Comparison by Means of Possible
Measures of Privatisation and Liberalisation
in the Drinking Water Supply in Germany
M. Egerer, Ifo research project, PhD thesis, 2002 to
2004, publication in preparation.
The Environmental Sector in the Region of
Munich
U.Triebswetter, J. Wackerbauer for the City of Munich,
Department of Labor and Economic Development;
April 2004 to December 2004, publication in preparation.
One of the few industries in Germany that has not
yet been completely privatised is the drinking water
supply. The aim of this study is to analyse the possible
effects of privatisation and liberalisation against the
background of the discussion in Germany. Especially
the experiences of other countries with different types
of supply systems is considered.
This study is about the size and structure of the environment industry in the Greater Munich region and its
competitiveness on international markets. The market
for environmental goods and services has a volume of
about EUR 183 billion in the European Union and
EUR 57 billion in Germany. Harmonisation of environmental law in the accession states generates a demand
of around EUR 10 billion yearly. About 9,000 employees are working in the environmental industry in the
Munich region earning a turnover of EUR 1.3 billion.
Environment-oriented State Aid Policy
T. Rave, Ifo research project, PhD thesis, 2002 to 2004,
published in ifo Beiträge zur Wirtschaftsforschung
no. 18, Ifo Institute, Munich 2005.
Ifo Annual Repor t 2004
56
E n v i r o n m e n t , R e g i o n s a n d Tr a n s p o r t a t i o n
Important environmental innovations have been identified in the areas of renewable energies, in particular
photovoltaics, integrated technologies in the automotive industry and in the development of fuel cells.
For the further promotion of the environmental
industry the strengthening of marketing instruments
and the development of a network of regional
environmental companies has been suggested.
numerous tests in the first phase of the project,
DANUBIA passed the proof of concept. Accordingly
two different climatic scenarios, a “wet” and a “dry”
one, can be calculated to simulate the relevance and
the effects of climate changes on the catchment of the
Upper Danube. The economic model RIWU was
adapted so that in case of water shortage industrial
water demand can be reduced and adjusted to the
lower supply. Comparing GDP and household income
of the two different scenarios the effects for the economic development in the catchment of the Upper
Danube can be calculated.
The Eco-industries of Schleswig-Holstein in
2004: Structure and Prospects
J. Wackerbauer, U. Triebswetter in co-operation with
Deutsche Umwelt AG, Kiel, for the Ministry for Environment, Nature Protection and Agriculture of the Federal
State of Schleswig-Holstein, June 2004 to March 2005.
9,000 jobs in the
environmental industry
in the Munich area
The objectives of this study are to estimate the size
and the structure of the eco-industries in SchleswigHolstein and to analyse the growth potential of ecoindustries in this region. To achieve this, a survey
amongst the suppliers of environmental goods and
services in the Federal State of Schleswig-Holstein and
an analysis of the demand side on the European,
national and regional level will be carried out.This will
be accomplished by interviews with selected firms and
experts from the environmental sector. Building on
the results of this investigation recommendations for
policy to promote eco-industries in Schleswig-Holstein
will be developed.
GLOWA-DANUBE II: Developing the
Regional Economic Model RIWU into a
“Deep” Actors Model
M. Egerer, E. Langmantel, J. Wackerbauer, M. Zimmer in
co-operation with the University of Munich for the
GSF and the Federal Ministry of Education and
Research, March 2004 to December 2006.
To ensure the integration of socio-economic aspects
and natural sciences for a sustainable use of water
resources within the framework of the project
GLOWA-DANUBE, researchers of more than ten
disciplines have gathered together. The part of the Ifo
Institute in this interdisciplinary project is the development of the economic component of the decisionsupport system DANUBIA. The main aim is the
modeling of industrial activity and water use. After
57
Ifo Annual Repor t 2004
International Institutional Comparisons
This division offers two service programmes for economic policy-makers and researchers at the national
and international levels. Information on economic
regulations in Europe is provided by the DICE
Database and the quarterly journal, DICE Report.
Advice on methodology for empirical economic
research, analysis and forecasting and their use for
economic policy-making is provided to institutions of
transformation and developing countries.
English only. The database is used for economic research, for academic teaching and for information for the
general public. At present the 1,300 entries contain
more than 4,800 variables.
Since the beginning of 2003 the quarterly CESifo DICE
Report – Journal for Institutional Comparisons has
been published under the editorship of Wolfgang
Ochel and Rigmar Osterkamp.The journal is dedicated
to the analysis of institutions, regulations and economic
policy design in a country-comparative perspective.
Under the rubric “Forum” a special topic is treated by
several authors and under different aspects. In addition,
there are the rubrics “Research Reports”, “Reform
Models”, “Database” and “News”.
International Advisory Projects
Ifo experts travel the world
With its advisory projects the Institute offers services
to governments, other public institutions and to research establishments, mainly in transformation
and developing countries. The advisory services are
focussed on methodologies to monitor, analyse and
forecast economic development and to support policy
making and improve market-oriented empirical
research capacities (institution building). At present,
advisory services are concentrated on China, Central
Asia, the Near East and South-East Europe.
Employees and Volume of Work, 1979 – 2002
DICE Database and Journal CESifo DICE
Report
Comparing institutions
in Europe
Government regulations are important criteria for
investment decisions and of primary relevance for economic growth.The country-specific regulatory systems
are highly complex and change rapidly. Deficiencies in
comparable EU data are significant. The Ifo Database
for Institutional Comparisons (DICE) seeks to reduce
these deficiencies. At present about 1100 entries
(tables, brief analyses, and graphs) are available through
the Ifo Websites free of charge.The name of the database, DICE, stands for: Database for Institutional
Comparisons in Europe.
Sachverständigenratsgutachten, OECD Employment Outlook, DICE
Database.
Projects Completed in 2004:
The aim of the project is to present the institutional
set-up and legal regulations of the economic-policy
framework in all European countries and in selected
non-European OECD states. All information is
presented systematically, thus enabling inter-country
and benchmark comparisons. Ifo has made the database available via the Internet. DICE now includes the
following topic areas: Labour Market, Capital Market,
Public Finance, Enterprise Environment, Social Security,
Pensions, Health and Education. In all topic areas, new
tables are continuously added. DICE is available in
Ifo Annual Repor t 2004
Determinants of Growth and Welfare in the
Transformation Countries
J. Albrecht, R. Osterkamp in co-operation with Ifo
research professor S. Klasen, University of Goettingen,
funded by the Fritz Thyssen Foundation, July 2002 to
August 2004.
Growth dynamics in transition countries since the demise of the centrally planned economy system has
turned out quite differently from what had been widely
58
International Institutional Comparisons
expected. Instead of a short, J-shaped adjustment
process followed by above-average, catch-up growth
rates, transition countries went through a deep, prolonged recession that for some countries did not bottom
out until the late 1990s. The transformation process
towards modern economies in the style of the freemarket industrialised Western countries is quite advanced in most transition countries, prompting the question of whether these countries’ growth dynamics are
following the pattern typical of an industrialised country.
after 1995 than over the entire period.While the Solow
model explains only 10 % of growth in the period from
1991 to 2002, after 1995 it explains as much as
30 – 60 %. If the first half of the 1990s is considered in
isolation, however, the regression findings differ fundamentally from those for the average over the entire
period or for the period after 1995.The growth pattern
prior to 1995 did not correspond at all to the neoclasssical economic growth theory. Capital accumulation was
either not at all or even negatively correlated with percapita income growth in this period, and a significant
divergence in the per capita levels was observed.
The findings of our empirical examination can be
summarised as follows: We have found clear evidence
of a neoclassical growth pattern in transition countries.
The most important indication for this is the consistently significantly positive – and increasing with
time – influence of capital accumulation upon per capita
income growth over the entire 1991–2002 period.This
correlation is markedly robust against any variations in
the specification. As from 1995, the regressions start to
evidence again all three components of the neoclassical
economic growth model: positive influence of the
investment rate, negative influence of population
growth and a trend to convergence.
Growth in transformation
countries follows
“neoclassical growth
model”
During the contraction that followed the collapse of
the old system, the growth process appears to have
obeyed laws totally different from those stipulated by
the neoclassical economic growth model. It were
rather factors such as reforms or the initial conditions
under which the Central and Eastern European countries started out that played a role. But still, over the
period as a whole the neoclassical economic growth
pattern does appear to dominate. In particular, the
positive role of capital formation upon growth in the
second half of the 1990s outweighs the negative corrrelation found at the beginning of the transition.
A further noteworthy finding is the apparent dichotomy
of the period under study between the portion prior to
and that after 1995.The explanatory value of the neoclassical economic growth model is many times better
Health-Care Efficiency in OECD Countries
R. Osterkamp, publication in Applied Economics
Quarterly, Supplement, 55/2004.
Changes of Health-care Efficiency 1980 – 2000
Health expenditure, unadjusted measure
Health employment, unadjusted measure
Input efficiency
Input efficiency
Output efficiency
Output efficiency
Improvement by 20% and more
Denmark, Sweden,
Ireland, Hungary,
Austria, Italy
Hungary, Ireland,
Austria
Sweden, Australia,
Canada, UK, USA,
Netherlands,
Switzerland, Italia
Portugal, Italy,
Belgium
Deterioration by 10% and more
Portugal, USA,
Iceland, New Zealand,
Swetzerland
Finland
New Zealand, Iceland,
Korea, Netherlands,
Portugal, Poland, USA
USA
Source: Ifo Institute
59
Ifo Annual Repor t 2004
International Institutional Comparisons
Where is health care most
efficient?
Efficiency of health-care provision is measured for 22
European and 7 non-European countries in 1980, 1990
and 2000 by means of the non-parametric method of
Free Disposable Hull (FDH) analysis.As output variable,
potential life years lost (reciprocal value) is used;
as input variables health expenditure and health
employment. It appeared necessary to correct the
input variables for inter-country differences of medical
incomes and age structure.The result was (a) that there
is a considerable difference between the efficiency
measures for uncorrected and for corrected input
variables, (b) that the ranking of efficiency puts Japan,
Spain, Sweden, Greece and Portugal in top places, while
Finland, France, Germany, Slovakia, Switzerland and
USA are in lower places, and (c) that a considerable
improvement of efficiency between 1980 and 2000
has occurred in several countries, for example in Italy
and Sweden, while efficiency has deteriorated in USA.
The question for the reasons of the efficiency rankings
and for the changes of efficiency is not asked in the
paper.
The Bureau of Statistics in Croatia intends to transform
its old statistical system into a modern one, harmonised according to EU and OECD standards. The Ifo
Institute provided the required know-how in the field
of economic statistics. German and international statisticians were recruited to conduct seminars, workshops
and other know-how transfer activities for the Bureau
of Statistics
DICE: Database for Institutional
Comparisons in Europe
R. Osterkamp, W. Ochel, N. Hoffmann, O. Röhn.
The Database DICE was further enlarged in 2004
and now comprises about 1100 entries (tables and
graphs). DICE is used by economists for research and
academic teaching purposes, but is also visited by economic policy-makers and journalists. Free access to
DICE at www.cesifo.de/DICE.
In order to get to know the users of the DICE
Database and their wishes, a user survey has been
conducted. Since May 2003 a questionnaire is
presented to the user before he/she enters the
Database. However participation is voluntary. Until the
end of 2004, about 2100 questionnaires had been
completed. A first evaluation shows the interest of
users is on all topics so far treated by the Database,
while Labour Market and Public Finance, however, rank
highest. Most users are from Europe, but many use
DICE also from non-European countries, with the USA
on top. Most users work in academic institutions,
as professors, assistant professors or students. The
individual comments are all positive, some even
enthusiastic.
The above table illustrates the changes of health-care
efficiency in the countries considered between 1980
and 2000.
Training Seminar – NDRC
S. Schönherr, J. Albrecht, G. Nerb, W. Nierhaus for
Deutsche Gesellschaft für Technische Zusammenarbeit
(GTZ) GmbH, (German Technical Co-operation),
Eschborn, August 2004.
During a one week seminar, a group of Chinese specialists from the National Development and Reforms
Commission (NDRC) was trained in the subjects of
business-cycle survey analysis and iterative analytical
forecasting methodologies. The seminar was conducted solely by Ifo personnel.
CESifo DICE Report
W. Ochel, R. Osterkamp.
Ifo know-how for Chinese
experts
Ifo Annual Repor t 2004
Croatia – Modernizing the National Systems
of Economic Statistics
S. Schönherr, G. Haslinger, G. Nerb, W. Nierhaus
and external specialists for Deutsche Gesellschaft für
Technische Zusammenarbeit (GTZ) GmbH, (German
Technical Co-operation), Eschborn, May 2003 to June
2004, Extension phase July to December 2004.
A quarterly journal, CESifo DICE Report, was launched
in 2003. Editors are Wolfgang Ochel and Rigmar
Osterkamp. The journal comes with the following
rubrics: Forum, Research Reports, Reform Models,
Database, and News. Under “Forum” a specific topic is
discussed by several authors and under different
aspects. In 2004 the “Forum” topics were: Decentralising the Public Sector, Institutions and Performance,
60
International Institutional Comparisons
Dual Income Tax, Institutions for Better Education. The
rubric “Research Reports” covers articles on institutional
questions and economic policy in different areas. Under
“Reform Models” examples of interesting reforms in
selected countries are presented.The rubric “Database”
highlights and interprets new entries to the DICE
database. The articles of the DICE Report may also be
downloaded from the CESifo homepage.This possibility
is used between 1000 and 1500 times per months.
of short-term macroeconomic forecasting and
analysing – developed in Europe – are fine-tuned and
their applicability tested.
Current Projects:
The study will examine the development of the
standard of living in the Central Asian former Soviet
republics of Kazakhstan, Kyrgyzstan, Turkmenistan and
Uzbekistan. Chiefly two questions are to be addressed:
1) How does the development of the standard of living
compare with economic indication in the so-called
transition countries since their independence in 1991?
Life expectancy and the nutritional status of children –
among others – will be used as major indicators.
2) What are the determinants for the survival and
nutritional status of children? The latter is a key
question that needs elucidating in order to be able to
influence adequately the future economic development of a country.
Development of the Standard of Living in
Central Asia During the First Decade of
Transition
J. Albrecht, R. Osterkamp, S. Schönherr, supported by
Volkswagen Foundation, Ph. D. Thesis, July 2003 to
August 2005.
DICE: Database for Institutional
Comparisons in Europe and CESifo DICE
Report – Journal for Institutional
Comparisons
R. Osterkamp, W. Ochel, N. Hoffmann, O. Röhn.
The extension of the database is being continued.
Moreover, the DICE working group also publishes the
CESifo DICE Report.
Institutional Determinants of Economic
Growth in OECD Countries
R. Osterkamp, W. Ochel, O. Röhn, N. Hoffmann, in cooperation with Ifo Research Professor Th. Eicher,
University of Washington, Seattle, December 2004 to
April 2007.
Measuring living standards
in Central Asia
Serbia – Training Programme to RBD
(Belgrade) in Economic Monitoring and
Forecasting
S. Schönherr, G. Nerb, W. Nierhaus, J. Lindlbauer for
Republican Bureau for Development (Serbia)/EU, April
2004 to February 2005.
The recent empirical country-comparative growth
literature highlights the importance of the quality of
institutions for economic growth and welfare.The aim
of this research project is to analyze this relationship
in OECD countries and to identify specific institutions
that explain differences in economic performance.
The establishment of a scientifically based economic
monitoring and forecasting system is the core activity
of this know-how transfer project. In the context of
this project, the first business cycle survey is being
introduced in Serbia.
Kazakhstan – Short-term Forecasting and
Macroeconomic Analysis
S. Schönherr, J. Albrecht, G. Huber, G. Nerb,
W. Nierhaus for Deutsche Gesellschaft für Technische
Zusammenarbeit (GTZ) GmbH, (German Technical
Cooperation), Eschborn, May 2003 to February 2005.
Extension is being planned up to July 2005.
Trade and Trade Potentials of Central Asian
Countries: Chances and Risks
S. Schönherr, G. Huber (external), J. Albrecht for
Deutsche Gesellschaft für Technische Zusammenarbeit
(GTZ) GmbH, (German Technical Co-operation),
FAZ-Institute, DEG, October 2004 to January 2005.
During this phasing-out stage of a long-lasting cooperation programme between the Ifo Institute and
the Almaty Economic Research Institute, methods
61
Ifo Annual Repor t 2004
International Institutional Comparisons
The foreign trade development of the five Central
Asian Countries – Kazakhstan, Uzbekistan, Kyrgyzstan,
Tajikistan and Turkmenistan – is characterised by great
variation since 1995. Kazakhstan’s trade is booming,
other’s stagnating. Especially trade within the region has
declined in absolute terms. This is an indication of
severe problems for the strategy of a common market.
Doing business in India
and China
Empirical Analysis of Market Entry Strategies
of German Enterprises in China and India
G. Haslinger in co-operation with Ifo Research
Professor Th. Eicher, July 2004 to March 2005
development of research concept.
This research project analyses globalization patterns of
German multinational enterprises. By empirical and
econometric methodologies, using a gravitation model
(similar to the one developed by Buch and Lipponer),
substitutions and complementarities between FDI and
export strategies are explained.
Ifo Annual Repor t 2004
62
Business Surveys
The conducting and interpretation of business surveys is
a key service function of the Ifo Institute. The regularly
collected data are not only integral parts of the Institute’s
economic forecasts, they are also the basis of industry
and aggregate economic forecasts of business, industry
associations and government units.The survey results are
extensively discussed and interpreted in the media. In
economic research, microdata derived from Ifo business
surveys play an important role in testing economic
behavioural patterns – for example investment and
employment behaviour, labour market trends or pricing
policy. The reputation of the Ifo Institute in the area of
business surveys is also confirmed by the fact that the
surveying techniques of the Ifo Institute are currently
used throughout the world in more than fifty countries.
sources for assessing the economic situation in
Germany. In 1990, shortly after the pan-German Economic and Currency Union took effect, the Ifo Business
Survey was expanded to include East Germany.
Research in this department concentrates on the analysis of Ifo data, which are highly valued as early indicators for important economic sectors as well as for analyses in the areas of enterprise financing and financial
services, especially for the leasing sector. Researchers
also construct macroeconomic models and industryand company-specific forecasting models on the basis
of the qualitative data from the Ifo surveys. Beside
the ongoing development of new indicators, the assessment of the indicators with the help of modern time
series methods is a central task. In addition, in close contact with universities and international research institutes that carry out similar surveys, the survey methods
and analysis techniques are refined and modernised.
The panels and the evaluation programmes of the Ifo
surveys are subject to ongoing monitoring and adjustment to changing structures and product spectrums.
The representativeness and the plausibility of the data
are constantly examined. The Internet and e-mail are
also employed a new ways to obtain survey responses.
The objective of the Ifo Business Survey is to grasp the
business-cycle component of macroeconomic developments. The long-term growth trend, seasonal
fluctuations, and special effects are not depicted. The
Ifo Business Survey is designed as a supplement to the
official statistics. It supplies information on economic
phenomena that are not included in the official statistics.
The monthly servey is based on about 7,000 response
of business in west and east Germany about their
assessments of their business situation and other
aspects of business activity.The standard questions call
for an appraisal of the current situation as well as the
expectations and plans for the next three to six
months. The survey results, which undergo a complex
evaluation procedure, provide information on some
500 markets in the manufacturing industry, construction and the wholesale and retail trades.
Ifo’s time-tested leading
indicators
From the long time-series of the Ifo Business Survey,
informative business-cycle indicators are derived. The
Ifo Business Climate Index, capacity utilisation, order
reserves and price expectations all give a reliable
picture of the momentary business situation. A special
quarterly question on competitiveness and business
constraints has been conducted for the past several
years. One advantage of Ifo economic indicators is that
they are available before the official statistics. The
production and new-order indices of the official
statistics are usually not published until more than four
weeks after the end of a reporting period, and are
often subject to major subsequent revisions. The
results of the Ifo Business Survey are released between
day 25 and 27 of the survey month.
The Ifo Business Survey again stood at the centre of
public interest in 2004. Much attention was also attracted
by the results of the Ifo Investment Survey, especially in
manufacturing and leasing. Some of this survey data is
also taken over by the German Federal Statistical Office.
The time series of the Ifo Business Survey are available
to external users from the Ifo database services.
The data offered include times series from the official
statistics and other sources.
Ifo Business Survey
The business survey introduced by the Ifo Institute in
1949 was an innovation in business-cycle and market
observation. Today it is one of the most important
To meet the information demand about international
business cycle tendencies, Ifo conducts the World
63
Ifo Annual Repor t 2004
Business Sur veys
Economic Survey (WES). In contrast to the usual Ifo
enterprise surveys, WES is a poll of expert opinion.
other hand the assessments of the current situation
improved slightly in spring and remained stable thereafter. Hence for the business climate a falling course
resulted. From August until December both components, and therefore the Business Climate, remained
almost unchanged. The course of the Business Climate
pointed to a cyclical weakness in autumn, which indeed
was confirmed by data published by the Statistical
Office. After a drop in November both components
and the climate rose markedly in December. This is a
signal that the weakness was only temporary.
Ifo Business Climate
The markets anticipate
the “Ifo Index”
The Ifo Business Climate Index, formed from the mean
of the balances of the assessments of the business
situation and the six-month business outlook from the
Ifo Business Survey, has been published by the Institute
since 1972. It is now widely accepted as a leading
indicator of economic development in Germany. The
Index has a lead time of two to three months over the
production index for the producing sector in the
official statistics. The “Ifo Index” has become an essential part of business-cycle reporting in Germany.
Its national and international importance is seen in
the reactions of the financial markets to the monthly
publication of the index figures. The Ifo Institute also
prepares special monthly evaluations and commentaries on the business survey data for Bavaria, BadenWürtemberg, Saxony and Thuringia.
The observed decline in the business expectations is
present in all four survey sectors – manufacturing,
construction, wholesaling and retailing.The course was
different for the assessments of the current situation,
though. Only in manufacturing did the assessment
surge. In construction, wholesaling and retailing the
assessments were nearly stable.
Quarterly Surveys in the Service
Sector
Ifo Business Climate
To shed some light into the statistical jungle of the
service sector is the goal of these surveys. Since 1995
quarterly surveys have been conducted on business
trends, assessments and expectations of software and
electronic data processing service providers, and on
leasing companies since 1998. At the end of 1999, the
insurance industry was included in the Ifo business
surveys, and at the beginning of 2000 a new business
survey was launched for the finance sector in Bavaria
with the support of the Landeszentralbank of the
Bundesbank in Bavaria.
Ifo Business Survey March 2004
Index, 2000 = 100, seasonally adjusted
110
110
1)
Trade and Industry
Ifo business climate
105
105
100
100
95
95
90
90
85
80
85
Business expectations
Assessment of business situation
75
80
75
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Ifo Business Survey of EDP Service
Providers
1) Manufacturing, construction, wholesaling and retailing.
Source: Ifo Business Survey.
The weakness in business activity for German software
and data processing service providers was more persistent than expected. According to the assessment of
the federation BITKOM (federation of the information
economy, telecommunications and new media, Berlin)
nominal sales in 2002 and 2003 declined by 2.4 % and
1.0 % respectively; employment decreased in the same
period by 6 % and 4 % respectively. The nominal
volume of turnover in 2003 was approximately EUR
41billion (BITKOM 2004). Already in 2001 sales only
matched the previous-year level.
The recovery that the Ifo Business Climate signalled
already in 2003 materialised in reality. After a decline of
real GDP of –0.1 % in 2003, the German Statistical
Office announced growth of 1.6 % in 2004.
The Business Climate did not continue to surge in
2004; its value at the end of the year was slightly under
the value of the beginning of the year. In the course of
the year the optimistic expectations weakened. On the
Ifo Annual Repor t 2004
64
Business Sur veys
German software and EPD service companies’
business bottomed out in recent years but recovery
has been sluggish. After the business climate index of
this Ifo survey marked time in the first half of 2004, the
indicator began to recover in October with positive
assessments of both the current business situation as
well as the business prospects for the winter half-year
2004/05. However, current business only remained at
a satisfactory level; already since the fourth quarter of
2003 positive and negative responses balanced out.
The lively demand for software and data processing
services gave the companies a sales plus in the last two
to three months. Also the comparable previous-year
sales were slightly surpassed, although the responses
differed greatly: 41 % of the survey participants
60 % twelve months earlier. The enterprises placed
great hopes on sales in the final quarter of the year,
confidence having increased again strongly.
Upswing for EDP services
For large service providers the weak phase has
apparently been overcome and the economic recovery
is poised to continue. Demand and sales grew perceptibly in the first half of 2004, order books filled up, and
also expectations clearly improved. On the other hand,
the smaller enterprises had great efforts in starting the
recovery, new orders declined and sales failed to match
the previous-year results on a broad front.
In spite of the improved confidence, the downtrend in
employment in software and EDP services did not
come to standstill: In 2002 approximately 22,000 jobs
disappeared, in 2003 it was 13,000. The only positive
sign is that the decline in employment is coming to an
end. In the employment expectations for the coming
months, positive and negative responses balanced
out. The larger business reported a more favourable
development, and a slight increase is likely. On the
other hand, the smaller companies responded more
pessimistically, on balance.
EDP Service Providers: Business Development
Ifo Leasing Business Survey
Since the first quarter of 1998, the Ifo Institute has
conducted a quarterly business survey of leasing companies in collaboration with the Federation of German
Leasing Companies.The appraisals of the leasing companies of their own future business developments are
well suited for forecasting investment in plant and
equipment in the economy as a whole.
The growth weakness in total spending on plant and
equipment did not come to an end in 2004. Although
the improved business expectations of the firms at
the beginning of 2004 indicated a better investment
propensity, there were factors that dampened investment activity. These included: the relatively low
capacity utilisation that was expected to increase only
moderately in the following quarters, the low capital
reserves of mid-sized businesses that restricted
borrowing, and finally the continuingly weak domestic
demand. But despite this lack of support from
increasing investments, leasing achieved positive results
in 2004. The new business of the leasing companies
Source: Ifo Business Survey of EDP Service Providers 2004.
reported higher sales, 29 % unchanged sales and
almost every third enterprise still experienced
declining sales.The complaints about low order stocks
became perceptibly weaker, although 31 % still considered them to be too small in October compared to
65
Ifo Annual Repor t 2004
Business Sur veys
lost momentum in the summer months, and the business climate index also fell in the third quarter clearly,
but recorded a positive balance for the year. This
means that leasing again increased its market share, the
leasing quota of movable property growing to more
than 24 %.
New indicator for leasing
Ifo Insurance Survey
In close collaboration with the Federation of the
Germany Insurance Industry, the Ifo Institute initiated a
quarterly business survey for the sector at the end of
1999. Included in the survey are insurance companies
in the areas of life, health, property/casualty and legal
protection insurance. In terms of gross premiums
collected, the insurance companies in the survey cover
more than 80 % of premium income.
As the most volatile aggregate of the gross domestic
product, investment in new plant and equipment
have been notoriously difficult to forecast.
The domestic incoming orders in the capital goods
sector and in machine tools as well as the business
expectations in manufacturing have been employed
as indicators for forecasting, along with the aggregate
profit share and interest-rate differences. Forecasting
errors have frequently occurred with these approaches, however. Therefore, a new indicator was
constructed by the Ifo Institute in the year 2000,
together with the Federation of German Leasing
Companies (BDL) from the regular enterprise survey
in movable-property leasing for forecasting investment
in plant and equipment. In 2004 this indicator
again showed a very good performance. Already in the
first quarter it indicated that there would be no
investment growth in 2004. Up to the beginning of
spring 2005, the investment indicator still moved in
negative territory, and no upswing was evident.
A growth phase was accordingly postponed until the
second quarter.
Insurance Industry
Source: ifo Business Survey in Insurance.
The German insurance industry reported a good
business year in 2003, despite the general economic
stagnation and the uncertainty on capital markets.
Revenue from premiums increased by 4.9 % after a
4.4 % gain in 2002. The current indicators of the Ifo
survey also reflect the positive developments of 2003,
but since the beginning of 2004 the business climate
index has fallen from quarter to quarter, however. The
worsening is due exclusively to a more cautious appraisal of the business expectations for the next six
months. On the other hand, the appraisals of the
current business situation remained favourable. In terms
of insurance sectors, property/casualty insurance and
private health insurance contributed to the improvement. In life insurance, however, the business climate
was largely stagnant for three quarters. New business
slowed down, fewer companies than before reported
increased revenue from premiums, and also the
hopeful expectations concerning future premiums have
visibly weakened.
Equipment Investment:
Slow Recovery only
Source: Ifo Business Survey in Leasing 2004; Federal Statistical Office; calculations by the Ifo Institute.
Ifo Annual Repor t 2004
66
Business Sur veys
Monthly Ifo Business Survey of the Service
Sector
In the Investment Survey in manufacturing and mining,
the Ifo Institute gathers data in the old and new Länder
on investment trends. The survey covers past investment, investment plans for the current or coming year,
the goal of investment activity, and the relevant influencing factors. Investment activities in the new Länder are
included in a separate survey because of the differing
developments and clearly different structures.
According to the most recently published results,
investments in manufacturing and mining increased in
2004 after declining the two years before. Whereas a
slight increase was recorded in west Germany, firms in
east Germany seem to have increased their investment
spending considerably in 2004.
Beside the quarterly surveys in the service sector, the
Ifo Institute also conducts a monthly business survey in
this sector. Since this survey is in the development
stage, the results have not yet been published. The
survey concept is similar to the survey in manufacturing, construction, retailing and wholesaling.
Work on the construction of the panel for the monthly survey in the service sector began in 2001 and
continued thereafter. In 2004 the panel set-up
was complete. The former quarterly surveys in
the sectors information and communication were
additionally integrated into the business survey in the
service sector. Also included in the monthly survey
are firms of the business areas multimedia and internet.
The existing panel of financial service providers with
a focus on leasing was expanded.These survey results
are used to forecast capital investment, among other
things.
With its investment survey in the leasing sector, the Ifo
Institute fills a gap in the statistics. Unlike the other Ifo
surveys, the survey for leasing companies is a comprehensive survey; there are no official statistics that
enable an extrapolation of a representative-sample
survey. The leasing companies report their fixed asset
spending divided according to types of investment
goods and according to customer sectors. These data
form the basis for the Ifo Investment Calculation
according to the user concept and an overall report on
one of the most significant service sectors.
Because of the complexity and the heterogeneity
of the tertiary sector, major effort went into the panel
set up in 2004, and currently more than 2000
firms participate in the service survey. Following
the successful test phase, the survey results will be
published in 2005.
New Ifo Business Survey
for Services
Indicator for equipment
investment forecasts
Other surveys
Ifo Investment Survey
The Ifo Institute conducts numerous other enterprise
surveys in addition to the business surveys and investment surveys.
The Ifo Investment Survey was the forerunner of all
the investment surveys of the Federal Statistical Office.
Today it supplements the official ex-post data for the
most recent periods. As a voluntary survey – like all
non-official surveys, participation in the Ifo Investment
survey cannot be required by law – it can, of course,
not replace an exhaustive sampling. This is especially
true with regard to the desired industry sub-divisions.
Responses to the Ifo Investment Survey in 2004 came
from manufacturing, mining, construction, wholesaling
and retailing, power supply, and leasing (leasing companies and producer leasing). The forecast horizon –
except for power supply – is a maximum of one year.
The surveys are conduct once a year in most of the
above-mentioned sectors; only firms in manufacturing
are polled twice a year.
Ifo Innovation Survey
Innovations are among the most important determinants for micro- and macroeconomic growth. Since
the growth and competition of an economy or company is influenced in the long term by high-tech
innovations but since dramatic technological breakthroughs are the exceptions, technological progress
coming primarily from numerous, marginal steps, it is
necessary to use a broad concept for innovations. Only
by including both “radical” as well as “marginal” innovations can technological progress be explained. This is
the approach used since 1979 in the Ifo Innovation
Survey.
67
Slight rise in innovation
activities
Ifo Annual Repor t 2004
Business Sur veys
Using the Ifo Innovation Survey results, innovation
activities of the enterprises can be represented on an
industry and a product basis. The results also supply
information on a macroeconomic level for industrial,
structural and growth analyses. In addition, the economic and technological environment that influences
innovation activities in German industry are registered.
profit from the results. The results are also presented
to the participating organisations and, in a suitable
form, to the area experts. The project was initiated
by the Ifo Institute with financial support from Landwirtschaftliche Rentenbank.
Ifo World Economic Survey (WES)
In its quarterly World Economic Survey, the Ifo Institute
polled more than 1000 international economic experts
in 2004 at institutes or multinational enterprises
on the economic situation and outlook in some 90
industrial, threshold and developing economies. In contrast to the traditional quantitative statistics, the survey
results are timely and allow for international comparisons. Especially in countries where the official statistics
are still unreliable, the assessments and expectations of
on-site experts are particularly valuable. Detailed survey results are sent to survey participants. For the
broad international public, the quarterly English publication CESifo World Economic Survey was created in
2002; a condensed version appears in German in ifo
Schnelldienst.
Whereas the percentage of companies that have
implemented product and/or process innovations in
the period 1997 to 2000 remained relatively constant
at nearly 60 %, innovation activities fell noticeably in
2001 and 2002: by 4 percentage points to 54 %.
In 2002 it fell to 53 %. In 2003 a slight increase in
innovation activity occurred. Nearly 55 % of German
industrial firms reported product and/or process
innovations.
The exploitation of innovation potential is increasingly
threatened by the intensification of international
competition. In addition numerous innovative firms
complained of bureaucratic barriers, the lack of equity
capital and reported increasing difficulties in finding
qualified staff for the R&D area.
Ifo World Economic Climate
Ifo Agricultural Sector Report
Ifo survey in agriculture
This survey-based industry report was first conducted
as a pilot project in 2003 and repeated in 2004. Survey
participants are pork producers who are polled as to
their current business situation and expected outlook.
Their assessments of both economic conditions as well
as the regulatory framework in which the production
takes place are informative. The survey records how
pork producers react to consumer demands and
political changes and to the conditions of EU-wide
competition and concentration.
Source: Ifo World Economic Survey (WES) Q IV/2004.
Pork production is a branch of agriculture that receives
little support from the EU. With its highly modernised
production structures, it is exposed to strong international competition. The goal of this survey is an
annual measurement of business confidence among
pork producers, their capacity usage and scope for
expansion. The survey also compares and analyses
their positioning in the pork value-added chain in the
most important EU producer countries. The survey is
conducted entirely electronically, and all participants
Ifo Annual Repor t 2004
Ifo Architect Survey
With support from the Federal Chamber of Architects,
the Ifo Institute has conducted a quarterly survey
of 2,500 self-employed architects since January 1980.
The survey results contain indicators for the business
climate, new contracts – and the associated estimated
construction volume – as well as order reserves.
68
Business Sur veys
The quarterly data is supplemented by an annual
survey question on the legal form of the business, the
size of the office and the fees. The Länder-specific
survey results are reported quarterly to the 16 Länder
chambers of architects and are sent to the participants
along with the next survey questionnaire
use by economic institutes and universities. With the
establishment of simple online access to important
information for management, the co-operation with
survey participants is being intensified.
Ifo Know-how Transfer
A central research focus in the department is the transfer expertise in enterprise surveys gained in Germany
to other countries. In 2004 a project was continued on
optimising the business survey and quarterly economic
forecasts in Kazakhstan, funded by the Deutsche
Gesellschaft für Technische Zusammenarbeit (GTZ).
Ifo Telephone Survey
The telephone survey, which was introduced already
in 1988 as a supplement to the other Ifo surveys,
proved also in 2004 to be an important instrument for
particular sensitive issues. In addition to the four polls
commissioned by Wirtschaftswoche, the Ifo Institute
surveyed the participants of more than 1000 manufacturing companies, construction firms, distributors and
service providers on other topical issues. The results
were published in Wirtschaftswoche and in ifo
Schnelldienst. The surveys that met with particular
interest dealt with EU enlargement, financing of
medium-sized enterprises and assessment of
chambers and federations.
Ifo survey methods
exported to the world
Current Projects:
Ifo Business Survey in West and East
Germany
M. Birnbrich, E. Gluch, J. Lachner, H. Russ, on-going,
regular publication in: ifo Schnelldienst and ifo
Konjunkturperspektiven.
Ifo World Economic Survey (WES)
G. Nerb, A. Stangl, on-going, regular publication:
in CESifo World Economic Survey and ifo Schnelldienst.
Department Projects:
The department also conducts project-related surveys
for the Institute’s contract studies, for example a survey for the Bundesbank on invoiced currencies and a
survey on price formation on the production stage.
High priority is also given to the analysis and forecasts
of short- and medium-term investment trends in
important economic sectors as well as analyses in
the areas of financial services, especially in leasing and
corporate financing. In connection with surveybased contract research, an ifo-KfW business cycle
barometer for medium sized businesses was developed. The indicator is regularly published by the
customer. For the EU, Ifo conducts the German part of
the EU Labor Market survey.
Classification of the Business Survey
According to the NACE Systematics
M. Birnbrich, A. Kunkel, S. Richter, W. Ruppert.
Ifo Business Survey for EDP Service
Providers
J. Gürtler, on-going, regular publication in: ifo Schnelldienst.
Ifo Leasing Business Survey
J. Gürtler, A. Städtler, on going since1998, regular publication in: ifo Schnelldienst.
Ifo Business Survey for the Insurance Sector
J. Gürtler for the Association of German Insurance
Companies, since 1999, information for client and
participants.
Further importance is given to the analysis of the
micro and aggregate data that Ifo collects, the preparation and further development of econometricstatistical forecasting and survey procedures, the
construction of macroeconomic, industry and company-specific forecasting models on the basis of the
collected data as well as the preparation of the data for
69
Ifo Annual Repor t 2004
Business Sur veys
Ifo Business Survey for Bavaria
H. Russ for the Bavarian State Ministry of Economic
Affairs, Infrastructure,Transport and Technology, regular
publication in: Konjunktur in Bayern.
Short-term Forecast of Business-cycle Trends
in Various Manufacturing Sectors
G. Goldrian, on-going service for participants of the Ifo
Business Survey in manufacturing.
Ifo Business Survey for Baden-Württemberg
W. Ruppert, for Landeskreditbank Baden-Württemberg – Förderbank, regular publication in the series:
L-Bank-ifo-Konjunkturtest and in the Internet.
Examination of the Analytical and Prognostic
Quality of the Survey Results of the Ifo
Institute
G. Goldrian, various articles in Handbuch der umfragebasierten Konjunkturforschung.
Ifo Business Survey for Saxony
J. Lachner, J. Gürtler, regular publication in: ifo Dresden
berichtet.
Examination of the Prognostic Quality of
Survey Results on Employment Plans
K. Abberger.
Ifo Business Survey for Thuringia
W. Ruppert, for the Ministry of Economics and
Infrastructure in Thuringia, regular publication in the
Internet.
On-going Improvements of the Seasonal
Adjustment Procedure ASA-II. Development
of Analytical Time-Series Methods
G. Goldrian, publication in: Jahrbücher für Nationalökonomie und Statistik Band 224/6 and Zeitreihenanalyse
in der Empirischen Wirtschaftsforschung, Festschrift für
Winfried Stier zum 65. Geburtstag, ed.: R. Metz,
M. Lösch and K. Edel. Lucius & Lucius, Stuttgart, 2004.
Ifo Investment Survey
M. Birnbrich, P. Jäckel, H.-D. Karl, G. Krug, A. Städtler,
A. Weichselberger, regular publication in: ifo Schnelldienst.
Ifo-KfW Business Cycle Barometer for
Medium Sized Businesses
S. Richter, W. Ruppert, H. Russ, for the KfWBankengruppe, regularly published by the customer.
Handbuch der umfragebasierten Konjunkturforschung
G. Goldrian and other staff members of the Ifo
Institute, published as volume 15 in the series ifo
Beträge zur Wirtschaftsforschung.
Invoiced Currencies
P. Jäckel for Deutsche Bundesbank, on-going since 1989.
A handbook of Ifo surveys and survey methodology.
English edition forthcoming from Edward Elgar
Publishing.
Price Formation on the Production Stage
H. Russ, A. Kunkel, for Deutschen Bundesbank and
EZB.
EU Labor Market Survey
W. Ruppert, K. Wohlrabe, K. Abberger, for the EU.
Ifo Architect Survey
E. Gluch, on-going since 1980, regular publication in: ifo
Schnelldienst.
Ifo Telephone Survey
H. Russ for Wirtschaftswoche, regular publication in:
Wirtschaftswoche and ifo Schnelldienst.
Ifo Annual Repor t 2004
70
Press, Publication, Conferences
Positioned at the interface between the Institute and
the public, the service department Press, Publications
and Conferences assists the Institute in successfully
carrying out its information tasks. Its responsibility is to
transmit the products of the research and service
departments to their proper addresses: political or
business decision-makers, members of the scientific
community or members of the media.The department
establishes and maintains contacts to the interested
public. It also offers services to other Ifo departments
in the form of support for their publications, organises
the central events and is responsible for the public
image of the Ifo Institute. This includes the further
development of the corporate design, address
management and editorial updating and conceptual
design of the website.
globalisation on German business (“bazaar economy”)
received wide attention. The importance of the Ifo
Institute for the economic-policy reform debate in
Germany is indicated by the media echo enjoyed
by Hans-Werner Sinn’s book, Ist Deutschland noch zu
retten? The sixth completely revised edition of the
book appeared in 2004 and the second updated
paperback edition in 2005 (April). The department
organised press conferences, which met with great interest, in connection with the Ifo economic forecasts and
central Ifo events.
Ifo – greatest media
presence of all economic
research institutes
in Germany
Editing
The department’s task is also the conception, production and distribution of the publications of the
Institute. It is responsible for all publications of the
house.This task includes conceptual and editorial work,
translations (German-English and English-German), preprinting work including the preparation of graphs and
tables as well as type-setting and layout, forwarding to
the in-house or external printers, and address management.The department assists other Ifo departments in
the execution of their work.
Press Relations
The task of press relations is to serve as an intermediary between journalists and the Institute, and also
to provide information and material to Ifo members,
firms, public authorities, or students. The press office
informs the public, presenting the research results to
the media and the general public in a form that is
understandable to a broad circle of readers. More than
80 press releases in 2004 offered special information
for media representatives. Arrangement of in-house
interview partners, organisation of press conferences,
replies to concrete questions – all the instruments of
professional press relations are handled in-house, and
not without success:
The editorial staff supervises the following publications:
– Ifo Schnelldienst: a bi-monthly journal continuing
discussions of current policy issues and Ifo research
results;
– Ifo Konjunkturperspektiven: a monthly journal that
contains the current results of the Ifo Business
Survey in graphs, tables and descriptive analyses;
According to the regular reports of institutes specialised in media analysis, the Ifo Institute has the greatest
media presence of all economic research institutes
in Germany: Wide attention is given to the eagerly
awaited monthly release of the Ifo Business Climate
index. Great interest in 2004 was also attracted by the
Ifo Business Surveys of Data Processing Service
Providers and Leasing Companies, by the results of the
economic forecasts of the Ifo Institute, and by the
newly developed KfW-Ifo SME Barometer, as reflected
in publications in supra-regional and international newspapers and journals. Also the numerous contributions
of the Ifo Institute on policy discussion, especially
the Ifo proposal for the reform of the labour market in
the low-wage sector and the analysis of the impact of
– Ifo Dresden Berichtet: a journal of the Ifo Dresden
branch on economic policy and structural change in
east Germany, appearing six times a year;
– CESIfo World Economic Survey: quarterly publication in English containing the results of an Ifo
expert poll on the world economy in graphs and
tables with a detailed analysis;
– CESifo Forum: a quarterly, English-language journal
that deals with current political topics of worldwide interest with contributions by internationally
renowned authors as well as data and information
from the Ifo Institute;
71
Ifo Annual Repor t 2004
Press, Publication, Conferences
– CESifo DICE Report: a quarterly journal in English
with articles on institutional regulations and economic-policy measures using a country-comparative
analysis.
representatives to gather information on the outlook
for the European economy. A more detailed
description of the conference is found in the section
on the work of the department for Industry Branch
Research.
– CESifo Economic Studies (formerly Ifo Studien): a
quarterly, refereed academic journal in English.
Articles present the results of economic research
and address policy-relevant issues.
On 22 June 2004 the Ifo Institute held its 55th Annual
Assembly. At the General Meeting Hans-Werner Sinn,
president of the Ifo Institute, reported on the activities
of the Institute in 2003. Then, the annual prize awards
for Ifo researchers were announced.
– CESifo Report on the European Economy: annual
report in English on economic-policy issues by the
European Economic Advisory Group at CESifo.
The great response to the public part of the Annual
Assembly necessitated a move to the auditorium of
the Ludwig Maximilian University. The more than 800
attendees, including numerous representatives of
member firms of the Ifo Institute and Bavarian and
federal ministries, were offered an attractive
programme. After the welcome words of Prof. Sinn
– Ifo Beträge zur Wirtschaftsforschung: a series in
which important research projects of the Ifo
Institute are published;
The Ifo Institute also publishes the results of its research that does not otherwise appear in book form in
the Ifo Forschungsberichten. The Ifo Dresden Studien
contains the research of the Ifo Dresden branch on
eastern Germany and its eastern neighbours.
Annual Meeting 2004
Some of the Ifo publications are distributed by
international on-line service providers. A complete
overview of the publications and ordering information
is available at www.ifo.de.
In addition the department publishes the news
services of the Ifo Institute ifo im ..., ifo Newsletter (both
in German).
Conferences
The department’s third task is the organisation of
conferences and the presentation of the Institute at
domestic and international meetings and conferences,
for example, at the yearly conference of the
organisation of German economists, the Verein für
Socialpolitik. The main events in 2004 were the
International Spring Conference in March, the Annual
Meeting in June and the Ifo Industry Colloquium in
October.
On 18 – 19 March 2004 the Ifo Institute held its
Spring Conference, an international event in Berlin
attended by 100 specialists from industry, banks and
the public administration as well as numerous press
Ifo Annual Repor t 2004
Prof. Hans-Werner Sinn, President of the Ifo Institute
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Press, Publication, Conferences
and the rector of the university, Prof. Bernd Huber, the
President of the Czech Republic,Václav Klaus, spoke on
EU enlargement, from which he expected “large and
perceptible effects” neither for the old nor the new
member states. However, he saw potential conflict
of goals between the number of EU members, the
activities of EU and the decision-making mechanisms of
the European institutions. After Václav Klaus’s address,
the Bavarian State Minister for European
Affairs, Eberhard Sinner, stressed that European
unification helped preserve the peace. The eagerly
awaited economic forecast was then presented
by Prof. Sinn. He reported that world economic
activity in the US, Southeast Asia, Japan and also in
other European economies was on the upswing
but still weak in Germany.The economic developments
in the new EU member states were also presented in
detail.
Annual Meeting 2004
Phoenix TV broadcasts
Ifo Annual Meeting
The event concluded with a podium discussion on
tax reform in Germany. Moderated by Dr. Nikolaus
Piper, chief economic editor of the Süddeutsche
Zeitung, participants included Prof. Paul Kirchhof,
director of the Institute for Finance and Tax Law at the
University of Heidelberg, Dr. Friedrich Merz, MdB,
deputy chairperson of the CDU/CSU parliamentary
group, Prof. Wolfgang Wiegard, chairperson of
the German Council of Economic Exper ts and
Prof. Hans-Werner Sinn. All agreed that the current
system of taxation is urgently in need of reform,
but proposals on future tax models differed clearly.
While Prof. Kirchhof argued for a “concept of
freedom” with no exclusions and in which all sources
of income are treated equally, Prof.Wiegard expressed
his preference for a dual income tax. He agreed
with Prof Sinn that a lowering of the business tax
was the most urgent necessity. Friedrich Merz pointed
out that a graduated scale of taxes, which he favours,
is wide-spread internationally. Merz argued that
a synthetic income tax, in which all revenues are
taxed equally, must be retained. Instead of the existing
seven types of revenue, the future law should
only have four. Prof. Sinn expressed his agreement
with a dual income tax. A documentation of the Ifo
Annual Meeting was published in ifo Schnelldienst
12/2004 and 13/2004.
Václav Klaus, President of the Czech Republic
On 26 October 2004 the Ifo Institute held its fourth
Industry Colloquium, in co-operation with Chamber
of Industry and Commerce for Munich and Upper
Bavarians and supported by the Bavarian State Ministry
for Economic Affairs, Infrastructure, Transport and
Technology. The analysis of the overall economy and
economic developments in industry, construction,
wholesaling and retailing as well as in selected
service sectors is the main purpose of this event.
(A more detailed description of the conference is
found in the section on the work of the department
for Industry Branch Research and in ifo Schnelldienst
22/2004.)
Internet
The rapid development of the Internet as a communication platform offers the Institute a virtual basis
for information provision.The content of the two web-
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Ifo Annual Repor t 2004
Press, Publication, Conferences
Annual Meeting 2004
Network members, accessible from the homepage.
Businesses that participate in the surveys of the
Ifo Institute can call up and fill in their questionnaires
online; their data flow direct into an Ifo database and
are available for immediate evaluation.
The “research” menu contains the research output, the
projects, staff and news items from the departments of
the Ifo Institute. Under this menu item, users can also
access information on the doctoral and visiting research programmes of the CESIfo Group.
Those interested in the contributions on the economic-policy discussion can find information on the
contributions of the Ifo Institute in various media under
the menu item “Policy debate”. Under “Special Ifo
issues”, the topics that Ifo has launched in the public
discussion are available, such as the “Bazaar economy”,
“Activating social welfare” or “Child-dependent
pensions”, with corresponding press reports.
Podium participants: Prof. Wolfgang Wiegard, Prof. Paul Kirchhof,
Dr. Nikolaus Piper, Dr. Friedrich Merz, Prof. Hans-Werner Sinn
sites, www.ifo.de and www.cesifo.de, have become
more diverse and more extensive in recent years.
In mid-2004 the redesign of the website was begun,
with the inclusion of more efficient hard-ware and software. The main aim was a clearer and more userfriendly navigation. Both websites were combined
into one website for this purpose – the German pages
of the Ifo Institute and the English pages of the Ifo
Institute, the CESIfo GmbH and the Center of for
Economic Studies (CES). It is now available in a
German and English version.
A new area is “Economic information”, with access to
numerous service fields of the Institute including indices, forecasts, Ifo time series and a pool of interesting
economy data. This includes the free-access Database
for Institutional Comparisons in Europe (DICE) in
which the institutional regulations of the 25 EU member states and selected industrialised countries are
systematically presented, with new additions and
updates every month.Video excerpts of speeches and
lectures presented by staff at Ifo events and also LMU
seminars and lectures at the LMU are available under
“Educational material”.
Since April 2005 the public can access the new
website.
The homepage contains news windows that include
the current business climate index, forecasts and new
studies. Separate areas have been created for survey
participants, journalists, the DICE database and CESIfo
The media area presents important information for
journalists: press releases, dates, experts and a photo
archive as well as a topic/year search function.
The new look of the Ifo Internet homepage
The menu item “Publications” contains information
on the series and monographs published by the Ifo
Institute and CESIfo GmbH. Publications can be
ordered online using Ifo DocBase and Ifo DataBase.
The Ifo DocBase enables searches to be made of all
German-language publications of the Ifo Institute since
1990. In the CESIfo DocBase, which contains the
English-language publications of the CESIfo Group,
full-text articles can be downloaded. In the Ifo
New Internet design
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DataBase ca. 18,000 time series of the Ifo Business
Survey can be accessed.
Intranet
The Intranet is continuously being enlarged as an
instrument of knowledge management for work at the
Ifo Institute and serves as a comprehensive information
basis for Ifo staff and visiting researchers.
To provide optimal data access for its users the Ifo
Intranet contains a collection of important micro and
macro data (data pool).This includes data from the Ifo
Business Survey and data sets from other institutes
that are important for empirical economic research.
The use of the Ifo micro data is subject to strict
controls to assure the anonymity of the survey data.
The data pool includes: Ifo Data, External Microdata,
External Macrodata, Statistical Software (with information on STATA / STATA Journal, SAS and SPSS) as well
as links to research Institutes. In 2004 the data pool
was expanded to include Ifo World Economic Survey
(WES) micro data and data from the Ifo Innovation
Survey (INNO). The data sets are provided in
the popular software format STATA but can also be
transferred into other common formats via translation
software. By means of a simple online-form, Ifo staff
can propose the acquisition of further data sets. In
order to increase the attractiveness of this data pool,
all data that are needed for current projects can be
included in the data pool.
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Ifo Annual Repor t 2004
Library
Managing the flood
of information
The library of the Ifo Institute provides services
to members of staff of Ifo and CESifo, to visiting researchers and to students of the Munich Universities.
With more than 113,000 books, 1,500 periodicals and
750 statistical reports, the Ifo library is one of the
largest libraries for economics in southern Germany.
The electronic catalogue of the Institute uses various
descriptors, PTS country codes, and abstracts as well
as the classification system of the Journal of Economic
Literature (JEL).
The library of the Ifo Institute is member of the
library association of the Northern German Länder,
GBV. This allows the opening of the Ifo library via the
Internet and is an important step in the harmonisation
of the Ifo holdings with that of other large libraries in
economics. The Ifo OPAC is a component of the Ifo
and CESifo Websites.
The library of the Ifo Institute co-operates closely with
the Information Centre of the Hamburger HWWA
Institute and the Central Library for Economics in Kiel.
A joint project is the CD-ROM, WISO II, produced
along with the Society for Information in Business
Economics, GBI, with the holdings of the three partner
libraries.
With literature and database research as well as the
procurement of data and information on selected economic and economic-political areas, the library fulfils an
important service function. The Ifo library maintains
connections to all important providers of economic
and/or scientific and technical databases, which can be
scanned in the online-procedure. In total the library
services are used ca. 3.700 times in 2004.
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