In February 2009, Portugal sought to promote the use of open-ended employment contracts by reducing the range of circumstances under which fixed-term contracts (FTCs henceforth) could be used by large firms. Before this date, new establishments were free to hire under FTCs. After February 2009, such flexibility applied only in the case of firms with fewer than 750 employees. Large firms could still hire under FTCs in new establishments in specific cases.
Despite the attention that FinTech has received over the past years, the drivers and consequences of FinTech disruptive forces on financial markets remain open to debate. For example, an important open question relates to the impact that FinTech lending availability has on SMEs financing and investment policies. This paper addresses this question using a unique data set from a FinTech platform containing the universe of loan applications. The paper finds that FinTech serves larger, high profitability SMEs, who already have access to bank credit.
How much do the characteristics of a firm’s workforce matter for its productivity? Firms producing similar goods exhibit very different levels of productivity. Using the same amount of capital and number of workers, some firms produce much more than others. Over time, these performance gaps have widened in many countries. Such large and rising performance gaps suggest that substantial opportunities for boosting economic growth are being missed – if ‘low’ productivity firms would adopt the best practices of ‘high’ productivity firms, the economy’s productivity would be much higher.
Long-term economic growth largely depends on the ability to channel resources to more productive firms, enabling them to invest and expand. Banks play a prominent role in resource allocation, especially in economies, such as the Portuguese one, which are heavily reliant on bank lending. The degree of efficiency in the allocation of bank credit can thus have major consequences for a country’s economic growth. This paper tries to shed light on two related questions.
What type of education gives the best preparation for the labour market? Vocational education, where you learn the skills for specific occupations? Or a more general education, advancing intellectual and cultural development? It’s an old question in the economics of education literature. The common presumption is that vocational education gives an initial advantage, as the graduate has been trained for specific jobs, and can perform required tasks right-away, but that the general graduate is better prepared for future changes in the labour market, as broader intellectual skills facilitate learning new tasks.
This paper studies how increased domestic product market competition induces firms to change their internal organization and how this change affects wage inequality. The paper exploits the Empresa na Hora (Firm On the Spot) program in Portugal as a quasi-natural experiment of a shock to competition. The paper uses detailed employer-employee data for the analysis. The main findings are that increased domestic competition following the “Firm On the Spot” program leads firms to flatten their hierarchies by delayering and that reorganization is accompanied by a reduction in within-firm wage inequality.
This paper studies the effects of the 2005 reform Empresa na Hora (Firm on the Spot) on firm entry, exit, and employment decisions. Before the reform, starting a business implied a long and convoluted bureaucratic procedure that would take between two to three months to complete. After the reform, the duration of this process decreased to less than one hour. It also involved a substantial reduction in the monetary costs associated with firm creation.
In 2017, according to the IMob 2017 Travel Survey, 59% of all passenger trips in Lisbon’s Metropolitan Area were made by private car, while public transportation accounted only for approximately 16% of trips. The dependence on private car for travelling in Portugal’s largest metropolitan area increased from 21% in 1991, to 40% in 2001, and 54% in 2011. In contrast, public transport use has substantially reduced, dropping from 56% of all passenger trips in 1991, to 38% in 2001, and 28% in 2011.
Business dynamism has long been recognized as a key driver of aggregate outcomes, with startups and young firms playing a particularly important role. Seemingly small changes to the numbers and growth potential of startups may leave large and persistent footprints on the aggregate economy. In this paper, the authors argue that entrepreneurs themselves are key determinants of firm performance. Using Quadros de Pessoal, the paper defines serial entrepreneurship as the simultaneous ownership of multiple businesses.
In recent years, inequality has attracted a great deal of attention in monetary policy circles. A growing strand of the macroeconomic literature suggests that monetary policy is not immune to redistributive consequences, despite inequality not being an explicit target of its actions. The bulk of this debate centers around the relationship between monetary policy and asset prices, yet labor income represents a major source of inequality, and its relationship with monetary policy remains unexplored.
Electoral participation in Portugal has been decreasing across all elections being below 60% in recent times. This study asks if the number of elected representatives in an election for Town Council is related with voter turnout. To motivate the analysis, the paper constructs an index that proxies for each voter’s voting power defined as the ratio of the number of seats in the Town Council to the number of voters in the municipality.
Is self-employment typically good for one’s health? This is an important question as a large number of people around the world and also in Europe are self-employed and many express concerns about the potential negative effects of this type of work. This research question also matters in the context of the Covid crisis. The COVID-19 pandemic may contribute to the growth of self-employment (as the labour market contracts and many individuals look to developed their own work opportunities).
According to a survey ran by the Portuguese Electoral Behavior Project after the local elections in 2001 and 2005, around 50% of the Portuguese inquired voted for the party they preferred and did not take into account other characteristics of its head candidate. Bourdain (2008) explains that these electors voted for the party of preference and not the head candidate because they believed that being a representative of a given political party is the most important characteristic of a politician for policy outcomes.
Reducing early school leaving, defined as leaving education with at most lower secondary schooling, is generally considered to be one of the top priorities of educational policy due to its significant social and economic costs. Increasing the Compulsory Schooling Law (CSL) leaving age is a policy that has typically been used to address this concern. The effects of the policy on students' educational outcomes are still unclear, with the literature identifying mixed effects both on graduation probabilities and school track choices.
Transport infrastructure is an expensive investment and is considered to be an important driver of economic growth. Portugal’s road network remained of poor quality until the last quarter of the 20th century. The country had less than 200 km of motorways before joining the EU in 1986, whereas in 2017 it had the fifth and third highest endowments of motorways relative to population and GDP, respectively, in the EU. This study investigates the factors that influenced the allocation of motorways across municipalities in mainland Portugal between 1981 and 2011.
Technology Balance of Payments (TBP) records the international trade flows of intangibles, namely money flows paid or received for the use of patents, licenses, knowledge, brands, models, designs, industrial research and development (R&D), and technical services, including technical assistance. Thus, the balance of the TBP reflects the ability of a country to sell/ acquire technologies from abroad. Does a TBP surplus determine the international competitiveness of a country. Such a surplus may increase with a country’s high degree of technological autonomy and a low level of technology imports.
Should governments intervene in the promotion of R&D and innovation? Are such policies effective? From a theoretical point of view, the answer to the first question seems consensual. In addition to the benefits from innovation at the firm-level, the fact that derived knowledge and new technologies can be disseminated throughout the economy, gives rise to social benefits that exceed private ones. As such, private R&D investment is usually lower than socially desirable, which justifies public intervention.
How does corporate reorganization affect labor outcomes in bankruptcy? The existing literature argues that corporate reorganization affects labor reallocation because it retains workers in bankrupt firms. One the one hand, firms can remain alive for too long and retain workers inefficiently. On the other hand, reorganization reduces the probability of inefficient liquidation. This paper tests the hypothesis that job contracts are a form of insurance in times of adversity; that reorganization improves labor outcomes because it reduces the probability that workers lose the insurance provided by job contracts when the costs of job loss are high.
Governments around the world devote substantial resources to support small and medium sized firms struggling with the consequences of economic and financial crises. A key question is whether the firms that stand to benefit most from government programs—for example, smaller firms or those with limited access to traditional financing—face information frictions that hamper access to aid. This paper tests whether informational frictions prevent firms from accessing government support measures. The paper considers the impact of providing detailed information on two COVID-19 assistance measures—a layoff support program and a guaranteed credit line scheme—on firm take-up using a sample of over 170,000 Portuguese firms (see figure).
From the sovereign debt crisis to the end of 2019, bank credit to Portuguese firms fell, spreads on new loans decreased and banks reported an increase in competition. The combination of these dynamics raises concerns that banks were underpricing loans. In a bid to remain competitive, banks may have offered loan spreads below the level needed to compensate banks’ equity holders for bearing risk. This paper studies whether the spreads on new corporate loans are sufficient to cover loans’ expected credit losses, operating costs and capital costs.
“Behold rich lands! May you know how to govern them well!” Hernández Puertocarrero to Cortés in 1519 How did the discovery of large deposits of gold and silver in the “New World” affect the world economy? This paper argues that the long-run consequences were not the same everywhere. In Western Europe, the colonizers par excellence – Spain and Portugal – suffered negative consequences in the long run. The Spanish government enjoyed increased revenues, but it squandered those revenues on ultimately unsuccessful European wars.
This research compares Portuguese hospital public-private partnerships (PPP) with the corporatized hospitals (EPE) regarding their social performance, between 2012 and 2017. The research accompanies a line of inquiry on whether hospital PPPs are more or less efficient than the traditional model of managing hospitals by focusing on the social side of health care. There is a generalized idea in the public that this type of partnership translates into ruinous contracts for the public purse and poorer health care services.
Portugal moved from having less than 200 km of motorways before joining the European Union in 1986 to having, according to the Eurostat, the fifth highest endowment of motorways relative to population in 2017, and the third relative to GDP in the Union. This paper studies the relationship between the expansion of the Portuguese motorway network between 1981 and 2011 and the growth of population and employment across mainland municipalities.
This study finds that Portuguese small and medium enterprises (SME) with a higher degree of export intensity rely more on internal funds. This finding arises from examining the determinants of corporate leverage on a sample of 7,676 Portuguese SMEs and by focusing on the impact of export intensity on firms’ capital structure. In addition, the analysis reveals that more profitable SMEs and those with more asset tangibility and business risk have lower debt ratios, but that SMEs with larger growth opportunities (measured either by sales growth or the ratio between CAPEX and total assets) are more levered.
This paper estimates that a 1% decline in the share of highly indebted and unprofitable mature firms (i.e. zombies) increases the average labor productivity by 3.1 percent. In well-functioning markets, competition is expected to force zombie firms to restructure or exit. However, in many instances, these firms have a tendency to remain zombies. Aggregate productivity is therefore impaired by reduced allocative efficiency and negative externalities on investment and entrepreneurship.
Energy efficiency is considered pivotal for long-term economic growth, especially since much of the energy consumed in Portugal has historically been from non-renewable sources. According to the theory of directed technological change, whether firms are likely to develop and adopt technologies to increase the marginal productivity of energy (controlling for other production inputs) is decided by two counteracting effects: the price effect and the market-size effect. The price effect (often adopted by governments) tries to induce improvements in energy efficiency by imposing (through regulation) a higher energy price.
This article studies the growth determinants of small and medium-sized firms (SMEs) before and after the 2008 subprime crisis. SME’s growth correlates positively with firm-level cash flow and GDP, whereas it correlates negatively with firm-level debt, firm size and age, as well as with the economy-wide risk-free interest rate. After 2008, the financial crisis with the associated implementation of austerity measures in the Portuguese context, produced a negative effect on SME growth.
The extraordinary increase of Chinese exports over the past two decades has represented a new source of competitive pressure for European firms. In this context, innovation and investments in knowledge are considered as a protection against import competition from low-wage countries. Given that wage differences are large and take time to respond, competing on costs is not always a feasible option. This paper examines whether firms in Denmark and Portugal escape import competition through innovation by either internally reallocating their non-R&D workers to R&D jobs, hiring new workers for R&D activities, or doing both.
Public projects tend to be perceived as having substantial cost and time deviations and overruns, i.e., with project final cost higher than forecasted and with project completion after the forecasted deadline. This paper studies the causes for such deviations from forecasts. It focuses on project-related (endogenous) reasons such as the investment amount and the sector of investment, and on (exogenous) reasons of political, legal, regulatory, and economic nature that include a dummy for government majority, a variable indicating the political leaning of the government, a dummy for the new procurement law of 2008, the rule of law and the corruption index, and GDP growth, inflation, along with dummy variables for the financial crisis and the intervention of the Troika.
Are there societal side benefits to encouraging entrepreneurship? This study answers this question by looking at the effects of a policy promoting new firm creation on crime levels within municipalities. Between 2005 and 2009, the Portuguese government gradually introduced a deregulation reform (“Empresa na Hora”) in 144 out of 308 municipalities. In the municipalities targeted by this reform, the costs of establishing a firm declined drastically: it took just one hour and about 300 euros to become an “entrepreneur”.
The COVID-19 pandemic has forced many workers to work from home. Even before this emergency shift, there were societal calls for allowing workers location and time flexibility to achieve a better work-life balance (e.g. EU Directive 2019/1158). While there may be social benefits from working at home, research on the impacts of remote work on worker productivity and firm profitability shows contradictory results. This paper studies the impact on worker productivity of a precondition for remote work, namely the possibility to access firm resources remotely.
This paper analyzes housing rental rates at the parish level within municipalities. The analysis explores spatial patterns of housing rents in 4049 Portuguese parishes across 278 municipalities using data from the 2011 Population and Housing Census from the Portuguese National Institute for Statistics. Housing rental rates tend to be higher in parishes with greater population density (measured by the number of citizens living per square kilometer), a higher number of dwellings, and greater potential sustainability (measured as the ratio of working-age population-between 15 and 64 years-to elderly population-aged 65 and over), better mobility (measured as resident population employed outside the territorial unit plus employed non-resident population in the territorial unit divided by employed resident population), and a higher social-diversity ratio (measured as a weighted average of each socioeconomic group), besides the dwelling’s useful area in square meters.
The economic shock prompted by the COVID-19 pandemic strongly restricts Portuguese firms’ ability to generate profits, contributing to an increase in their financial vulnerability and undermining their capacity to meet credit commitments in the short and medium term. This paper assesses the impact of the COVID-19 pandemic on the debt levels of vulnerable firms. Firms are defined as financially vulnerable if their operating profits are less than twice the amount of interest expenses.
Investment in wind power has grown remarkably in the past decades in Portugal (see figure). Although economic development is an argument for investment incentive policies, little evidence exists as to their net impact on local-level unemployment. Despite project-level estimates of direct employment creation, doubts remain as to whether these effects translate into an increase in overall employment - rather than a displacement of resources - as well as into effects at the local-level rather than at the aggregate level only.
What makes some jobs better than others? The positive effect that a ‘good’ job has on lifetime wage income may be due to a wage jump upon taking the job (i.e., a static effect) or to a faster wage growth after taking the job (i.e., a dynamic effect), and may depend on whether the benefits are portable to another job, as well as on the quality of the match between occupation worker’s skill and ability.
It is generally recognized in the economic literature that a small number of companies, known as Gazelles, contribute disproportionately to net job creation. This article analyzes the drivers of high employment growth such as firm age, access to external sources of finance, and firms’ human capital, as well as companies' ability to export and innovate through investment in R&D. The results suggest that younger companies are more likely to grow faster, and that human capital is an essential determinant of high growth phenomena.
Technologies such as computers, robots, and artificial intelligence are changing how we work and interact, rendering routine jobs (which are also middle-wage jobs) obsolete due to automation and computerization of many tasks. In contrast, high-skilled workers that do complex abstract tasks benefit from this, as technology increases their productivity. There is evidence that several labor markets have polarized in the past two decades between high-skilled abstracted jobs and low paid jobs (with the simultaneous disappearance of routine middle-skilled jobs).
Household indebtedness in Portugal has drastically increased in the last 30 years, with households’ indebtedness at around 20 per cent of disposable income in 1990 increasing to 118 per cent of disposable income in 2004. Some of this indebtedness is due an increased demand for housing. For a while rental rates were frozen, disincentivizing the rental market, while successive Portuguese governments helped low-income households into housing through the Crédito Bonificado program.
Does a significant increase in VAT rates harm the tourism industry and if so how much? This paper investigates the consequences of a large increase in VAT rates on firm profitability and survival. In 2011, the Portuguese government increased the VAT by ten percentage points on catering services, restaurant meals, and beverages. The tourism sector in Portugal represents the biggest sector of the economy, and is composed of many small and medium-size firms, which are generally affected the most by such tax changes, at the same time being essential contributors to job creation and economic development.
The COVID-19 pandemic has led to a significant decline in demand in Portugal and elsewhere in the world. In Portugal, private consumption is projected to fall by 8% in 2020 and investment spending by 11%. Furthermore, private consumption growth over the long-run is likely to remain low due to ageing demographics of the Portuguese society: its old-age dependency ratio is at 40%, already 10% higher than the OECD average. Where then might an increase in aggregate demand come from?
A decentralization process is underway in Portugal with the increased attribution of competencies to local governments hoping to benefit from efficiency gains. However, during the Troika intervention, the austerity measures adopted by the Portuguese government impacted the functioning of local administrations. This paper studies the efficiency in local governments and its drivers and provides empirical evidence about the impact of Troika’s intervention on the Portuguese municipalities. The paper evaluates the efficiency of the 278 mainland municipalities by relating the cost of providing public services to the quantity of services provided.
Barriers in access to finance (i.e., financial constraints) have been shown to affect real decisions of companies such as innovation, investment in fixed capital,and employment. This paper studies whether financial frictions affect one of the most central corporate decisions – which products to produce (i.e., product mix).The hypothesis is that firms adjust their product mix in order to generate cash flows faster. As different products have different production cycles and generate cash-flow at different points in time, companies may adjust their product mix in order to shorten the cash-flow maturity.
Increases in house prices are known to stimulate households’ consumption. Since residential property is an illiquid asset, households may have to increase debt to adjust their current expenditure to their new perceived wealth. This study is particularly relevant given the recent significant rise in property values in Portugal pre COVID-19. This paper relies on microdata retrieved from the first wave of the Household Finance and Consumption Survey to examine the response of household debt to households’ perception of their residential properties’prices.
Deposit insurance arrangements are crucial to mitigate the likelihood of bank runs. However, the success of these protection schemes depends on their credibility, which explains why they are usually guaranteed by the sovereign. But what happens when the sovereign is also in distress? Can the sovereign backstop actually weaken the credibility of deposit insurance mechanisms in some circumstances? This paper examines two episodes that occurred during the euro area sovereign debt crisis (2010-2013) to better understand the role of the credibility of the sovereign backing the deposit insurance arrangements.
The Portuguese government promised to increase the minimum wage to 750 euros by 2023. If this goal is achieved, between 2014 and 2023 the nominal minimum wage will have increased 55%. The final objective of this measure is to reduce poverty and income inequality. However, it implies additional costs to firms and customers. When many firms are already under pressure and living in a context of high uncertainty due to the covid-19 pandemic, the announced minimum wage increases cast further doubts on the evolution of employment and on the financial condition of firms.
Many businesses in the global economy are family firms. How do family firms differ from non-family firms with regards to corporate governance and financial policies? Current literature on the issue of corporate governance and financial development provides evidence that family firms adopt different financial practices from their non-family counterparts. Private family firms are at an advantage in terms of management experience and governance and a disadvantage when it comes to obtaining long-term debt and external equity.
A correspondence-based field experiment was carried out in the Portuguese housing market to determine whether same-sex couples are treated differently than opposite-sex couples. This is the first study of its type to explore the relation between discrimination and religiosity. In this experiment, fictitious couples replied to real housing ads in the metropolitan areas of Porto and Lisbon via e-mail. The applicants are portrayed as married, having stable income and professions. Some of them are opposite-sex couples, others same-sex couples (female or male).
In 2005, Portugal allowed over-the-counter (OTC) drugs to be sold outside pharmacies, namely in supermarkets and outlets (parafarmácias). The rationale for OTC market liberalization was simple: the entry of new retailers, combined with free pricing, would lower OTC prices via increased competition. This paper examines whether the entry of new, non-pharmacy OTC retailers triggered price reductions by incumbent pharmacies. The analysis uses data on the prices of five popular OTC drugs at all retailers located in Lisbon, for periods after OTC market liberalization.
Zombie firms have received a lot of attention from academics and policymakers in the aftermath of the last global financial crisis. These are firms that are non-viable, but they remain artificially alive through the rollover of bank loans. This typically happens in low interest rate environments, when banks have fewer incentives to recognize losses in their balance sheet. By lending to these zombie firms, banks are not allocating scarce funding to firms with viable projects, thereby leading to a misallocation of resources in the economy.
While experts had warned about the likelihood of a pandemic given the increasing frequency of outbreaks in this century, SARS-CoV-2 caught the world largely unprepared. Over the last century, pandemics have been responsible for more deaths than armed conflicts. Their impact on economic activity is also overwhelming. This paper presents early evidence of the impact of the covid-19 pandemic on the Portuguese economy. The paper uses novel and comprehensive data on electronic payments from SIBS, the main provider of point of sale terminals and on-line payments in Portugal.
The disposition effect is the propensity of investors to sell assets on which they have experienced gains and to hold assets on which they have faced (unrealized) losses. This paper studies the disposition effect among mutual fund participants in Portugal. Using a large sample of transaction-level records from a major bank for the period from 1998 to 2017, this paper finds evidence of a strong disposition effect among mutual fund investors in Portugal.
As a measure of austerity in the aftermath of the Global and Financial Crisis (GFC), the Portuguese government revoked four holidays for both public and private employees: two civilian (Republic Day and Restoration of Independence) and two religious (Corpus Christi and All Saints Day) holidays. A plausible motivation for canceling the two holidays was to increase the number of working days and thereby lowering labor costs. The move was effective starting in 2013 and was presented as a measure to increase productivity among public employees.
This paper studies total factor productivity (TFP) of the quaternary sector, or knowledge-based activities sector. The occupations associated with this sector are linked with knowledge and social/creative intelligence. These activities are admittedly less likely to be automated in the future due to their human heuristic requirements. A descriptive analysis of a firm-level dataset of Portuguese firms shows that this group of activities differs from others along several characteristics: the share of gross value added, capital per worker, and wage expenses.
This study analyzes how emergency room doctors change their behavior when the waiting room is crowded. Resources in a fast-care setting such as emergency departments are limited (namely physicians’ time), and so it is important to study the extent to which those restrictions reflect on lower provision of care when more patients are waiting. The paper evaluates doctors’ response to an increase in the number of people waiting on three different dimensions: time spent with patients, number of exams and lab tests during the patient’s visit, and likelihood of being sent home or to a primary care facility rather than being treated at the hospital.
This paper investigates the impact of PhD funding on the time to PhD completion, using data of PhD holders working in Portugal. Time to PhD completion has been a major cause for concern for research funding agencies, universities, academics, and doctoral students facing increasingly constrained labor markets, particularly in academia. The Higher Education Funding Council for England reported that, in 2013, around 73% of those starting Ph.Ds. in 2010/11 were projected to take 7 years to receive the degree, while in the USA all fields of knowledge reported median times of more than 6 years to complete the Ph.
Are training grants a useful policy to increase productivity? (A policy suggestion during the coronavirus pandemic.)March 16, 2020
Recent research by the European Investment Bank indicates that workers in Europe spend less than 0.5% of their working time on training. This figure seems too low and indeed there are good economic reasons to suggest some degree of under-provision of training. First, training is expensive for firms, as it entails significant direct and indirect costs. Second, employers know they will lose their investments in training if employees subsequently leave.
How does personal consumption evolve over the life-cycle? According to the permanent income/life-cycle theory of consumption, primarily associated with Milton Friedman and Franco Modigliani, the answer to this question is that consumers try to smooth consumption over time, with significant adjustments occurring only in the event of permanent shocks to income. Empirical studies of consumption behavior, however, tend to find that consumption presents a hump-shaped pattern, mimicking the life-cycle pattern of income.
In the wake of the international financial crisis and the sovereign debt crises there has been a pronounced and increase of non-performing loans (NPLs) with the potential to impact banks’ supply of credit and ultimately economy-wide growth. This is a relevant topic in many European Countries, including Portugal, where in mid-2016 NPLs accounted at one time for almost 18% of banks’ total loans. The paper analyses the impact of Portuguese banks’ NPLs on their loan supply to non-financial corporations (NFCs) in the 2009-2018 period.
This paper investigates the impact of corporate taxes on entrepreneurial activity using a quasi-natural experiment in Portugal. Before 2001, the corporate tax rate levied on start-ups in Portugal was 34%. The “Portuguese Tax Benefits for Inland Regions” (Benefícios Fiscais à Interioridade) implemented in 2001 reduced the corporate tax rate to 25% for all start-ups located in inland regions. After 2004, the tax rate was further reduced to 15%, and after 2007 it was reduced to 10%.
This paper addresses the question of whether increased energy efficiency, as measured by the Energy Performance Certificate (EPC), has an impact on the transaction price of residential properties in Portugal. The investigation of the relationship between the EPC label and residential property prices is carried out through the econometric estimation of an hedonic price model, which has been used as the workhorse model of house prices. Using a dataset of 256,000 residential property sales for Portugal, this paper estimates a price premium for energy efficiency.
Collective bargaining – the negotiation about working conditions between one or more employers and workers’ representatives – can improve wages, working time and various other dimensions of employment. Successful bargaining that takes into account the characteristics of the firms and workers involved can also increase engagement and stability, improve productivity and profitability. This paper investigates the extent to which collective bargaining in Portugal has changed any employment dimension, over and above existing statutory labor laws.
How do credit shocks affect firms’ employment adjustment and exit? How does the propagation of these shocks depend on labor rigidities? Do credit shocks reinforce or hinder productivity-enhancing reallocations in the real economy? According to the classic Schumpeterian view, shocks should bring about creative destruction and a “cleansing eﬀect” on the real economy. However, financial frictions might attenuate or even reverse this, thus leading to “scarring”. The contribution of the paper is to exploit the exogeneity of a credit shock to Portugal to analyze these contrasting issues, and document how the responsiveness of firms to credit shocks depends on labor rigidities.
The age composition of the population in higher income countries has changed considerably. Signs of population aging have prompted concerns about its effects on the cost of health care systems. As people are living longer are they living healthier? On the one hand, the hypothesis of life extension, proposes that we are living longer but in poorer health. On the other hand, the optimistic hypothesis of “morbidity compression” proposes that as we live longer we spent less time in poor health.
In the 2017 Special Eurobarometer on Corruption, 92% of Portuguese respondents stated that corruption is a widespread problem in their country (EU average: 68%) and 70% of businesses agreed that the only way to succeed is to have political connections. At the economic level, and since the beginning of the 21st century, economic growth has been dismal, resulting in a divergence from the average per capita income in the EU. Whether corruption is a threat or an opportunity to economic growth remains however an open question.
In Portugal, in 1940, only 40% of the population knew how to read. The causes of this backwardness, as well as the the rapid increase of literacy rates in the subsequent decades have been the focus of considerable research, and some controversy. This paper measures the contribution of the increase in the number of primary schools since the 1940s to the increase in school enrolment and literacy rates by the beginning of the 60s.
The euro area sovereign debt crisis exposed the linkages between banks and sovereigns and their adverse implications. In 2010, when sovereign spreads rose in several countries, tensions swiftly transmitted to the banking sector, uncovering the intertwining of banks’ and the respective sovereigns’ creditworthiness. Against a backdrop of already fragile fiscal positions, public finances in some countries were hampered by government support to banking institutions to avoid further systemic stress. These transmission mechanisms were reinforced during the crisis because, as sovereign distress intensified and led to loss of market access in some countries, banks substantially expanded their holdings of domestic sovereign debt.
This paper reports on a large-scale (randomized) field experiment designed to assess ATMs' (automatic teller machines) capacity to “get out the vote”, an unexploited method of voter mobilization. The experimental design used the full universe of functioning ATMs in Portugal, which benefits from a sophisticated world class system with wide national coverage. The experiment randomly selected a set of treatment civil parishes, where a civic message took over the totality of ad time in ATMs, and compared with a set of control civil parishes where advertisements ran as usual.
Multinational enterprises are a significant contributor to the world economy as evidenced by indicators of foreign affiliate activity such as sales, employment, exports, value added and assets. This paper studies their role as agents of competition using the Portuguese economy. Multinational activities might affect the host country industry dynamics due two main opposing effects. On one hand, the presence of foreign firms may induce less efficient domestic firms to exit the market (a crowding-out effect) through, for example, aggressive business practices of foreign firms (e.
The unemployment classification relies on the degree of attachment to the labor market, based on the job search criterion. An individual aged between 15 and 74 years-old is considered to be unemployed if he or she is not working, but is actively searching for a job and is available to start working within the next two weeks. Several studies have highlighted the arbitrariness of the unemployment classification criteria used in the Portuguese Labor Force Survey, considering that the non-employed population is a heterogeneous group.
More than 40 countries around the world and a handful of American cities have introduced, or are considering introducing, soda taxes. In addition to raising tax revenues, these instruments aim to reduce the consumption of products whose prices do not reflect their true social costs, by making them comparatively more expensive (and increasing awareness about the negative effects of their consumption). Tobacco and alcohol taxes are classic such examples. The same rationale applies to soda (and other unhealthy foods and drinks): excessive sugar intake from soda is associated with higher prevalence of diseases such as obesity and diabetes, with the costs of treating these diseases falling on everyone.
China’s rise as an export powerhouse has impacted labor markets across the Western world – but the effects appear to differ dramatically across countries. We evaluate the impact of rising Chinese exports on employment in Portuguese manufacturing industries by looking at both direct competition in the Portuguese market and indirect competition in Portugal’s largest export markets in Western Europe (Germany, Spain, Italy, France , and the UK). In addition, we explore how Portugal’s stringent labor market regulations might have shaped those responses.
Migration might constitute one possible pathway to mitigating the effects of the aging population on the financial stability of pension systems as migrant flows tend to present younger age-structures than their receiving countries. While this argument was proposed a few decades ago and subject to discussion ever since, there have only been a few empirical studies striving to assess the role of migration in the financial sustainability of public pension systems.
Quite often, one encounters arguments advocating that mergers or amalgamation of territorial units are a pathway to reduce public spending and increase efficiency, pointing to advantages of economies of scale in the provision of public services. However, this article argues that these advantages might have been oversold. The article assesses the changes on municipal efficiency that stem from the 2013 Portuguese local territorial reform that reduced the number of local governments and parishes by around 29%.
It is often argued that public policies to support investment and innovation play a vital role when firms have difficulties in accessing external finance. However, several studies have demonstrated that public support can have no effect on the policy targets or even have a negative effect on firm performance. Oneexplanation for these findings could be the selection process to participate in public support programs. The aim of the article is to assess differences in investment project characteristics (expected impact) between firms with approved and non-approved applications and to understand which kinds of projects are selected for a subsidy.
The combination of projected expenditure increases in the Portuguese public pension scheme and low rates of private saving constitutes a policy challenge, not least because the former may be associated with the later. The impact of public pension wealth on private saving has been widely studied since the late 1970’s, yet no consensus on the topic has been reached so far. Some authors find evidence that public pension wealth impacts negatively private saving, others argue that the effect is not statistically significant.
Where did the money go? Why did Southern and peripheral European countries fair so poorly during a period of large capital inflows from the rest of Europe?March 19, 2019
TFP and value-added gains from an efficient allocation of resources between 1996 and 2011. Weak or even negative productivity growth is a major reason for the poor economic performance of most Southern and peripheral European countries, including Portugal, in the 2000s. This weak, or even negative, productivity growth happened at the same time that the Eurozone became more financially integrated, which is something that was expected to improve resource allocation efficiency, facilitate risk sharing, and boost economic growth.
The Bank of Portugal in collaboration with the Fundação Manuel dos Santos organizes every two years a competition to select the best masters theses written on the Portuguese Economy from across all higher education institutions in Portugal. At the _9.ª Conferência Desenvolvimento económico português no espaço europeu _16 theses were presented. The thesis “Estimating Gender Differences in the Probability of Unemployment: Evidence From Portugal” by Joana Passinhas from ISEG won the 2018 Prémio José da Silva Lopes, awarded by the Bank of Portugal to the best thesis.
The Portuguese labor reform of 1999 increased the maximum duration of unemployment benefits only for workers in specific age brackets. Workers with ages outside of the affected brackets had no change in the maximum benefit duration. Workers between 30 and 34 years old, for example, had the maximum benefit duration extended from 15 months to 18 months. But for workers between 35 and 39 years old, the maximum benefit duration was unchanged at 18 months.
Fixed costs associated with learning about demand and setting up distribution networks are expected to be lower when there are more potential contacts in the destination market, suggesting a greater probability of market entry and larger export revenues. This paper matches historically-determined emigration stocks with detailed firm-level data from Portugal to examine the effect of migrant networks on export outcomes. Portugal offers unique historical features for this analysis. First, the motives and timing of the sizable emigration flows observed in the country during the _Estado Novo _authoritarian regime, along with their steep fall in the aftermath of the democratic revolution of 1974, alleviate concerns of reverse causality.
How and why firms become successful exporters? To answer this question, the paper examines the joint evolution of export revenue, and input and output prices over the firm’s life cycle. Using detailed micro data from the Portuguese manufacturing sector, the paper finds that export revenue tends to rise with experience in export destinations, and that successful firms that export for longer periods to a destination tend to ship larger quantities at lower prices to that market, while using more expensive inputs.
The effect of competition by Chinese exports in international markets on the Portuguese labour marketFebruary 19, 2019
Chinese exports may affect a given country directly through intensifying competition in the domestic market, but also indirectly in foreign markets where firms from that country compete with Chinese exports. In fact, the large export market share gains of China in low-tech, low-skill products, like textiles, clothing, footwear, and electric appliances, were accompanied by losses in the export shares of several other countries, like Portugal. These indirect effects of competition in third-country export markets are the main object of this study; they can be significant given the growing sophistication of China’s exports, implying greater competition in virtually all industries in which developed economies operate.
Understanding the effect of exchange rate movements on international trade is a major issue for economists and for policy-makers. Using a quasi-natural experimental evidence on the effects of exchange rate shocks on export prices, quantities and export participation, the paper examines the consequences of the large, sudden and unanticipated plunge in the British pound following the Brexit referendum. As figure 1 shows, the pound depreciated sharply against the Euro after the referendum and it has stayed more or less at that level since.
This research examined the determinants of microcredit loan repayment based on a sample of 752 microcredit loans granted in Portugal by the National Association for the Right to Credit, adopting individual lending mechanisms and granting loans through partnerships with several credit institutions. This is the first study to ascertain the influence that a set of factors – grouped into three categories: borrowers’ individual characteristics; loan characteristics; and characteristics of business projects implemented by borrowers – has on the repayment ability of microcredit programs, in a developed country of the Eurozone experiencing the financial hardships of the 2008-2009 crisis.
In many countries and industries, cooperatives constitute a significant share of activity. Despite this widespread presence, there is little evidence on the merits of this organizational form with respect to productive efficiency relative to the more dominant way of organizing production through investor-owned firms. In this paper, we contribute towards answering the long-standing question of whether cooperatives are more or less efficient than investor-owned firms by providing empirical evidence from Portugal.
Innovations in digital government as business facilitators: international evidence and implications for PortugalJune 25, 2018
Administrative and regulatory burden reduction has become a priority to improve governmental efficiency and economic competitiveness. Innovations in government through Information Communication Technologies are seen as key tools in designing policies to achieve those goals. Although Portugal has been improving in the business environment and electronic government development indicators and considered a top reformer in some international reports, it is still far from the best-performing countries in several dimensions. Using a large panel dataset, covering 174 countries from 2004 to 2016, we investigate a possible contribution of innovations in digital governments to facilitate business,and extract implications for Portugal.
There are increasing open innovation trends threatening, but also creating opportunities to Portuguese firms. Open innovation includes the systematic encouragement and exploration of a wide range of internal and external sources for innovative opportunities, the integration of this exploration with firm capabilities, and the exploitation of these opportunities through multiple channels. This study aims to identify the sectors whose firms most engage in open innovation and which sources/agents of innovation are most used.
This paper examines the relationship between the capital structure of Portuguese small and medium enterprises(SMEs) and their export performance. The Portuguese industrial firms are of great importance for the domestic economy and played a significant role in the country’s economic recovery amid the recessionary environment of the last decade. Being smaller and privately owned, and thus with less publicly available information, SMEs tend to face greater agency and asymmetric information problems that impact investment and performance generally, and export performance more specifically.
In late 2011, Portugal increased the statutory VAT rate on electricity from 6% to 23% as part of the austerity plan under the country’s international bailout. Naturally, this austerity measure met with widespread concern for its potentially negative effects on both economic performance and social justice. Seven years after its introduction, the country is facing a brighter economic outlook and a more positive outlook for its public finances. Nevertheless, there is no sign that authorities plan to reinstate the reduced VAT rate.
This paper asks why companies retain older workers while not hiring older workers in Portugal. The Portuguese case is particularly relevant to study this question, because the level of participation of older workers in the labor market is at least twice as high in Portugal when compared to European countries. Using unique matched employer-employee data of 2007, from Quadros de Pessoal, thispaper examines the determinants of hiring individuals aged 50 and older.
A significant fraction of forest fires in Portugal has human origin, either because of negligence or unadjusted forest practices or as consequence of criminal actions. This paper studies the social and economic factors that may influence the occurrence and the extent of fires in Portugal. This question is particularly relevant considering the many fires occurring each year and the economic and humanitarian consequences of these fires. The study uses data from 278 Portuguese municipalities between 2000 and 2011.
The study of how labor supply shocks, especially immigration, affect labor market conditions has been a long-lasting concern in empirical labor economics. The textbook model of a competitive labor market suggests that high levels of immigration should lower the wage of competing workers. Despite the common sense intuition behind the theory, existing empirical literature offers contradictory evidence. This article provides a reappraisal of the evidence from the influx that has been unique in the recent European history, the flood of more than half million returnees from Mozambique and Angola to Portugal in the mid-1970s.
This paper studies the prevalence and economic consequences of zombie companies in Portugal, specifically in two major sectors of activity, construction and services. These sectors are less exposed to external competition and zombie companies may remain due to reduced competitive forces. Zombie companies are supported by easy credit access and low interest rates and would fail in other market conditions, all else equal. Specifically, zombie companies are those operating for more than 10 years that have an interest coverage ratio lower than 1–signifying that interest expense is at least as large as company earnings–for at least 3 consecutive years.
This paper presents an analysis of developments in the Portuguese fish processing industry from the 1960s to the present as well as prospects for future expansion. In this period, Portugal has undergone tremendous political and macroeconomic changes. While Portugal used to be nearly self-sufficient in the supply of fish, the country has become a net importer of this commodity. These changes have also affected fish processing. Moreover, the development of the industry has been promoted in several different ways both by the EU and the government of Portugal.
This research tests the relation between stock market and economic growth for Portugal using data from 1993 to 2011. Because Portugal is a small open economy traditionally dependent on bank financing, we also consider the relation between bank financing and economic growth. The empirical approach focuses on the study of the relation between stock market and bank financing with economic growth in Portugal, but also identifies structural changes on these relations during the period of study.
This paper undertakes an economic analysis of the Portuguese fisheries sector and fish markets for the period 1960–2011. In this period, the Portuguese economy underwent significant change as well as was subject to numerous external shocks. The main shocks include the revolution of 1974, substantial emigration as well as immigration, membership of the European Union in 1986, and the adoption of the Euro in 1999. The fisheries sector was exposed to a major shock of its own: the introduction of 200 mile Exclusive Economic Zones in 1977 essentially lead to the demise of Portugal as a Distant Water Fishing State (DWFS).
This paper examines the DBRS sovereign credit rating methodology and its rating decisions on Portugal. The paper identifies country-specific risk factors and technical specifications that justify the agency’s issuance of Portugal’s investment-grade notation throughout the sovereign debt crisis - which preserved Portugal’s access to the ECB bond purchase program. Both qualitative and empirical findings show that DBRS had a comparably lenient rating approach to Portugal within the DBRS cross-country rating decisions as well as in comparison to other rating agencies.
_One moderate alternative to the war on drugs is to follow Portugal’s lead and decriminalize all drug use while maintaining the illegality of drug trafficking. – _Gary S. Becker and Kevin M. Murphy (2013) In the late 1980s and 1990s a growing population of intravenous heroin users became a major threat to public health in Portugal, where rates of heroin users were among the highest in Europe. In the mid’90s Portugal engaged in an intensive debate on alternative enforcement policies to deal with drug use and, in 1998, a panel of leading scholars and medical professionals presented a report with recommendations rooted in understanding drug dependency as a disease rather than a crime.
Portugal is less productive than advanced economies. Paradoxically, the recent improvement in areas such as human capital, investment in innovation and R&D or a more friendly business environment has yet to lead to convergence in productivity levels. The Portuguese labour productivity as a percentage of G7 countries peaked in 1993 at 63.4%, decreasing since then to 58.4%. A similar trend is observed for productivity as a percentage of the average of EU core countries (from 60.
This paper presents results of time series techniques assessing the macroeconomic impact of investment in public-private partnerships (PPPs) on public and private investment in Portugal, using data for the period 1998-2013. The approach used allows the computation of crowding-in/crowding-out effects of investment from PPPs, that is, whether investment in PPPs provides favorable spillovers for the undertaking of private and public investment or otherwise is detrimental to its development. This area of research is particularly topical because this way of financing investment witnessed a surge in Portugal in the early 2000’s.
Recessions are conventionally considered as times in which low-productivity firms are driven out of the market at a relatively accelerated pace and resources freed to more productive uses as a result. But recessions that are closely associated with financial crises can reduce efficiency in resource reallocation through reduced bank lending to profitable projects. Banks may also forbear bad debtors, delaying the process of firm death in an effort to protect their own balance sheets, thereby hindering one of the key mechanisms through which productivity growth does its job.
In Portugal, as in many other countries in continental Europe, the collective wage agreements between trade unions and employer associations are systematically extended to non-subscriber workers and employers. Since these agreements establish wage floors for most job titles, their frequent extension is equivalent to setting a wide range of compulsory minimum wages, which are regularly adjusted upward. In some firms these extensions can result in a wage structure that may not be appropriate, causing fewer hirings or added dismissals.
Over the past 20 years, Portugal has gone through a boom, a slump, a sudden stop, and now a timid recovery. Unemployment has decreased, but remains high, and output is still far below potential. Competitiveness has improved, but more is needed to keep the current account in check as the economy recovers. Private and public debt are high, both legacies of the boom, the slump and the sudden stop. Productivity growth remains low.
There are several incentives to engage in earnings management, which managers need to consider. Likewise, there are different ways to drive earnings and cash flows in a certain direction. Given the complex context in which firms operate, earnings management may be seen has a continuous and iterative process characterized by a mixture of incentives and practices. This research studies earnings management in Portuguese listed firms. The paper addresses two main strategies, namely real management and accrual management.
Call for Papers: Economic Policy in Portugal: Competition, Innovation, and Competitiveness and InternationalisationMarch 29, 2017
The Portuguese Economic Journal is launching a call for papers for a special issue on** Economic Policy in Portugal: Competition, Innovation, and Competitiveness and Internationalisation.** Submissions are welcome from 16 to 30 September 2017. Papers accepted for publication will be awarded a Eur. 3,000 prize sponsored by Gabinete de Estratégia e Estudos of the Portuguese Ministry of Economy. You can find more information on the call for papers on the official website.
The recent crises raised a number of questions about the role of structural reforms in promoting economic growth. One area that has received greater attention is collective bargaining: the interactions between firms and employees in setting of pay and many other working conditions can be highly relevant promoting micro and macro flexibility, increasing resilience during a crisis and growth during the recovery. This paper studies the causal impact of collective bargaining on the labor market.
Policy makers and academics put great effort in understanding and minimising the negative employment effects of business cycles. This paper evaluates one policy option in this regard: greater flexibility in the maximum duration of fixed term contracts during recessions. Its simple rationale is that, when faced with an uncertain outlook (and restrictive permanent contracts), firms may be more likely to dismiss fixed-term contracts if the only legal alternative is to convert them.
When did Portugal’s economy diverge from the European core? This paper constructs the first time-series for Portugal’s per capita GDP for 1500-1850, drawing on a new and extensive database. Starting around 1550 there was a highly persistent upward trend on per capita income, which accelerated after 1700 and peaked 50 years later. At that point, per capita incomes were high by European standards. Portuguese per capita GDP was about as high as that of Britain, Italy and the Netherlands, and higher than that of France, Spain, Germany and Sweden.
Does monopoly power (i.e. markups) increase or decrease in recessions? If market power increases in recessions, production becomes more inefficient aggravating the recession. However, if market power decreases, competition works as a self-correcting mechanism in the economy increasing overall efficiency. For this reason, understanding how markups fluctuate has been so central in the debate about macroeconomic policy effectiveness. This debate is far from being solved. Its answer is empirical. However, there are two empirical challenges to determining the type of cyclical behavior of markups: (i) separating supply (productivity) shocks from demand shocks and (ii) properly measuring the markups.
Historic cities are identifiable through their iconic monuments and buildings. Location relative to these structures generate premiums in the housing market. We examine the impact of such historic amenities on housing prices in Lisbon, Portugal. Results reveal heterogeneous impacts from different types of monuments. Churches, palaces and stone architecture have their own unique impact on the market and landmarks generate the highest premiums. Residents value living in proximity to a non-landmark church (yielding a premium of 4.
Large current account deficits in European economies, among them Portugal, have been a decisive feature of the European banking and sovereign debt crisis. While the Portuguese current account has undergone a severe adjustment, the level of external debt remains among the highest in Europe and reducing it down to the threshold defined by the EU-Commission’s Macroeconomic Imbalance Procedure is likely to take decades. Research relates the external imbalances occurring in the run-up to the crisis to a number of factors.
Money markets were severely impaired by the financial crisis and subsequent sovereign debt crisis. During the summer of 2007, BNP Paribas suspended redemptions for three investment funds due to the uncertainty regarding structured products. This event triggered the first stage of the financial crises in the euro area and linked it to the subprime mortgage crisis in the US. Afterwards, interbank lending was disturbed and the sovereign debt crisis aggravated the problem as country risk became a significant part of bank risk.
Using a dataset with information on new loans granted in Portugal, we find that when firms switch to a new bank they are able to obtain lower interest rates. This result is in line with previous findings in the literature. However, the existing literature fails to explain which of two competing explanations drive these results. On one hand, banks may offer lower rates to compensate firms for the costs they face when switching.
Firms are extremely heterogeneous in their ability to transform a combination of inputs, like capital and labor, into the goods they decide to produce. One can point to many potential sources of heterogeneity and changes in productivity. Some of these sources are exogenous to a firm’s actions and can be most simply modeled as idiosyncratic (like random innovations or production disruptions). Some others are the organizational responses to changes in demand and consumer tastes, factor prices, and other changes in the economic environment, like trade liberalizations and tax reforms.
Over the last decades, Public-Private Partnerships (PPPs) have become a popular means for governments to build and maintain large infrastructure and public services. Portugal has used PPPs intensively (by 2011, it was the European country with the highest investment in PPPs as a % of GDP), mainly for highways. This paper raises the issue of why PPPs are so frequently renegotiated, and what effect those renegotiations have on PPP efficiency. We analyse who – the public or private party – initiates the renegotiation of the PPP contract and which reasons for renegotiations are most common.