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Current Account and Employment Effects of Public Guarantees by Aval and Participation Guarantees

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  • Thomas Url

    (WIFO)

Abstract

The Austrian export credit guarantee system has been active since 1995 and shows a balanced budget. The use of public credit guarantees can overcome asymmetric information between creditors and borrowers and improve the access to bank credit finance, also lowering financing costs. The results of applying a matching estimator to Austrian firms using guarantees by aval show a significantly higher growth in employment and turnover as well as lower financing costs. A similar analysis of performance guarantee by aval does not reveal clear-cut results. Users of participation guarantees by aval and of G4-participation guarantees do not differ significantly from the control group as regards their employment, turnover, and per-capita wage growth as well as their financing costs at domestic business locations. During the financial market crisis, guarantees by aval proved to be a flexible and suitable instrument to keep up trust among market participants. Between the years 2000 and 2009 public guarantees for foreign acquisitions and direct investments covered around one-fifth of Austria's stock of active foreign direct investment. Ongoing income from active foreign direct investments improves the income balance of the current account.

Suggested Citation

  • Thomas Url, 2018. "Current Account and Employment Effects of Public Guarantees by Aval and Participation Guarantees," WIFO Studies, WIFO, number 61057, November.
  • Handle: RePEc:wfo:wstudy:61057
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