Tag: Germany

What Can We Learn from Regional Patterns of Mortality During the Covid-19 Pandemic?

Doctor outside COVID-19 isolation center representing covid-19 pandemic mortality

Given the nature of the spread of the virus, strong regional patterns in fatal consequences of the Covid-19 pandemic are to be expected. This brief summarizes a detailed examination of the spatial correlation of deaths in the first year of the pandemic in two neighboring countries – Germany and Poland. Among high income European countries, these two seem particularly different in terms of the death toll associated with the pandemic, with many more excess deaths recorded in Poland as compared to Germany. Detailed spatial analysis of deaths at the regional level shows a consistent spatial pattern in deaths officially registered as related to Covid-19 in both countries. For excess deaths, however, we find a strong spatial correlation in Germany but little such evidence in Poland. These findings point towards important failures or neglect in the areas of healthcare and public health in Poland, which resulted in a massive loss of life.


While almost all European countries currently refrain from imposing any Covid-19 related restrictions, the pandemic still takes a huge economic, health and social toll across societies worldwide. The regional variation of incidence and different consequences of the pandemic, observed over time, should be examined to draw lessons for ongoing challenges and future pandemics. This brief outlines a recently published paper by Myck et al. (2023) in which we take a closer look at two neighboring countries, Germany and Poland.  Within the pool of high-income countries, these are particularly different in terms of the death toll associated with the Covid-19 pandemic. In 2020 in Poland, the excess deaths rate (with reference to the 2016-2019 average) was as high as 194 per 100,000 inhabitants, over 3 times higher than the 62 deaths per 100,000 inhabitants in Germany (EUROSTAT, 2022a, 2022b). While, in relative terms, the death toll officially registered as resulting from Covid-19 infections in 2020 was also higher in Poland than in Germany, the difference was considerably lower (about 75 vs 61 deaths per 100,000 inhabitants, respectively) (Ministry of Health, 2022; RKI, 2021). Population-wise Germany is 2.2 times larger than Poland and, before the pandemic struck, the countries differed also in other relevant dimensions related to the socio-demographic structure of the population, healthcare and public health. The nature of Covid-19 and the high degree of regional variation between and within the two countries along some crucial dimensions thus make Germany and Poland an interesting international case for comparison of the pandemic’s consequences. We show that the differences in the spatial pattern of deaths between Germany and Poland may provide valuable insight to the reasons behind the dramatic differences in the aggregate numbers of fatalities (Myck et al., 2023).

Regional Variation in Pandemic-Related Mortality and Pre-Pandemic Characteristics

We examine three measures of mortality in the first year of the Covid-19 pandemic in 401 German and 380 Polish counties (Kreise and powiats, respectively): the officially recorded Covid-19 deaths, the total numbers of excessive deaths (measured as the difference in the number of total deaths in year 2020 and the 2015-2019 average) and the difference between the two measures. Figure 1 shows the regional distribution of these three measures calculated per 1000 county inhabitants. All examined indicators were generally much higher in Poland as compared to Germany. In Poland, deaths officially registered as caused by Covid-19 were concentrated in the central and south-eastern regions (łódzkie and lubelskie voivodeships), while in Germany they were concentrated in the east and the south (Sachsen and Bayern). Excess mortality was predominantly high in German regions with high numbers of Covid-19 deaths, but also in nearby regions. As a result, these same regions also show greater differences between excessive deaths and Covid-19 deaths. On the contrary, high excessive deaths can be noted throughout Poland, including the regions where the number of Covid-19 deaths were lower. In the case of Poland, spatial clusters are much less obvious for both excess deaths and the difference between excess and Covid-19 deaths. To further explore the degree of regional variation between and within countries with respect to the mortality outcomes, we link them to regional characteristics such as population, healthcare and economic conditions, which might be relevant for both the spread of the virus and the risk of death from Covid-19. In Figure 2 we illustrate the scope of regional disparities with examples of (a) age structure of the population, (b) the pattern of economic activity and (c) distribution of healthcare facilities in years prior to the pandemic.

Figure 1. Regional variation of death incidence in 2020: Germany and Poland.

Note: The panels share a common legend based on the quintile distribution of Covid-19 deaths, with two additional categories added at the top and bottom of the scale. County borders in white, regional borders in yellow and country border in grey. Source: Myck et al. (2023).

Figure 2. Pre-pandemic regional variation of socio-economic indicators: Germany and Poland.

Note: Two top and bottom categories in the legend cover 10% of observations each, the rest of categories cover 20% of observations each. County borders in white, regional borders in yellow and country border in grey. Source: Myck et al. (2023).

Shares of older population groups (aged 85+ years) are clearly substantially higher in Germany compared to Poland, and within both countries these shares are higher in the eastern regions. On the other hand, the proportion of labor force employed in agriculture is significantly higher in Poland and heavily concentrated in the eastern parts of the country. In Germany, this share is much lower and more evenly spread. This indicator illustrates that socio-economic conditions in 2020 were still substantially different between the two countries. The share of employed in agriculture is also important from the point of view of pandemic risks – it reflects lower levels of education, and specific working conditions that make it challenging to work remotely yet entail less personal contact and more outdoor labor. The distribution of hospital beds reflects the urban/rural divide in both countries. It is also a good proxy for detailing the differences in the overall quality of healthcare between the two countries, i.e. displaying significantly better healthcare infrastructure in German counties.

Uncovering the Spatial Nature of Excess Deaths in Germany and Poland

While spatial similarities among regions are present along many dimensions, they are particularly important when discussing such phenomena as pandemics, when infection spread affects nearby regions more than distant ones. With regard to the spatial nature of excess deaths in the first year of the pandemic, a natural hypothesis is thus that the pattern of these deaths should reflect the nature of contagion. This applies primarily to excess deaths directly caused by the pandemic (deaths resulting from infection with the virus). At the same time, some indirect consequences of Covid-19 such as limitations on the availability of hospital places and medical procedures, or lack of medical personnel to treat patients not affected by Covid-19, are also expected to be greater in regions with a higher incidence of Covid-19. On the other hand, spatial patterns are much less obvious in cases where excess deaths would result, for example, from externally or self-imposed restrictions such as access to primary health care, reduced contact with other people, diminished family support, or mental health problems due to isolation. While these should also be regarded as indirect consequences of the pandemic, as they would arguably not have realized in its absence, these consequences do not necessarily relate to the actual spread of the virus. Our in-depth analysis of the spatial distribution of the three examined mortality-related measures, therefore, allows us to make a crucial distinction in possible explanations for the dramatic differences in the observed death toll in the first year of the pandemic in Germany and Poland. We explore the degree of spatial correlation in the three mortality outcomes using multivariate spatial autoregressive models, controlling for a number of local characteristics (for more details see Myck et al., 2023).

We find that in Germany, all mortality measures show very strong spatial correlation. In Poland, we also confirm statistically significant spatial correlation of Covid-19 deaths. However, we find no evidence for such spatial pattern either in the total excess deaths or in the difference between excess deaths and Covid-19 deaths. In other words, in Poland, the deaths over and above the official Covid-19 deaths do not reflect the features to be expected during a pandemic. As the results of the spatial analysis show, these findings cannot be explained by the regional pre-pandemic characteristics but require alternative explanations. This suggests that a high proportion of deaths results from a combination of policy deficits and individual reactions to the pandemic in Poland. Firstly, during the pandemic, individuals in Poland may have principally withdrawn from various healthcare interventions as a result of fear of infection. Secondly, those with serious health conditions unrelated to the pandemic may have received insufficient care during the Covid-19 crisis in Poland, and, as a consequence, died prematurely. This may have been a result of lower effectiveness of online medical consultations, excessive limitations to hospital admissions – unjustified from the point of view of the spread of the virus, and/or worsened access to healthcare services as a result of country-wide lockdowns and mobility limitations. The deaths could also have resulted from reduced direct contact with other people (including family and friends as well as care personnel) and mental health deterioration as a consequence of (self)isolation. Our analysis does not allow us to differentiate between these hypotheses, but the aggregate excess deaths data suggests that a combination of the above reasons came at a massive cost in terms of loss of lives. The consequences reflect a very particular type of healthcare policy failure or policy neglect in the first year of the pandemic in Poland.

Our study also shows that a detailed analysis of country differences concerning the consequences of the ongoing pandemic can serve as a platform to set and test hypotheses about the effectiveness of policy responses to better tackle future global health crises.


The authors wish to acknowledge the support of the German Research Foundation (DFG, project no: BR 38.6816-1) and the Polish National Science Centre (NCN, project no: 2018/31/G/HS4/01511) in the joint international Beethoven Classic 3 funding scheme – project AGE-WELL. For the full list of acknowledgements see Myck et al. (2023).


Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

How Are Gender-role Attitudes and Attitudes Toward Work Formed? Lesson from the Rise and Fall of the Iron Curtain

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Gender differences in attitudes toward work and gender-role attitudes are important determinants of gender inequality in the labor market. In this brief we show that these attitudes vary considerably across countries and can also change within the same country over a relatively short time period. We then present evidence that politico-economic regimes that make substantial effort to bring women into the labor market can shape these attitudes: gender differences in attitudes toward work decrease, and gender-role attitudes become less traditional. Cultural norms with long historical roots are not necessarily invariant to large shocks, and policies aimed at raising women’s presence in the labor market can activate virtuous cycles of increasing female employment. 

Gender inequality and cultural attitudes

Levels of gender inequality in the labor market differ considerably worldwide, even among countries at similar levels of economic development. Policies, technology, and economic conditions have long been shown to play an important role in explaining cross-country and regional differences in gender inequality. More recently, researchers have emphasized the role of cultural attitudes, such as women’s attitudes toward work and gender role attitudes (i.e. the beliefs that individuals hold regarding the appropriate roles of men and women in societies). Fortin (2008), for instance, finds that gender differences in attitudes towards work account for part of the existing gender wage gap in the US.  Further, Fernández et al. (2004) show that differences in gender-role attitudes partly explain existing variation in female labor force participation. Given that gender differences in attitudes toward work and gender-role attitudes contribute to explain gender inequality in the labor market, economists have recently started studying the origins of these attitudes and their sources of variation over time.

In this policy brief we first document variation across space and over time in gender differences in attitudes toward work and gender-role attitudes; then, we present evidence that politico-economic regimes that put emphasis on women’s inclusion in the labor market can shape these attitudes.

Gender-role attitudes and attitudes toward work across space and over time

The World Values Survey (Inglehart et al., 2014) asks questions, among others, about the importance of work in one’s life, and about one’s beliefs on the appropriate roles for women and men in society.

Based on these questions, we measure gender differences in the importance given to work, and levels of agreement with statements regarding gender roles.  Below we show that such measures vary considerably among a sample of countries in Europe and Central-Asia, as well as within countries over time.

Figure 1 shows gender differences in the percentage of survey respondents who reported that work was very important or rather important to them in the survey wave of 1995-1998. There is substantial cross-country variation in whether men or women give more importance to work, and in the magnitude of the gender difference. Moreover, the underlying variation across women is larger than across men (data not shown): the minimum and maximum values among men are 84% (in Georgia) and 97.5% (in Bosnia), whereas the respective values for women are 77% (in Georgia) and 96.6% (in Macedonia).

Figure 1. Gender differences in attitudes toward work

Source: Data are from the 1995-1998 wave of the World Values Survey. Individuals are asked the following question: Please say, for each of the following, how important is work in your life, and the options given are Very important, Rather important, Not very important, Not at all important. Countries selected are those in Europe and Central Asia where the question was asked in the 1995-1998 wave.

Figures 2 and 3 show variation across countries in gender role attitudes. The share of respondents who agree with the statement “A working mother can establish just as warm and secure a relationship with her children as a mother who does not work “varies from a minimum of 47% in Poland to a maximum of 93% in Finland. The share of respondents who agree with the statement “Both the husband and wife should contribute to household income” varies from a minimum of 78% in Armenia and Finland to a maximum of 98% in Albania.

Figure 2. Working mother: warm relationship with her children.

Source: Data are from the 1995-1998 wave of the World Values Survey. Individuals are asked the following question: People talk about the changing roles of men and women today. For each of the following statements I read out, can you tell me how much you agree with each?. Do you agree strongly, agree, disagree, or disagree strongly? A working mother can establish just as warm and secure a relationship with her children as a mother who does not work. Countries selected are those in Europe and Central Asia where the question was asked in the 1995-1998 wave.

Figure 3. Husband and wife should both contribute to income.

Source: Data are from the 1995-1998 wave of the World Values Survey. Individuals are asked the following question: People talk about the changing roles of men and women today. For each of the following statements I read out, can you tell me how much you agree with each. Do you agree strongly, agree, disagree, or disagree strongly? Both the husband and wife should contribute to household income. Countries selected are those in Europe and Central Asia where the question was asked in the 1995-1998 wave.

A recent strand of the economics literature analyzes the long-term determinants of attitudes and finds that they have very deep historical roots (see Giuliano, 2018). However, attitudes also evolve over time. Figures 4 and 5 show that while in some countries attitudes remain rather stable after 1998, in other countries they change substantially. In Russia, for instance, the gender difference in attitudes toward work has doubled over a period of ten years, with men becoming from 5 to 10 percentage points more likely than women to report that work is important to them. Turning to gender-role attitudes, the percent of respondents who think that a working mother can have a warm relationship with her children has increased the most in countries as different as Macedonia and Spain. The percent of individuals who think that both husband and wife should contribute to income has increased relatively sharply in Moldova, while declining rather substantially in Montenegro and especially in Serbia.

Figure 4. Gender differences in attitudes toward work over time.

Source: See Note to Figure 1.

Figure 5. Gender role attitudes over time.

Source: See Notes to Figures 2 and 3.

The graphs thus suggest that the attitudes considered here vary not only cross-sectionally but can also change over a relatively short time period. A natural question to ask is then: what type of shocks cause a change in gender differences in attitudes toward work and in gender role attitudes?

The role of politico-economic regimes in shaping attitudes

In recent work (Campa and Serafinelli, 2018), we show that politico-economic regimes that focus on women’s inclusion in the labor market can reduce gender differences in attitudes toward work and make gender-role attitudes less traditional. Studying the question of whether politico-economic regimes can change attitudes is difficult, because countries or regions exposed to different regimes are likely very different along many other dimensions, including their history, which is known to shape attitudes. To circumvent this problem, we exploit the imposition of state-socialist regimes across Central and Eastern Europe and their efforts to promote women’s economic inclusion (see Campa and Serafinelli, 2018). First we focus on the socialist regime that emerged in East-Germany in 1949. This regime favored women’s access to tertiary education and to qualified employment through massive childcare provision and other policies that were popular throughout the entire Central and Eastern European region. Conversely, in West-Germany, women were encouraged to either stay home after they had children or take part-time jobs after extended breaks (Trappe, 1996; Shaffer, 1961). Since East and West-Germany before 1949 were part of the same country and as such had a common history and shared institutions, we can compare attitudes in East- and West-Germany after the separation to isolate the impact of different politico-economic regimes on attitudes. In other words, the underlying hypothesis is that attitudes toward work and gender role attitudes in East- and West-Germany were the same before the separation. Such a hypothesis is arguably valid especially because we compare only individuals who, during the separated years, lived relatively close to the East-West border (e.g. within 50 km from the border), and are, thus, expected to have close enough (geography, culture and social norm-driven) preferences and attitudes before the separation.

The results of the comparison can be summarized as follows: (a) due to exposure to a different politico-economic regime, East-German women participated more in the labor market and became more educated than their West-German counterparts; (b) the importance given to work by East-German women increased, which led to a lower gender gap in attitudes toward work with respect to West-Germany; (c) both women and men in East-Germany developed less traditional attitudes than West Germans regarding the relationship of working mothers with their children and the gender division of roles in the household.

In the second part of the paper, we also extend the analysis to a number of transition countries in the Central and Eastern European region. We show that in Central and Eastern Europe between 1945 and 1990 gender-role attitudes became less traditional than in Western Europe.


In this brief we have documented that gender differences in attitudes toward work and gender role attitudes vary substantially across space and can change over a relatively short time period. Since these attitudes affect the level of gender inequality in the labor market, understanding their determinants is important and policy-relevant. In recent work (Campa and Serafinelli, 2018), we exploit the imposition of state-socialist regimes in Central and Eastern Europe and show that individuals exposed to different regimes develop different attitudes toward work and different gender-role attitudes.

Such a finding suggests that policies aimed at increasing women’s participation in the labor market can activate virtuous cycles; namely, such policies might improve the cultural acceptance of female work, thus potentially further raising women’s labor force participation. The evidence from the Central and Eastern European region also suggests that history is not necessarily an excuse for inaction regarding women’s participation in the labor market. While deeply rooted cultural norms can be an obstacle to women’s economic empowerment, these norms are not necessarily absolutely time-invariant, and can respond to important economic and policy shocks.

A caveat to such conclusions is that the evidence presented here is specific to women’s attitudes toward work and attitudes regarding the acceptability of female work. Other attitudes and norms are also important in defining the level of gender equality in a society, such as those involving the division of roles in a couple when both couple members work outside of the home, the acceptability of violence against women, the suitability of women and men to different fields of education. Little is known about these attitudes and more research is needed to understand which policies, if any, can change them.


  • Campa, P. and M. Serafinelli (2018), Politico-economic regimes and attitudes: Female workers under state-socialism, Review of Economics and Statistics, Forthcoming
  • Fernández, R., A. Fogli and C. Olivetti (2004), Mothers and sons: Preference formation and female labor force dynamics, Quarterly Journal of Economics 119(4): 1249–1299.
  • Giuliano (2018). Gender: A Historical Perspective, in Oxford Handbook on the Economics of Women, ed. Susan L. Averett, Laura M. Argys, and Saul D. Hoffman, New York: Oxford University Press, forthcoming.
  • Inglehart, R., C. Haerpfer, A. Moreno, C. Welzel, K. Kizilova, J. Diez-Medrano, M. Lagos, P. Norris, E. Ponarin & B. Puranen et al. (eds.). 2014. World Values Survey: Round Three – Country Pooled Datafile Version: www.worldvaluessurvey.org/WVSDocumentationWV3.jsp.
  • Shaffer, H (1981), “Women in the two Germanies: A comparison of a socialist and a non-socialist society.”
  • Trappe, H (1996), “Work and family in women’s lives in the German Democratic Republic”, Work and Occupations 23(4): 354–377.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Operating and Financial Hedging: Evidence from Trade

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There is a large and growing literature that has modeled how real policies affect and interact with financial policies. It is important to consider such an interaction since a firm, just as a single value-maximizing agent, should make its strategic decisions optimally, taking into account all of its multi-dimensional facets (contracts with employees and suppliers, situation with market competitors, innovation, foreign-market operations and others – on the real side, and capital structure, dividend policy, IPO, hedging behavior – on the financial side). This policy brief introduces a new type of hedging exchange-rate risks through matching currencies of export revenues and import costs, and shows how it substitutes out financial hedging using currency derivatives.

Exchange-rate exposure and financial hedging around the world

Many firms are exposed to exchange-rate fluctuations in one way or the other. Because volatility is typically considered to be bad for a firm – either because small firms are risk-averse or because it may reduce the value of a risk-neutral firm through costly distress or agency costs – firms attempt to hedge it. Indeed many successfully do so. Bartram et al. (2009) report that about 60% of non-financial firms around the world use financial derivatives (forwards, futures, swaps, etc.), with the most popular type being currency derivatives (44%). These large numbers indicate the importance of risk management in general and hedging exchange-rate shocks in particular. There is also a considerable heterogeneity across countries. According to their investigation based on a subsample of world firms, currency derivative usage ranges from 6% in China and 15% in Malaysia, to 37% in the United States and 48% across Europe, to 80% in New Zealand and 88% in South Africa.

There is also some cross-sectional variation across firms. Geczy et al. (1997) report that among U.S. firms those with greater growth opportunities, tighter financial constraints, extensive foreign exchange-rate exposure and economies of scale in hedging activities are more likely to use currency derivatives.

Operational hedging

So what are potential alternatives to hedging exchange-rate exposure through currency derivatives? The literature has suggested other ways of reducing such cash-flow volatility – through operational hedges. The examples include diversifying the company’s operations and production geographically (as in Allayannis et al., 2001). The authors provide an example of Schering-Plough (a United States-based pharmaceutical company) that in their 1995 annual report suggested that hedging using financial instruments was not considered cost-effective, since the company operated in many foreign countries where the currencies would not generally move in parallel. More recent studies (e.g. Kim et al., 2006; Hankins, 2011) also support the geographical diversification of production and acquisition of foreign subsidiaries as important channels of operational hedging, and as such they can act as substitutes for financial hedging.

These papers are also part of the larger literature on the interrelations between real and financial strategies, and in particular the literature that has modeled how real policies, aimed at lowering operational risks (or alternatively increasing operating flexibility), reflect in various financial decisions (such as e.g. capital structure). Examples of such policies include the use of flexible manufacturing systems that allow changing the level of output, the product mix, or the operating “mode” (as in Brennan and Schwartz, 1985; He and Pindyck, 1992; and Kulatilaka and Trigeorgis, 2004); employing a contingent workforce (e.g. part-time and seasonal labor, as in Hanka, 1998 or workers on temporary contracts, as in Kuzmina, 2014); adopting a defined contribution, rather than a defined benefit or pension plan (as in Petersen, 1994); and many others.

Trade-related operational hedges

In Kuzmina and Kuznetsova (2016), we explore a different type of operational hedging – the one arising from exporting final goods and importing intermediate inputs from abroad at the same time. As previous literature has suggested, firms that export their final goods are naturally more exposed to exchange-rate risks due to their foreign-denominated contract obligations that have to be translated into domestic currency when the transaction clears in the future, the so-called transaction exposure of companies (Glaum, 2005). As long as volatility is costly for firms, higher exchange-rate exposure leads to more financial hedging, so previous papers indeed find a positive correlation between exporting and currency hedging (e.g. Geczy et al., 1997; He and Ng, 1998; Allayannis and Ofek, 2001).

This argument would similarly apply to firms that import their intermediate inputs from abroad, since they are similarly exposed to exchange-rate fluctuations on the cost side. In our paper, we attempt to provide new evidence on these channels, as well as to introduce a novel explanation to why not all firms hedge using financial derivatives. We show that firms that export and import at the same time hedge less using currency derivatives, and especially when volatility of exchange rate is high.  We argue that when firms both export and import at the same time, their net foreign-denominated position (and thus exchange-rate exposure) becomes lower on average, and hence there is less incentive to hedge against it. This is consistent with foreign-currency matching of costs and revenues, which is a phenomenon also observable in other data. Although in our data we cannot observe currency of individual transactions for each firm, we do so in another project based on the data from Russia. Our calculations for Russian data, based on the whole universe of import and export declarations, suggest that for the major currencies, the probability of importing in the same currency is higher than in any other currency when a firm also exports in this currency. For example, out of all firms that have exports in Euro and some imports, 82% would import in Euro. The similar number for the U.S. dollar is 71%. Such trade-related operational hedge may arise naturally for firms in the global world, thus reducing their need to use financial instruments.

Germany as an interesting laboratory

To test our hypotheses, we use hand-collected data on a sample of German public firms during 2011-2014. Germany is a particularly relevant country for testing our hypotheses for at least three reasons.

First of all, it is the world’s third largest exporter and importer and the top one in Europe. Second and most importantly, if we want to explore currency risk arising from exporting and importing, at least some (and preferably many) of the export and import transactions have to occur in a foreign currency. This means that, for example, looking at the U.S. data would not give us a lot of power in identifying our mechanism, since according to Goldberg and Tille (2008), only 5% of all U.S. export contracts are set in a currency other than the U.S. dollar. On the other hand, more than half of German exports and imports outside the euro area are denominated in a currency other than the Euro, and in particular about 30-40% of all contracts are set in U.S. dollars.  This means that our measured shares of non-euro zone exports and imports will actually have a large component of non-euro-denominated contracts, and we will have more power to measure the actual exchange-rate exposure arising from exporting and importing. Finally, we analyze the largest companies in Germany – those that trade on the Prime Standard segment of the Frankfurt Stock Exchange, since they have to disclose their use of derivatives due to the highest accounting and transparency requirements of this listing. These mandatory disclosure rules enable us to collect the data on hedging from companies’ annual reports and perform the analysis.

Identification strategy and results

To start the analysis, we provide some cross-sectional correlations. We find that firms in industries with more out-of-euro-zone exporting (importing) have a higher propensity to hedge using currency derivatives. In particular, a firm in an industry with 10pp higher export (import) shares has on average a 10.5pp (28.9pp) higher probability of currency hedging.

Although many industries simultaneously export and import a lot, others have a substantial imbalance in terms of export and import shares. We are therefore interested in whether this translates into different hedging behaviors. By adding the interaction between export and import shares in our regression specifications, we find that firms that simultaneously export and import hedge less than firms that just export or import. This is consistent with our hypothesis that firms decrease their effective exchange-rate exposure by having both revenues and costs in foreign currency and implies that operational hedging through matched currencies is a substitute for financial hedging.

In order to strengthen the result, we complement our cross-sectional correlations with a difference-in-differences methodology. To do this, we compare firms in industries with higher and lower out-of-euro-zone export and import shares during times of higher and lower exchange-rate volatility. We find that the higher the exchange-rate volatility, the larger this substitution effect is. This finding is stronger than a simple cross-sectional correlation between exporting, importing and hedging (which can be driven by omitted factors), since it uses an arguably exogenous volatility shock to show that operational hedging substitutes for financial hedging precisely during times when firms have highest incentives to hedge. The results are robust to using a set of control variables and firm and year fixed effects.


From an applied perspective, the interrelation between operational and financial strategies of the firm suggests that the decisions of the CEO and CFO should be complementary to each other to achieve the value-maximization goal of the firm. From a policy perspective, they imply that exogenous changes in government policies aimed at certain organizational changes in the firm (e.g. export promotion policies) could have indirect consequences for their riskiness and financing decisions.


  • Allayannis, G., J. Ihrig, and J. P. Weston (2001), “Exchange-rate hedging: Financial versus operational strategies”. American Economic Review 91 (2), 391-395.
  • Allayannis, G. and E. Ofek (2001), “Exchange rate exposure, hedging, and the use of foreign currency derivatives”, Journal of International Money and Finance 20 (2), 273-296.
  • Bartram, S. M., G. W. Brown, and F. R. Fehle (2009), “International evidence on financial derivatives usage”, Financial Management 38 (1), 185-206.
  • Brennan, M. and E. S. Schwartz (1985), “Evaluating natural resource investments”, The Journal of Business 58 (2), 135-157.
  • Geczy, C., B. A. Minton, and C. Schrand (1997), “Why firms use currency derivatives”, Journal of Finance 52 (4), 1323-1354.
  • Glaum, M. (2005), “Foreign-Exchange-Risk Management in German Non-Financial Corporations: An Empirical Analysis”, Springer.
  • Hanka, G. (1998), “Debt and the terms of employment”, Journal of Financial Economics 48 (3), 245-282.
  • Hankins, K. W. (2011), “How do financial firms manage risk? Unraveling the interaction of financial and operational hedging”, Management Science 57 (12), 2197-2212.
  • He, H. and R. S. Pindyck (1992), “Investments in flexible production capacity”, Journal of Economic Dynamics and Control 16 (3-4), 575-599.
  • He, J. and L. K. Ng (1998), “The foreign exchange exposure of Japanese multinational corporations”, Journal of Finance 53 (2), 733-753.
  • Kim, Y. S., I. Mathur, and N. Jouahn (2006), “Is operational hedging a substitute for or a complement to financial hedging?” Journal of Corporate Finance 12 (4), 834-853.
  • Kulatilaka, N. and L. Trigeorgis (2004), “The general flexibility to switch: Real options revisited”, Real options and investment under uncertainty: classical readings and recent contributions, 179-198.
  • Kuzmina, O. (2014), “Operating flexibility and capital structure: Evidence from a natural experiment”, American Finance Association Conference, Philadelphia.
  • Kuzmina O. and O. Kuznetsova (2016), “Operating and Financial Hedging: Evidence from Trade”, CEFIR Working paper.

Petersen, M. (1994), “Cash flow variability and a firm’s pension choice: A role for operating leverage”, Journal of Financial Economics 36, 361-383.

New Light on the Eastern Front – Contributions from Russia to the 70th Anniversary of the Victory in Europe in World War Two

Author: Lennart Samuelson, SITE.

Interesting results of the post-Soviet research on the Second World War are now presented in 12 imposing volumes, Velikaia Otechestvennaia Voina 1941 –1945 (Great Patriotic War 1941–45) written by specialists in military, political, international and economic history. Each chapter reflects the research frontier. Their style contrasts positively against Soviet works during the Cold War, and also against renewed anti-Russian historical campaigns in the West in recent years. Open archives, abolition of censorship, freedom of print as well as joint projects with Western scholars are the preconditions for progress in the historiography of Russia in the 20th century in general and of the Eastern Front during World War Two in particular.

Adapting to Capitalism

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Author: Jenny Simon, SITE

When transitioning to a free-market economy, do people adapt to the new circumstances immediately? Undoubtedly, major shifts in the political system do not escape people’s notice. They often follow extended demonstrations, spectacular coups d’état or even violent uprising. However, the changes in economic institutions that go along with such transitions, and their implications for optimal economic behavior, although fundamental, may not be apparent immediately. The German reunification provides the opportunity to study this learning process.