divestment of foreign production operations this study investigates some determinants fo the divestment of foreign manufacturing operations by norwegian companies to date very few studies have taken a closer look at what might influence whether foreign subsidiaries are divested or not although foreign direct investment in principle represent long term commitments to foreign manufacturing operations divestments are in fact quite common this study shows that more than half of a sample of foreig subsidiaries woned by norwegian companies in 1982 wee divested within a period of ten years the empirical findings indicate that foreign divestment is inversely related to economic growth in the host country and that the propensity to divest is significantly higher for subsidiaries that had been acquired than for greenfield establishments also related horizontal subsidiaries are less likely to be divested than unrelated non horizontal subsidiaries

credit booms debt overhang and secular stagnation abstract why do economies fall into prolonged periods of economic stagnation particularly in the aftermath of credit booms we study the interactions between household debt liquidity and asset prices in a model of persistent demand shortage we show that financially more deregulated economies are more likely to experience persistent stagnation credit booms or asset price booms mask this structural aggregate demand deficiency however the resulting debt overhang permanently depresses spending in the long run hence the contractionary long run effects of relaxing lending standards are the opposite of their expansionary short run effects these findings are in line with the macroeconomic developments in japan during its lost decades and other advanced economies before and during the great recession

what are the consequences of initiative taking in multinational subsidiaries the phenomenon of subsidiary initiative has received increasing attention in recent years but the consequences of initiatives and the associated dynamics of headquarters subsidiary relationships have received much less research attention building on resource dependence theory and self determination theory we argue that two basic goals subsidiary managers pursue are to achieve autonomy vis a vis corporate headquarters and influence over other units we investigate how a subsidiary s past initiatives contribute to its bargaining power and how headquarters response through granting attention or monitoring affects the realization of the subsidiary s goals using structural equation modeling our hypotheses are tested by drawing on a sample of 257 subsidiaries located in three different countries australia canada and the united kingdom our results show that subsidiaries are not able to increase their influence through initiatives unless they get headquarters attention we also find that subsidiary initiatives have a direct effect on subsidiary autonomy but the caveat is that initiatives also evoke headquarters monitoring which in turn decreases the subsidiary s autonomy in addition to providing insights into how subsidiaries can achieve their goals the paper also sheds light on the critical role headquarters plays in leveraging initiatives and the influence of individual subsidiaries in the multinational enterprise

is nonlinear drift implied by the short end of the term structure nonlinear drift models of the short rate are estimated using data on the short end of the term structure where the cross sectional relation is obtained by an analytical approximation the findings reveal that i nonlinear physical drift is not implied unless it is strongly affected by cross sectional dimensions of the data ii nonlinear risk neutral drift that allows for fast mean reversion for high rates is desirable to explain and predict observed patterns of yield spreads and iii for higher frequency data from which transitory shocks are removed ii still remains valid although the nonlinearity is somewhat reduced

global value chain governance a relational perspective global value chain gvc governance is an established field within international business research yet the relational aspects of gvcs have to date garnered less scholarly attention than have efficiency considerations this conceptual study s objective is to explore the relational dynamics of gvc governance using an internalization theory perspective and by linking gvc research with insights from the business network literature gvcs are argued to be a distinct form of asymmetrical networks associated with economizing and capability creation features as well as costs the orchestrating firm can thus enhance efficiency outcomes of the gvc using social mechanisms similar to those adopted by core actors in a business network in the study six such mechanisms were identified 1 selectivity 2 inclusion of non business intermediaries 3 joint strategizing 4 relational capital 5 multilateral feedback and 6 rules for equitable value distribution while safeguarding the gvc s efficiency the above social mechanisms are associated with challenges and limitations and therefore do not guarantee international competitive success however deployed in an integrative fashion these social mechanisms facilitate coordination thus economizing on bounded rationality reduce the hazards of imperfect effort by partners thus economizing on bounded reliability and foster innovation and new capability development

environmental influences on mne subsidiary roles economic integration and the nordic countries we seek to examine the importance of environmental factors in determining mne subsidiary roles in particular we examine the environmental factors associated with deep integration schemes such as the eu such schemes require a convergence of economic structure due to the establishment of common regional institutions regulations and policies specifically we distinguish between the scope of activities performed by subsidiaries and the level of competence of those subsidiaries the empirical analysis is based on a large scale survey of foreign owned units in denmark finland and norway these nordic countries differ with regard to their eu membership status norway being the outsider while the others are members but are very similar to each other in most other respects our data show that subsidiaries in norway report significantly lower scores for both scope of activities and levels of competence the effects remain strong even when we are controlling for other potentially influential factors the findings indicate that being on the outside of the eu may indeed carry the price of becoming less attractive to mne activity

nonlinear mean reversion in the short term interest rate using a new bayesian method for the analysis of diffusion processes this article finds that the nonlinear drift in interest rates found in a number of previous studies can be confirmed only under prior distributions that are best described as informative the assumption of stationarity which is common in the literature represents a nontrivial prior belief about the shape of the drift function this belief and the use of flat priors contribute strongly to the finding of nonlinear mean reversion implementation of an approximate jeffreys prior results in virtually no evidence for mean reversion in interest rates unless stationarity is assumed finally the article documents that nonlinear drift is primarily a feature of daily rather than monthly data and that these data contain a transitory element that is not reflected in the volatility of longermaturity yields the drift of the short term interest rate is an important determinant of a wide variety of asset prices both inside and outside the boundaries of what is often called fixed income while volatilities may be estimated relatively accurately using high frequency observations of the short rate the short rate s extreme persistence makes identifying the true shape of the drift function a particularly elusive goal if our goal is merely to fit prices then the difficulty in estimating a drift function can be avoided by backing out implied drifts using a no arbitrage approach such as hull and white 1990 or heath jarrow and morton 1992 these methods bypass the true distribution entirely focusing on solving for the risk neutral drift function that is consistent with the cross section of bond prices if our goal however is to learn from prices and to be able to assess theories such as the expectations hypothesis that link short and long rates then estimating the drift function under the true measure is unavoidable in several recent articles a variety of sophisticated econometric techniques have been brought to bear on the problem in particular

the expansion of foreign direct investments discrete rational location choices or a cultural learning process it is recognized in the literature that experience may affect the cost and the uncertainty of operating in foreign markets and experience and market knowledge may therefore influence the location decisions of fdis economic theory does not however predict a general expansion pattern of fdis across industries on the other hand the theory associated with the internationalization process approach highlights the importance of cultural distance and predicts a movement from close to more distant markets as more experience is acquired by the firm the internationalization process approach is rooted in a behavioral theory of the firm

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

the locational determinants of direct investments among industrialized countries abstract market size and growth rate as well as tariff barriers have already been shown to influence u s direct investments in the eec the present paper enlarges the field of observation to all bilateral flows of direct investments among six industrialized countries the united states germany france the united kingdom the netherlands and belgium over the years 1969 1982 it also tests the impact of two other would be locational determinants of foreign direct investments namely unit labour costs and export flows moreover a new and alternative specification is put forward and tested which assumes that in the investment decision process foreign locations are in competition not only with each other but also with the home country of the investor

u s multinationals and preferential market access this paper examines the relationship between oshoring activity by u s multinational rms and the structure of u s trade preferences we combine rm level panel data on u s foreign aliate activity from the u s bureau of economic analysis bea with detailed measures of u s trade preferences from the u s international trade commission usitc to create a three way panel that spans 80 industries 184 countries and ten years 1997 2006 consistent with existing theory we nd that o shoring and preferential market access are positively and consistently correlated both in the pooled sample and within countries industries and years using both instru mental variables and simultaneous equations approaches to address the endogeneity of export oriented foreign investment we nd that a 10 increase in u s foreign aliate exports to the u s from a particular industry and country is associated with a 4 per centage point increase in the rate of preferential duty free access restricting attention to the generalized system of preferences gsp among potentially eligible develop ing countries we nd that the inuence of multinational aliate sales on preferential market access more than triples

cost value and foreign market entry mode the transaction and the firm this paper compares and contrasts the mode of foreign market entry decision from the transaction cost internalization and organizational capability perspectives each of these perspectives operates at a different level of analysis respectively the transaction and the firm and consequently differs in the primary arena of attention namely transaction characteristics and the capabilities of firms in making the comparison a key distinction is made between the cost and the value aspects in the management of know how based on which issues pertaining to the transfer of knowledge within and across firm boundaries and the exploitation and enhancement of competitive advantage are closely examined the main purpose of this paper is to demonstrate the implications of a shift in frame from cost to value in the analysis of decisions related to firm boundaries entry into foreign markets is used primarily as a vehicle for the accomplishment of this purpose the paper shows how the value based framework of the organizational capability perspective radically and fundamentally shifts the approach towards the governance of firm boundaries and argues that even though tc internalization theory raises some valid concerns the organizational capability framework may be more in tune with today s business context some of the assumptions of the tc internalization perspective both direct opportunism exploitation of existing advantage and indirect preservation of the value of know how across locational contexts asymmetry between bounded rationality for transaction and production purposes are critically examined and questioned implications of a shift from a cost to a value based framework are discussed and the need for a shift in research focus is emphasized

a reinterpretation of chapter 17 of keynes s general theory effective demand shortage under dynamic optimization this article is an attempt to formalize chapter 17 of keynes s general theory using a continuous dynamic optimization model with perfect foresight i present two subjective interest rates the time preference rate and the liquidity premium that respectively govern the consumption saving and portfolio decisions under optimal household behavior they are equalized to the market rate of interest in the monetary economy described by keynes however the equality can be inconsistent with the condition of market equilibrium in which case persistent stagnation occurs a new analytic method based on dynamic optimization is proposed as an alternative to is lm analysis

a damped diffusion framework for financial modeling and closed form maximum likelihood estimation abstract asset price bubbles can arise unintentionally when one uses continuous time diffusion processes to model financial quantities we propose a flexible damped diffusion framework that is able to break many types of bubbles and preserve the martingale pricing approach damping can be done on either the diffusion or drift function oftentimes certain solutions to the valuation pde can be ruled out by requiring the solution to be a limit of martingale prices for damped diffusion models monte carlo study shows that with finite time series length maximum likelihood estimation often fails to detect the damped diffusion function while fabricates nonlinear drift function an alternative method based on ait sahalia s specification test on parametric models is proposed

multivariate term structure models with level and heteroskedasticity effects abstract the paper introduces and estimates a multivariate level garch model for the long rate and the term structure spread where the conditional volatility is proportional to the th power of the variable itself level effects and the conditional covariance matrix evolves according to a multivariate garch process heteroskedasticity effects the long rate variance exhibits heteroskedasticity effects and level effects in accordance with the square root model the spread variance exhibits heteroskedasticity effects but no level effects the level garch model is preferred above the garch model and the level model garch effects are more important than level effects the results are robust to the maturity of the interest rates

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

beyond hofstede and globe improving the quality of cross cultural research journal of international business studies 2010 41 1259 1274 doi 10 1057 jibs 2010 41 overview of 41 8 hofstede and globe in cross cultural research while hofstede s work was not the first systematic study on crossnational cultures his seminal book culture s consequences international differences in work related values 1980 succeeded in putting cross cultural analysis at the forefront of international business ib research in a later paper he boldly asserted that the business of international business is culture 1994 1 despite the criticisms that have been voiced against his work see mcsweeney 2002 oyserman coon kemmelmeier 2002 hofstede s influence on the fields of ib and management is undeniable according to harzing s publish or perish citation index as of june 2010 there were over 54 000 citations to his work this is a remarkable record that attests to first the growing popularity of cross cultural research in light of continued internationalization of the world economy and second hofstede s personal impact on scholarly research this jibs issue brings together 10 articles on culture and ib all of which were submitted to the editorial team led by jibs editorin chief lorraine eden while the articles were independently submitted through the regular double blind reviewing process the decision to join them in one collection creates in effect a special issue on culture in international business research which the jibs editors hope will be widely read and cited by ib scholars in general terms the papers in this collection fall into one of two categories 1 articles and commentaries about conceptual and methodological issues associated with hofstede s oeuvre vs the global leadership and organizational behavior effectiveness globe project s cultural dimensions and 2 articles and perspectives that use culture and or cultural dimensions as well as the operational measurement thereof to explain differences in behavior and practices across countries the common feature of all these scholarly pieces is that they challenge particular assumptions often made too easily in conventional cross cultural research the first paper in this collection is a perspective written by franke and richey that cautions against questionable generalizations from small numbers of countries in international business research using statistical analysis to support their assertion franke and richey argue that in order to draw credible generalizations in ib a minimum of 7 10 countries must be used this is an important message researchers should never formulate strong conclusions about the impact of cultural dimensions on journal of international business studies 2010 41 1259 1274 2010 academy of international business all rights reserved 0047 2506

the great mortgaging housing finance crises and business cycles this paper unveils a new resource for macroeconomic research a long run dataset covering disaggregated bank credit for 17 advanced economies since 1870 the new data show that the share of mortgages on banks balance sheets doubled in the course of the twentieth century driven by a sharp rise of mortgage lending to households household debt to asset ratios have risen substantially in many countries financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries housing finance has come to play a central role in the modern macroeconomy

accelerated gaussian importance sampler with application to dynamic latent variable models summary we propose a new generic and highly efficient accelerated gaussian importance sampler agis for the numerical evaluation of very high dimensional density functions a specific case of interest to us is the evaluation of likelihood functions for a broad class of dynamic latent variable models the feasibility of our method is strikingly illustrated by means of an application to a first order dynamic stochastic volatility model for daily stock returns whose likelihood for an actual sample of size 2022 is evaluated with high numerical accuracy by means of 10 000 monte carlo replications the estimated model parsimoniously dominates arch and garch alternatives one of which includes twelve lags

back to basics behavioral theory and internationalization international business ib scholars over reliance on a select few theories leaves our understanding of firm internationalization incomplete the behavioral theory of the firm btf can offer new insights and can be used to model a broad range of firm actions we focus on the three basic btf components problemistic search learning by doing and vicarious learning these components help us understand why firm behaviors are more dynamic and heterogeneous than other theories allow btf with its emphasis on how firms assess performance according to aspiration levels selectively learn and update routines and selectively incorporate the learning of others is better suited to examine the diversity and change increasingly observed in internationalization decisions we explain why scholars should move beyond dynamizing static theories and show btf s applicability to behaviors involving change such as multi mode market entries and market re entries btf also helps examine the decision to internationalize in the first place nascent firm internationalization location choices international market adaptation and headquarter subsidiary relationships we encourage ib scholars to use theories that can handle the complexity increasingly associated with modern firm growth and propose btf as a promising starting point

out of sample performance of discrete time spot interest rate models we provide a comprehensive analysis of the out of sample performance of a wide variety of spot rate models in forecasting the probability density of future interest rates although the most parsimonious models perform best in forecasting the conditional mean of many financial time series we find that the spot rate models that incorporate conditional heteroscedasticity and excess kurtosis or heavy tails have better density forecasts generalized autoregressive conditional heteroscedasticity significantly improves the modeling of the conditional variance and kurtosis whereas regime switching and jumps improve the modeling of the marginal density of interest rates our analysis shows that the sophisticated spot rate models in the existing literature are important for applications involving density forecasts of interest rates

multilateral trade liberalisation foreign direct investment and the volume of world trade a cournot duopoly model is used to explain the paradox that multilateral trade liberalisation has resulted in increases in both the volume of world trade and the amount of foreign direct investment fdi

inequality leverage and crises the paper studies how high leverage and crises can arise as a result of changes in the income distribution empirically the periods 1920 1929 and 1983 2007 both exhibited a large increase in the income share of the rich a large increase in leverage for the remainder and an eventual financial and real crisis the paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes a financial crisis can reduce leverage if it is very large and not accompanied by a real contraction but restoration of the lower income group s bargaining power is more effective

preferential trade areas multinational enterprises and welfare the effects of preferential trade areas ptas on the investments by multinational enterprises and their implications for the welfare of members and non members are studied in a model with two types of firms national firms and multinational firms in the presence of multinational activity ptas can create new investment as well as divert investment from non members to members both affect the welfare of members positively more interestingly if the investment creation effect of a pta is sufficiently strong then the pta could be welfare enhancing for non members as well jel classification f2 l1 aires preferentielles de commerce entreprises plurinationales et bien etre on etudie les effets des aires preferentielles de commerce apc sur les investissements par les entreprises plurinationales et leurs implications pour le bien etre des pays membres et non membres a l aide d un modele ou l on retrouve deux genres d entreprises les entreprises nationales et plurinationales quand des operations plurinationales existent les apc peuvent creer de nouveaux investissements mais aussi deplacer certains investissements des pays non membres vers les pays membres ces deux effets affectent le niveau de bien etre des pays membres positivement il est interessant de noter que si l effet de creation d investissements d une apc est suffisamment puissant l apc peut entrainer une augmentation du niveau de bien etre des pays non membres

short term interest rates as subordinated diffusions in this article we cbaracterize and estimate the process for short term interest rates using federal funds interest rate data we presume that we are observing a discrete time sample of a stationary scalar diffusion we concentrate on a class of models in whicb the local volatility elasticity is constant and the drift has aflexible specufication to accommodate missing observations and to break the link between economic time and calendar time we model the sampling scheme as an increasing process that is not directly observed we propose and implement two new methods for estimation we find evidence for a volatility elasticity between one and onehalf and two when interest rates are high local mean reversion is smaul and the mechanism for inducing stationarity is the increased volatility of the diffusion process

export platform foreign direct investment theory and evidence this paper proposes a model that accounts for export platform fdi a form of fdi that is common in the data but rarely discussed in the theoretical literature unlike the previous literature this paper s theory nests all the typical modes of supply including exports horizontal and vertical fdi horizontal and vertical export platform fdi the theory yields the testable hypothesis that a decrease in either inter regional or intra regional trade costs induces firms to choose export platform fdi the empirical analysis provides descriptive statistics that point to large proportions of third country exports of us fdi and an econometric analysis whose results are in line with the model s predictions the paper suggests policy implications for nations seeking to attract fdi

mcmc analysis of diffusion models with application to finance this article proposes a new method for estimation of parameters in diffusion processes from discrete observations the method is based on markov chain monte carlo methodology and applies to a wide class of models including systems with unobservable state variables and nonlinearities the method is applied to the estimation of parameters in one factor cev interest rate models and a two factor model with a latent stochastic volatility component sv the cev model is found to do a poor job in capturing the time varying volatility interest rate data the sv model provides vastly superior fit to that of the cev model the article also presents a simulation study that demonstrates that the method provides accurate parameter estimates of the sv model at moderate sample sizes

the term structure with semi credible targeting the federal reserve sets targets for interest rates which it enforces through direct market intervention these targets are changed periodically in this paper we develop a term structure model in which the short rate is subject to a control which keeps it close to a target which changes from time to time the probability of target changes is not constant in the model but changes as a function of observables the model performs well at explaining the shifts in the yield curve that accompany target changes in u s financial markets the federal reserve bank the fed is a unique player usually we assume that market participants are price takers in financial markets however there is evidence that this is not true of the fed in fact the fed sets targets for short term rates which it attempts to maintain by market intervention injecting or withdrawing funds from the market to keep the rates near their targets targets are changed from time to time and market participants know when such a target change occurs they may in fact have some limited ability to forecast such target changes several recent papers have provided evidence that models which allow the short rate to revert toward a mean which is itself a random process perform

bubbles wage rigidity and persistent slumps abstract we embed downward wage rigidity into a rational bubble model we analytically characterize how the collapse of bubbles can interact with wage rigidity to generate deep and protracted recessions with involuntary unemployment such as those in japan or spain

using proxies for the short rate when are three months like an instant the dynamics of the unobservable short rate are frequently estimated directly using a proxy we examine the biases resulting from this practice the proxy problem analytic results show that the proxy problem is not economically significant for single factor affine models in the two factor affine model of longstaff and schwartz 1992 the proxy problem is only economically significant for pricing discount bonds with maturities of more than five years we also describe two different numerical procedures for assessing the magnitude of the proxy problem in a general interest rate model when applied to a nonlinear single factor model they suggest that the proxy problem can be economically significant article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

regional tax coordination and foreign direct investment this paper analyses the effects of a regionally coordinated profit tax or location subsidy in a model with three active countries one of which is not part of the union and a globally mobile firm we show that regional coordination can lead to two types of welfare gain first for investments that would take place in the union in the absence of coordination a coordinated tax increase can transfer location rents from the firm to the union second by internalising all of the union s benefits from foreign direct investment a coordinated tax reduction can attract more welfare enhancing investment than when member states act in isolation depending on which motive dominates tax levels may thus rise or fall under regional coordination

optimal filtering of jump diffusions extracting latent states from asset prices this paper provides an optimal filtering methodology in discretely observed continuoustime jump diffusion models although the filtering problem has received little attention it is useful for estimating latent states forecasting volatility and returns computing model diagnostics such as likelihood ratios and parameter estimation our approach combines time discretization schemes with monte carlo methods it is quite general applying in nonlinear and multivariate jump diffusion models and models with nonanalytic observation equations we provide a detailed analysis of the filter s performance and analyze four applications disentangling jumps from stochastic volatility forecasting volatility comparing models via likelihood ratios and filtering using option prices and returns jel c11 c13 c15 c51 c52 g11 g12 g17 this paper develops a filtering approach for learning about unobserved shocks and states from discretely observed prices generated by continuous time jumpdiffusion models the optimal filtering problem which has received little attention is the natural companion to the parameter estimation problem as filters allow researchers to analyze and use their models for practical applications 1 despite its usefulness there is currently no general method for solving the filtering problem in continuous time models

secular stagnation in the open economy abstract conditions of secular stagnation low interest rates below target inflation and sluggish output growth now characterize much of the global economy we consider a simple two country textbook model to examine how capital markets transmit secular stagnation and to study policy externalities across countries we find capital flows transmit recessions in a world with low interest rates and that policies that attempt to boost national saving are beggar thy neighbor monetary expansion cannot eliminate a secular stagnation and may have beggar thy neighbor effects while sufficiently large fiscal interventions can eliminate a secular stagnation and carry positive externalities

gaussian estimation of single factor continuous time models of the term structure of interest rates this article presents the first application in finance of recently developed methods for the gaussian estimation of continuous time dynamic models a range of one factor continuous time models of the short term interest rate are estimated using a discrete time model and compared to a recent discrete approximation used by chan karolyi longstaff and sanders 1992a hereafter ckls whereas the volatility of short term rates is highly sensitive to the level of rates in the united states it is not in the united kingdom the econometric estimation of continuous time models of the short term interest rate has been a relatively recent development in empirical finance see for example brown and dybvig 1986 melino and turnbull 1986 barone cuoco and zautzik 1991 babbs 1992 abken 1993 chen and scott 1993 das 1993 gibbons and ramaswamy 1993 pearson and sun 1994 lund 1994 pfann schotman and tschernig 1995 ait sahalia 1995 and broze scaillet and zakoian 1995 1 in an important study chan karolyi longstaff and sanders 1992a hereafter ckls develop a general framework to estimate and compare a range of different single factor term structure models for the short term interest rate their major conclusion is that term structure models with volatilities more highly sensitive to the level of interest rates than more generally used models have a closer empirical fit to the data in addition the functional form of the drift with or without mean reversion is of secondary importance to the correct specification of the conditional heteroskedasticity in ckls the continuous time models of the term structure are estimated using a discrete approximation we present in this article an alternative

an international multilevel analysis of product innovation this paper studies multilevel determinants of product innovation by incumbent firms with data from 68 countries covering over 25 000 firms in eight manufacturing sectors the author assesses the predictions of interdisciplinary research on firm behavior in different contexts which have emphasized that product innovation is affected by three sets of factors the extent of global engagement information spillovers and market structure the empirical model of the probability of observing a product innovation a probit model by a firm considers three levels of analysis firm characteristics industry characteristics and the national context the econometric evidence supports the global engagement and information spillovers hypotheses but the evidence on the role of market structure is mixed regarding global engagement the evidence suggests that product innovation by incumbent firms is positively correlated with the act of investing in r d and licensing of foreign technologies and country level average import tariffs reduce the probability of product innovation regarding information spillovers the evidence also shows that a country s patent density is positively correlated with product innovation in contrast concerning the market structure hypotheses country level indicators of business density and of policy induced costs of entry are not robustly correlated with product innovation

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

the location of overseas production and production for export by u s multinational firms abstract the location of overseas manufacturing production is influenced by common factors that operate in all industries notably proximity to the united states and to other markets within industries opposites attract low wage and low capital intensity parents choose high wage countries production for export is attracted by large internal markets in host countries economies of scale in production presumably make large markets economical as export bases another factor is high trade propensities of host countries u s firms tend to export from high wage countries but labor cost is not in general a major influence on the location of export production

internalization advantage and subsidiary performance the role of business group affiliation and host country characteristics we extend internalization theory by examining the contingencies associated with market internalization and its impact on foreign subsidiary survival based on a sample of 6170 subsidiary year observations in 63 countries belonging to 292 mncs from korea during 1995 2013 we find that greater product and labor market internalization have weaker impacts on the survival of subsidiaries operating in countries with more developed institutional environments but stronger for subsidiaries of mncs affiliated with business groups the impact of business group affiliation is further dependent on host country institutional development and the diversification and size of the business group

export oriented fdi in the uk it is well known that the performance of foreign firms compared to domestic companies is superior with respect to employment wages and productivity in this paper we detail the export behaviour of foreign affiliates in the united kingdom relative to indigenous firms our findings show that foreign firms are more likely to export and when they do so they are more export intensive and overall contribute disproportionately to total manufacturing exports from the uk while firm level advantages explain some of these differences in export behaviour strategic considerations dominate where these include the differential in costs productivity and market size between the uk and foreign countries that is both horizontal and vertical motives can be found for the use of the uk as an export platform by foreign firms copyright 2004 oxford university press

how multinational subsidiary mandates are gained and lost a subsidiary mandate is a business or element of a business in which the subsidiary participates and for which it has responsibilities beyond its national market this research studied thirty one mandates in six canadian subsidiaries of u s owned multinational corporations a life cycle framework was proposed and used to explore the factors associated with the gain development and loss of mandates by subsidiaries two key findings emerged first it was shown that there is a risk in having a full scope world product mandate because it is possible to become marginal to the corporate strategy second it was observed that the engine of subsidiary growth is its distinctive capabilities and that for a mandate to be effective it must be built on those capabilities implications for mandate sustainability are proposed on the basis of these two insights

economies of scale and market structure in international grain trade a large body of literature has examined international grain trade in imperfectly competitive models the article develops a two stage duopoly model that considers a private trader and a state trading enterprise ste competing on a foreign market the key difference between the private trader and the ste is their international organization while the ste makes use of external agents to export the private firm may choose to internalize international transactions the game is solved for different modes of competition and under both assumptions of homogeneous and differentiated products in order to assess how these assumptions affect the outcome of the game the results of the game are examined by using numerical examples the analysis shows that external shocks on export markets may result in a change of market structure and consequently of market shares these effects depend on the initial market structure furthermore the degree of product differentiation and the assumed mode of competition significantly affect the relative values of transaction and fixed costs at which the market structure changes

implementing global strategy characteristics of global subsidiary mandates implementing a global strategy requires coordinating subsidiary activities across country locations the assumption often made is that such coordination must be managed at headquarters however an alternate approach is decentralized centralized responsibilities in which different subsidiaries within the multinational are given worldwide mandates to manage specific products or products lines this study identifies subsidiary characteristics that are associated with receiving a global mandate by examining foreign subsidiaries located in france germany japan u k u s and canada

bringing institutions into performance persistence research exploring the impact of product financial and labor market institutions this study challenges the implicit assumption of homogeneity in national institutional environments made in past studies of firm performance persistence we propose that home country institutions matter we focus on the impact of formal institutions in the product financial and labor markets arguing that they affect the size of pools of exchange partners and the types of exchanges allowed and condoned ultimately these restrictions affect competitive intensity among firms and firm performance persistence using data for over 10 000 firms from 33 countries over a 10 year time frame we show that antitrust law strength a product market institution designed to prevent collusion among firms is associated with decreases in performance persistence unskilled labor market flexibility a labor market institution that reduces legal constraints imposed on residual claimants managers and owners to take necessary actions to maintain or enhance profitability is associated with increases in performance persistence product liability law effectiveness another product market institution and corporate control market development a financial market institution are positively associated with performance persistence only in the case of mnes the two remaining financial and labor market institutions public equity market development respectively skilled labor market availability have a positive respectively negative impact for domestic firms only

the impact of eu preferential trade agreements on foreign direct investment although north south preferential trade agreements ptas are expected to affect foreign direct investment fdi there is not much evidence to date on the impact of eu ptas on the pattern of fdi the aim of this study is to assess the impact of eu ptas on the outward stocks of fdi of the eu we estimate a model based on the knowledge capital theory of the multinational enterprise over the period 1995 2005 using a sample of 173 host countries explanatory variables include measures of the level of bilateral protection and a dummy to capture the impact of deep integration provisions of ptas a dynamic panel model with fixed effects is used in order to take into account the dynamic behaviour of fdi and the heterogeneity bias results show that eu fdi is both horizontal and vertical the level of eu protection affects fdi negatively while the impact of the tariffs applied by host countries varies across groups of partner countries deep integration provisions affect eu fdi positively

does economic integration cause foreign direct investment the authors analyze the effect of economic integration on oligopolists international trade and foreign direct investment activities using a three country three firm model increased country size leads to dispersed foreign direct investment while improved market accessibility leads to export platform foreign direct investment increased intraregional market accessibility prompts outside firms to invest in the regional bloc reducing product prices profits of intrabloc firms and increasing total surplus integrating economies are more likely to gain from improving intraregional market accessibility than from tougher external trade policy and may wish to offer investment incentives to encourage foreign direct investment by outside firms copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

international expansion through flexible replication learning from the internationalization experience of ikea business organizations may expand internationally by replicating a part of their value chain such as a sales and marketing format in other countries however little is known regarding how such international replicators build a format for replication or how they can adjust it in order to adapt to local environments and under the impact of new learning to illuminate these issues we draw on a longitudinal in depth study of swedish home furnishing giant ikea involving more than 70 interviews we find that ikea has developed organizational mechanisms that support an ongoing learning process aimed at frequent modification of the format for replication another finding is that ikea treats replication as hierarchical lower level features marketing efforts pricing etc are allowed to vary across ikea stores in response to market based learning while higher level features fundamental values vision etc are replicated in a uniform manner across stores and change only very slowly if at all in response to learning flexible replication we conclude by discussing the factors that influence the approach to replication adopted by an international replicator

host country environment and subsidiary competence extending the diamond network model we extend the centers of excellence concept to address the diversity and multidimensionality of subsidiary competence using rugman and verbeke s diamond network model we hypothesize the contingencies influencing the links between host country environments and subsidiary competence configuration and provide evidence from more than 2000 subsidiaries in seven european countries our results provide new insights into how multinational enterprises can overcome unbalanced national diamonds by acquiring complementary capabilities across borders

likelihood based specification analysis of continuous time models of the short term interest rate an extensive collection of continuous time models of the short term interest rate is evaluated over data sets that have appeared previously in the literature the analysis which uses the simulated maximum likelihood procedure proposed by durham and gallant 2002 provides new insights regarding several previously unresolved questions for single factor models i find that the volatility not the drift is the critical component in model specification allowing for additional flexibility beyond a constant term in the drift provides negligible benefit while constant drift would appear to imply that the short rate is nonstationary in fact stationarity is volatility induced the simple constant elasticity of volatility model fits weekly observations of the three month treasury bill rate remarkably well but is easily rejected when compared with more flexible volatility specifications over daily data the methodology of durham and gallant can also be used to estimate stochastic volatility models while adding the latent volatility component provides a large improvement in the likelihood for the physical process it does little to improve bond pricing performance

approximating volatility diffusions with cev arch models abstract this article develops a new model of the arch class which allows volatility to react nonlinearly to past shocks as a function of the past volatility level we show that this model approximates any cev diffusion model for stochastic volatility and we judge its empirical performance as a diffusion approximation to models of the short term rate with stochastic volatility and as a filter of the unobserved volatility we show that the estimation of the continuous time scheme to which the discrete time arch model converges can be safely based on simple moment conditions linking the discrete time to the continuous time parameters a natural substitute of a global specification test for just identified problems based on indirect inference shows in fact that this approximation to diffusions gives rise to a negligible disaggregation bias a monte carlo study reveals that the filtering performances of this model are remarkably good even in the presence of serious misspecification

regional economic integration and geographic concentration of multinational firms abstract a number of theoretical studies have predicted that preferential trade agreements ptas raise outside multinationals incentive to invest in the participating countries especially in those that are integrated with larger markets and have lower production costs the hypothesis has however not been tested empirically this paper addresses the issue by estimating the impact of ptas on countries ability to attract multinationals the evidence is broadly consistent with expectations the formation of ptas leads to an increase in fdi by outside multinationals but the effect varies sharply with the size of integrated markets and countries comparative advantage countries integrated with larger markets experience a greater increase in total and export platform fdi those with a higher labor endowment also attract more fdi especially in labor intensive industries but at the expense of their labor scarce pta partners

limited asset markets participation monetary policy and inverted aggregate demand logic abstract this paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation while moderate participation rates strengthen the role of monetary policy low enough participation causes an inversion of results dictated by conventional wisdom the slope of the is curve changes sign the taylor principle is inverted optimal welfare maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed however a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation our results may justify fed s behavior during the great inflation period

innovation systems and inertia in r d location norwegian firms and the role of systemic lock in abstract this paper seeks to enquire why firms ceteris paribus tend to concentrate their r d activities at home using a systems of innovation si approach we argue that r d inertia is associated with structural inertia and resultant systemic lock in interaction within an si is a self reinforcing mechanism which may or may not lead to ex post efficiency lock in can be efficient when technologies and institutions maintain the competitiveness of firms on the other hand radical innovations or technological discontinuities may require new institutions and resources but systemic lock in may prevent rapid reaction firms can use a voice strategy by intervening to modify the appropriate institutions in the existing si or an exit strategy by seeking alternative si which more closely fit their needs in the case of norway two groups of firms exist group a benefit from a systemic lock in these are large firms in traditional sectors which are highly embedded and around whom the norwegian si has been built these firms engage in voice and loyalty group b are in science based sectors for whom lock in results in inefficiencies and use exit slowly expanding r d abroad to seek competences in technologies not available domestically

characteristics of foreign subsidiaries in industry clusters this paper examines the characteristics of foreign owned subsidiaries in export intensive leading edge industry clusters as defined by porter 1990 using a sample of 229 subsidiaries from three countries we show that subsidiaries in such clusters are more embedded more autonomous and more internationally oriented than subsidiaries in other industry sectors we also show that there are significant differences in the roles of foreign owned subsidiaries from one leading edge cluster to the next that are associated with the dynamism of the cluster and the overall level of foreign ownership the results indicate 1 that typologies of subsidiary roles should give increased consideration to environmental factors and 2 that thinking on industry clusters instead of treating them identically should recognize that they have heterogeneous characteristics

the term structure of very short term rates new evidence for the expectations hypothesis abstract empirical researchers have frequently rejected the expectations hypothesis the expectations hypothesis however has seldom if ever been tested at the extreme short end of the term structure where maturities are measured in days or weeks using overnight weekly and monthly repo rates i find that term rates are almost unbiased estimates of the average overnight rate this evidence provides new support for the expectations hypothesis

modeling the dynamics of chinese spot interest rates using the daily data of chinese 7 day repo rates from january 1 1997 to december 31 2008 this paper tests a variety of popular spot rate models including single factor diffusion garch markov regime switching and jump diffusion models we document that chinese spot rates are subject to both market forces and administrative forces garch regime switching and jump diffusion models capture some important features of the dynamics of chinese spot rates but all models under study are overwhelmingly rejected we further explore possible sources of model misspecification using diagnostic tests

a parametric nonlinear model of term structure dynamics recent nonparametric estimation studies pioneered by ait sahalia document that the diffusion of the short rate is similar to the parametric function r superscript 1 5 estimated by chan et al whereas the drift is substantially nonlinear in the short rate these empirical properties call into question the efficacy of the existing affine term structure models and beg for alternative models which admit the observed behavior this article presents such a model our model delivers closed form solutions for bond prices and a concave relationship between the interest rate and the yields we show that in empirical analyses our model outperforms the one factor affine models in both time series as well as cross sectional tests article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

preferential trade agreements and tax competition for foreign direct investment abstract this paper examines how free trade agreements and customs unions affect the location of foreign direct investment fdi and social welfare taking into account that governments may adjust taxes and external tariffs to compete for fdi conditions are identified under which a free trade agreement leads to fdi and under which this improves welfare the welfare effect is shown to depend on the relative size of efficiency gains in production and government revenue losses due to tax competition a free trade agreement may fail to induce welfare improving fdi creating a role for a customs union

the regional dimension of mnes foreign subsidiary localization this paper examines the regional effect of mnes foreign subsidiary localization we hypothesize that the number of subsequent foreign subsidiaries in a country is in part determined by a firm s prior foreign subsidiary activity at the regional level we test our hypotheses using data on 1076 japanese mnes that created 3466 foreign subsidiaries 1837 wholly owned fdis and 1629 joint ventures over the period 1996 2001 we use a multilevel negative binomial approach with three levels of analysis localization decisions in a country 49 countries in a region six regions and at the headquarters level in this way we test the regional effects controlling for country and corporate dimensions we also run separate models to differentiate wholly owned and joint venture localization decisions our results strongly support the semi globalization perspective in that the regional level effects are significant and different from the country level effects for all foreign subsidiaries for wholly owned subsidiaries and for jointly owned subsidiaries japanese mnes adopt a regional perspective that complements their decisions at the country and firm levels they seek regional agglomeration benefits and make arbitrage decisions between countries in the same region

sourcing patterns of foreign owned multinational subsidiaries in europe tavares a t and young s 2006 sourcing patterns of foreign owned multinational subsidiaries in europe regional studies 40 583 599 this paper investigates the determinants of the international sourcing propensities of foreign owned multinational mne subsidiaries in four european union host countries major findings concern the impact of subsidiary roles and economic integration on international sourcing patterns regional and global integration are leading to a greater import orientation among mne subsidiaries including product mandate firms that are assumed to be strongly embedded within host economies the results cast doubts on existing criteria for inward foreign direct investment fdi attraction policy implications are developed relating to the attraction of inward fdi and to corporate development policies tavares a t et young s 2006 la distribution des sources d approvisionnement des filiales multinationales a capital etranger en europe regional studies 40 583 599 cet article che

secular stagnation theory and remedies abstract to investigate secular stagnation i add two features to a standard ramsey model with money i households have a preference for wealth ii wages are downward rigid in this framework there exists a frictionless neoclassical steady state equilibrium characterized by a low natural real interest rate in addition if wages are sufficiently rigid and the natural real interest rate sufficiently low then there also exists a keynesian secular stagnation steady state characterized by under employment low inflation and a binding zero lower bound on the nominal interest rate as wages become more flexible the keynesian steady state diverges away from the neoclassical steady state until wages are so flexible that it ceases to exist if monetary policy is excessively restrictive then the secular stagnation steady state is the unique steady state equilibrium of the economy the optimal policy response to secular stagnation is to move the economy to the neoclassical steady state this can either be achieved by raising the central bank s inflation ceiling or by taxing wealth and subsidizing investment in physical capital this optimal tax policy is revenue neutral

decentralised r d and strategic competitiveness globalised approaches to generation and use of technology in multinational enterprises mnes abstract using material from surveys of multinational enterprise mne production subsidiaries and laboratories operating in the uk the paper seeks to discern vital changes in the roles of such r d facilities from the primarily tactical and technologically dependent role of adapting established group products for the local market these labs now take more committed positions in support of their group s strategic competitiveness this can involve a much more profound involvement in original product development or inputs into programmes of pre competitive basic or applied research to support the longer term evolution of the core technology of the mne group it is suggested that this evolution of decentralised labs positioning in mne knowledge strategies implies i an increasing involvement in product development rather than adaptation ii an interdependent rather than dependent position in group technology programmes iii increased relevance of supply side influences host country technology competencies capacities and heritage iv decline of centralising forces on r d e g economies of scale communication and co ordination problems concerns of knowledge security

tariff jumping and joint ventures it is well known that high tariffs tend to induce foreign direct investment fdi by encouraging the investors to jump the tariff wall this paper examines the economic interaction among tariffs fdi and international joint ventures ijv we show that in the presence of a strong local competitor even if opening a fully owned subsidiary is not profitable to a foreign firm the foreign firm may still enter the host country market through ijv however ijv is not profitable for sufficiently high tariff rates hence we argue that liberal trade policies may attract foreign investments through the formation of joint ventures

outsiders response to europe 1992 theoretical considerations and empirical evidence this paper examines the response to the creation of the european union by firms located outside the european community that seek to serve its markets analysis of some of the major steps taken by the european community to complete the internal market shows that the relative competitive position of outsiders is expected to deteriorate even if the concept of fortress europe is rejected by the community outsider firms can neutralize some of the disadvantages they encounter by engaging in foreign direct investment in the european community which transforms them in some sense into insiders this paper outlines a model that distinguishes between the expected investment behavior of producers of different kinds of goods distinction is made between heckscher ohlin goods h goods characterized by publicly available technologies and schumpeter goods s goods based on firm specific knowledge analysis of recent foreign direct investment by israeli firms in the european community and in other parts of the world shows that patterns of actual flows by sector by geographic region and over time correspond to predictions derived from the model

simulated likelihood estimation of diffusions with an application to exchange rate dynamics in incomplete markets abstract we present an econometric method for estimating the parameters of a diffusion model from discretely sampled data the estimator is transparent adaptive and inherits the asymptotic properties of the generally unattainable maximum likelihood estimator we use this method to estimate a new continuous time model of the joint dynamics of interest rates in two countries and the exchange rate between the two currencies the model allows financial markets to be incomplete and specifies the degree of incompleteness as a stochastic process our empirical results offer several new insights into the dynamics of exchange rates