quantile dependence of oil price movements and stock returns we examine the impact of quantile and interquantile oil price movements on different stock return quantiles by testing the hypothesis of equality in conditional and unconditional quantile distribution functions of stock returns we capture quantile dependence under different stock market conditions while taking into account different kinds of oil price movements by computing unconditional and conditional stock return quantiles through marginal models for stock returns and copula functions for oil stock dependence analyzing stock return data for three developed economies the us the uk and the european monetary union and the five brics countries brazil russia india china and south africa for 2000 to 2014 our results indicate that 1 the impact of extreme upward and downward oil price changes on upper and lower stock price quantiles was much smaller before compared to after crisis onset 2 the downside spillover effects were larger than the upside spillover effects for most countries before crisis onset and for all countries after crisis onset and 3 small positive and negative oil price movements had no impact on any stock return quantiles neither before nor after crisis onset

index investment and financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become incr

does oil move equity prices a global view many studies indicate that oil price shocks have an adverse effect on real output and hence an adverse effect on corporate profits where oil is used as a key input the present study examines whether and to what extent the adverse effect of oil price shocks impacts stock market returns to this end we analyse 35 datastream global industry indices for the period from april 1983 to september 2005 our findings indicate that oil price rises have a negative impact on equity returns for all sectors except mining and oil and gas industries generally these results are consistent with economic theory and evidence provided by previous empirical studies little evidence of any asymmetry is detected in the oil price sensitivities in light of our findings we recommend that international portfolio investors consider hedging oil price risk

should investors include commodities in their portfolios after all new evidence abstract this paper investigates whether an investor is made better off by including commodities in a portfolio that consists of traditional asset classes first we revisit the posed question within an in sample setting by employing mean variance and non mean variance spanning tests then we form optimal portfolios by taking into account the higher order moments of the portfolio returns distribution and evaluate their out of sample performance under the in sample setting we find that commodities are beneficial only to non mean variance investors however these benefits are not preserved out of sample our findings challenge the alleged diversification benefits of commodities and are robust across a number of performance evaluation measures utility functions and datasets the results hold even when transaction costs are considered and across various sub periods not surprisingly the only exception appears over the 2005 2008 unprecedented commodity boom period

whose greed whose grievance and whose opportunity effects of foreign direct investments fdi on internal conflict abstract this paper investigates the influence of foreign direct investments on the probability of civil conflict onset contributing to the debate on globalization and civil conflict i relax the common assumption that all forms of globalization are equivalent in their effects on civil conflict i also incorporate the cross sectoral heterogeneity of investments in existing arguments about the socioeconomic externalities of foreign direct investments as determinants of conflict with long time horizons and managerial control of their foreign affiliates foreign direct investors are strategic players aiming to maximize profits and uniquely able to alter their environment through socio political channels this distinguishes fdi from trade and foreign portfolio investments through a combination of political agency and socio economic influences on grievance and greed among domestic groups some types of fdi are likely to alleviate the risk of civil conflict service sector fdi while others exacerbate it primary sector fdi analyses using a new data set of sector specific fdi stock 1980 2013 lend empirical support to the argument showing that economic globalization can have simultaneous positive and negative externalities these findings are informative for the current dialogue on the role of global markets in sustainable development

a field study using an adaptive in house pricing model for commercial and industrial customers in korea abstract demand response programs provide customers with economic incentives for load reductions at times of high market prices and system reliability constraints one type of demand response programs price based program induces customers to respond to changes in product rates however some large scale customers find it difficult to change their electricity consumption patterns even with rate changes because their electricity demands are commercial and industrial this study proposes an adaptive in house pricing model for large scale customers particularly those with multiple business facilities for self regulating price based program the adaptive in house pricing model charges higher rates to customers with lower load factors by employing a peak to off peak usage ratio in order to reduce usage at times of high prices at each facility this study analyzes the daily electricity consumption patterns of large scale customers through a field trial of the proposed pricing model at a telecom company with 447 offices and worksites for one month the results show that the pricing model corresponds to average reductions of 3 54 28 69 during peak demand times for four different types of workplaces however reductions in electricity consumption during off peak periods did not show a significant difference the results of this study prove that this proposed pricing model can be successfully applied to large scale operations

government policies market imperfections and foreign direct investment the internalization eclectic theory of foreign direct investment includes the important insight that government policies create market imperfections which make foreign direct investment an economically rational strategic alternative for firms this paper reexamines the effects of government policies on market imperfections and foreign direct investment fdi it broadens and refines the analysis of the impact of government policies by developing the following arguments 1 there is a wide range of government policies that affect firms fdi decisions via their effects on market imperfections 2 there are numerous dimensions of variability in government policies that need to be identified in order to understand fully the effects of government policies on market imperfections and hence fdi flows 3 some of the effects of government policies on market imperfections and fdi are the opposite of those previously noted in the fdi literature 4 the effects of government policies vary across the several individual components of fdi flows the paper thus examines the following variables and relationships more extensively and precisely than has the previous literature government policy variables as causal factors affecting fdi market imperfection variables as intervening factors in the causal connections between government policies and fdi and the multiple indicators of the various dimensions of fdi as dependent variables

the impact of corruption on entry strategy evidence from telecommunication projects in emerging economies with globalization and the growth in emerging economies multinational enterprises mnes now frequently confront challenges associated with corrupt governments already a growing body of research has demonstrated that corruption significantly reduces a countrys aggregate inflows of foreign direct investment through its effects on firm performance we move the analysis of corruption from aggregate financial flows toward managerial theory and practice by examining how firms adjust their strategy for entering foreign markets in corrupt environments and how different types of corruption affect firms choices building on institutional theory we predict that mnes will respond to pervasive and arbitrary corruption in a host country by selecting particular types of equity and nonequity modes of entry using data on 220 telecommunications development projects in 64 emerging economies we find that firms adapt to the pressures of corruption via short term contracting and entry into joint ventures we also find that the arbitrariness surrounding corrupt transactions has a significant impact on firms decisions in addition to the overall level of corruption in contrast to extant research we show that mnes use nonequity entry modes or partnering as an adaptive strategy to participate in markets despite the presence of corruption

the response of industrial customers to electric rates based upon dynamic marginal costs recent advances in technology and in the theory of electric utility operations and planning have led to an in creased interest in rate and service options that are differen tiated over short time intervals the purpose of this paper is to describe the results from an analysis of a real time pricing experiment recently conducted at niagara mohawk power corporation the objective of the experiment is to measure the response of large industrial customers to dynamic fully time differentiated marginal cost based electricity rates over a broad range of industries because of its design features including the establishment of an experimental control group the niagara mohawk study provides a rare opportunity to study large user response to real time pricing including inter hour price elasticities

uncovering the complex relationships between political risk and mne firm legitimacy insights from libya using the before after natural experiment occasioned by the arab spring in libya we explore how market and non market activity affect foreign firm legitimacy in times of political turmoil although all mnes in libya had to cultivate strong ties to qadhafi to succeed during his 40 years of rule we found that those that also invested in social benefit projects and in social ties with families with few ties to the qadhafi family earned a broad based legitimacy that helped them survive qadhafi s overthrow our findings contribute to the political risk and political behavior literature the notion that the pursuit of firm legitimacy in general and especially in the eyes of social sector actors is an effective hedge against political risk more theoretically our findings support the addition of a social sector based path to firm legitimacy in the host country that complements and may at times substitute for the government based path to foreign firm legitimacy practically our findings suggest that mnes facing severe political risk can improve their prospects for survival by investing in relationships with influential social groups and by offering goods or services that are perceived as socially valuable

real time pricing of electricity for residential customers econometric analysis of an experiment under real time pricing a network operator sets the price level for a period according to a predefined scheme which depends on the state of demand and costs and announces this price shortly before the period begins the french state owned electric utility experimented with a six rate real time tariff which divides the year into three types of days and each day into two periods the number of days of each type is known in advance to the consumer but the type of any particular day is announced only at the end of the preceding day in order to evaluate the responsiveness of customers to this pricing option we estimate the frisch demand functions for daily electricity consumption derived from a simple dynamic model based on an additively separable intertemporal utility function as the marginal utility of expenditure which enters the frisch demands follows a known stochastic process the econometric model has a state space representation we can then apply the kalman filter to compute the log likelihood function associated with each consumer s time series of electricity consumption the main result of the analysis is that the real time tariff improves the welfare of a majority of consumers participating in the experiment

trends in foreign direct investment flows a theoretical and empirical analysis this paper seeks to provide a rationale for changing trends in the flow and determinants of foreign direct investment fdi as a result of macro economic and firm strategy considerations we identify several factors that impact on such trends and develop propositions that could explain the phenomenon generically the study then provides preliminary empirical support for the propositions presented and outlines the path for further research needed to investigate more causal links the statistical analysis of investments by us multinational enterprises mnes reveals significant changes in the regional distribution of fdi and a change in some of its traditional determinants results show that us mnes are now making increasing investments into asia to exploit low wage levels and to secure entry into new markets

the effect of political events on united states direct foreign investment a pooled time series cross sectional analysis this paper examines the effect of political events on the manufacturing direct foreign investment mdfi decisions of u s multinational corporations the relationship between political events and nonpolitical factors and mdfi is investigated through regression analysis of pooled time series 21 years and cross sectional 24 countries data and through various tests of the homogeneity of the relationship across groups of countries the study finds that the relationship between political events in mdfi is different for less developed countries as opposed to developed countries for the less developed countries both inter nation and intra nation conflict and cooperation affect mdfi in contrast u s mdfi in developed countries appears to be affected only by inter nation conflict and cooperation

recent hikes in oil equity market correlations transitory or permanent this paper empirically examines the long run behavior of eight oil equity correlations based on the adcc asymmetric dynamic conditional correlation model and a novel decomposing approach we select equity price indexes from three developed countries the us the uk and germany and five brics member countries brazil russia india china and south africa and consider ten economic financial events for investigation seven correlations exhibit a positively sloped trend and one exhibits a horizontal trend all of these trends have undergone one or two structural breaks which moved the corresponding correlations to their highest ever evolutionary paths these structural breaks are associated with one or more of the ten episodes considered and a common event impacting all eight of the correlation trends is detected to be the 2008 adverse oil shock the broken trends explain why the correlations were low in the early years and high in the recent years our findings indicate that recent hikes in the oil equity correlations are a long run phenomenon

does responsive pricing smooth demand shocks using data from a unique pricing experiment we investigate vickrey s conjecture that responsive pricing can be used to smooth both predictable and unpredictable demand shocks our evidence shows that increasing the responsiveness of price to demand conditions reduces the magnitude of deviations in capacity utilization rates from a pre determined target level a 10 increase in price variability leads to a decrease in the variability of capacity utilization rates between 2 and 6 we discuss implications for the use of demand side incentives to deal with congestible resources

reversal of fortunes democratic institutions and foreign direct investment inflows to developing countries does increased democracy promote or jeopardize foreign direct investment fdi inflows to less developed countries we argue that democratic institutions have conflicting effects on fdi inflows on the one hand democratic institutions hinder fdi inflows by limiting the oligopolistic or monopolistic behaviors of multinational enterprises facilitating indigenous businesses pursuit of protection from foreign capital and constraining host governments ability to offer generous financial and fiscal incentives to foreign investors on the other hand democratic institutions promote fdi inflows because they tend to ensure more credible property rights protection reducing risks and transaction costs for foreign investors hence the net effect of democracy on fdi inflows is contingent on the relative strength of these two competing forces our argument reconciles conflicting theoretical expectations in the existing literature empirical analyses of fifty three developing countries from 1982 to 1995 substantiate our claims we find that both property rights protection and democracy related property rights protection encourage fdi inflows after controlling for their positive effect through property rights protection democratic institutions reduce fdi inflows these results are robust against alternative model specifications statistical estimators and variable measurements

de financialization of commodities evidence from stock crude oil and natural gas markets abstract in order to investigate whether the crude oil and natural gas market volatility is influenced by the volatility in the stock market or whether these different variables move all together we introduce the volatility threshold dynamic conditional correlations vt dcc approach to investigate the spillover effect of stock market volatility index vix vstoxx on crude oil and natural gas markets during 1999 2015 and make the correlation dynamics dependent on conditional variance values through a threshold grid search algorithm by detecting one endogenous break point in the raw series we identify two clusters one in 2008 and another in 2014 due to the financial crisis and the structural low oil prices linked to changing fundamentals respectively also the u s henry hub gas seems to be associated with the stock market volatility indexes contrary to the european nbp gas which is linked to the brent besides regarding the volatility behaviors of our series the four energy variables violate their thresholds at similar moments and the stock market vix and vstoxx exhibit logically similarities co movements are detectable as well between the vix and crude oil series when investigating the volatility extracted from the garch model in addition the block dcc estimates provide ample evidence of similarities in the correlation dynamics between the crude oil and stock volatility series it should be noted that the modeling framework proposed in this paper represents a useful tool for the study of cross market contagion

industrial response to electricity real time prices short run and long run i introduction with the emergence of competition in the electric industry wholesale prices are proving highly volatile during the summers of 1998 and 1999 prices in the midwest soared to 7000 or more per megawatt hour compared to a typical summer price of 30 50 one factor contributing to this volatility is that relatively few retail customers pay real time prices rtps that vary with changing supply and demand conditions as a result retail use is not deterred by the spikes in wholesale price exacerbating wholesale volatility without providing an opportunity for retail response there will be pressure on policy makers to curb wholesale volatility with such measures as the price caps approved by the federal energy regulatory commission in new york and california as a result of high electricity prices during 2000 increasingly electric utilities now offer their largest industrial and commercial customers hourly prices that vary with changes in real time supply and demand 1 the purpose of this article is to estimate and evaluate the short run and long run factors that influence customer price response to rtps to date there have been relatively few studies of response to rtp rates and those have been largely limited to short run estimates this study advances the research by evaluating how customer response to rtp changes with experience on the rates in addition there is consideration of the sensitivity of price response to changes in the levels of both prices and temperatures finally there is an examination of customer characteristics particularly on site generation that provide flexibility in responding to price changes the data include 110 industrial customers served by duke power a division of duke energy corporation some of the participating customers have been on rtp rates for as long as six years utilities need information on short run response to know the magnitude of demand relief that price responsiveness may provide when capacity is tight as well as to determine unit commitment and spinning reserve they need long run response to plan additions to capacity knowledge of individual customer response can help utilities target those customers who are most likely to opt for rtp responsive customers may include those with interruptible batch production processes and with on site generation in addition to utilities policy makers need to know price response to determine the role of rtp in achieving efficient electric resource use 2 this study adopts the modeling and estimation procedures set forth by herriges et al 1993 and king and shatrawka 1994 both employed a nested constant elasticity of substitution ces functional form herriges et al 1993 estimated response to an rtp rate offered by the niagara mohawk company at the time there were only 15 customers with usable data one strength of the study was the availability of a control group on non rtp rates king and shatrawka 1994 employed a much larger sample of 150 customers served by the midlands electric company great britain but did not have a control group both studies provided shortrun estimates only patrick and wolak 1997 also used midlands data to estimate demand elasticities from a generalized mcfadden functional form though their findings appear to be consistent with the other studies it is difficult to compare their results directly given the differing functional form 3 their study used several years of data and did include temperature but provided only short run estimates additionally there were no consistent findings regarding temperature their study proposed the analysis of customer learning for future work 4 o sheasy 1997 and gupta and danielson 1998 have raised the possibility that price response depends on the level of price o sheasy 1997 suggests a demand curve with vertical segments over certain price ranges

overconfidence compensation contracts and capital budgeting a risk averse manager s overconfidence makes him less conservative as a result it is cheaper for firms to motivate him to pursue valuable risky projects when compensation endogenously adjusts to reflect outside opportunities moderate levels of overconfidence lead firms to offer the manager flatter compensation contracts that make him better off overconfident managers are also more attractive to firms than their rational counterparts because overconfidence commits them to exert effort to learn about projects still too much overconfidence is detrimental to the manager since it leads him to accept highly convex compensation contracts that expose him to excessive risk

on the dynamic links between commodities and islamic equity abstract this paper investigates whether commodities offer potential diversification benefits for islamic equity index investors in light of possible financialization of commodity markets using mgarch dcc and wavelet coherence analyses our findings reveal that correlations between commodity markets and the dow jones islamic market world index are time varying and highly volatile throughout the january 1999 april 2015 period a substantial and persistent increase was observed in the return correlations between commodities and islamic equity at the onset of the 2008 financial crisis however trends in the recent two years suggest that this association is heading towards its pre crisis levels offering again diversification benefits for islamic equity holders these benefits vary across different commodities in various time scales overall gold natural gas soft commodities grains and livestock are better portfolio diversifiers than oil and other metals relative to medium to long term investors short term investors less than 32 days horizon gained better diversification benefits in most commodities during bullish bearish and market recovery periods these findings have implications for investors who are heterogeneous in risk tolerance and time preference as well as for policymakers who are concerned with market stability

crude oil and stock markets stability instability and bubbles abstract we analyze the long run relationship between the world price of crude oil and international stock markets over 1971 1 2008 3 using a cointegrated vector error correction model with additional regressors allowing for endogenously identified breaks in the cointegrating and error correction matrices we find evidence for breaks after 1980 5 1988 1 and 1999 9 there is a clear long run relationship between these series for six oecd countries for 1971 1 1980 5 and 1988 2 1999 9 suggesting that stock market indices respond negatively to increases in the oil price in the long run during 1980 6 1988 1 we find relationships that are not statistically significantly different from either zero or from the relationships of the previous period the expected negative long run relationship appears to disintegrate after 1999 9 this finding supports a conjecture of change in the relationship between real oil price and real stock prices in the last decade compared to earlier years which may suggest the presence of several stock market bubbles and or oil price bubbles since the turn of the century

separating bric using islamic stocks and crude oil dynamic conditional correlation and volatility spillover analysis abstract this paper explores the dynamic conditional correlation and volatility linkage between islamic indexes and oil for bric countries correlations between these assets increase during the global financial crisis for india and china but not for brazil and russia the volatility error forecast variance of all five indexes comes from spillover but is much lower compared to volatility spillover between conventional indexes and oil hedging performance of islamic indexes are superior in india and china compared to conventional indexes in emerging markets an optimal minimum variance portfolio without reducing expected return can be achieved by investing in lower weights of bric islamic indexes and oil compared to conventional indexes

the instability of governments and the instability of controls on funds transfers by multinational enterprises implications for political risk analysis this article represents a departure from previous empirical political risk studies it explicitly focuses on the association between specific governmental policy changes and other forms and political instability a cross national study of 115 countries finds positive but weak relationships between policy instability and other indicators of political instability the findings indicate the need to reconsider common assumptions about political risks

demand responses of korean commercial and industrial businesses to critical peak pricing of electricity abstract dynamic pricing of electricity is receiving growing attention as a key enabler of the smart grid and a solution for promoting grid resilience to increasing penetration of renewable sources despite various dynamic pricing programs are contemplated and actively implemented by utilities in many developed economies corporate decision makers are not aware of the extent to which their businesses can adapt to the programs and its associated risks and opportunities this study investigates the demand response of commercial and industrial businesses to the korean critical peak pricing pilot which was implemented in the winter of 2013 the demand responses of 802 businesses covering 34 commercial and industrial categories are evaluated and characterized by constructing their individual baseline loads the results resoundingly confirm substantial differences in demand response across and within the segments with the magnitude of response closely correlated with the firms expenditure shares of electricity it is thus suggested that conventional business classification is not sufficient enough to characterize firms demand response to dynamic pricing plans calling for firm level data based approaches to consumer segmentation and electricity services this study also identifies two important types of response behavior to which due attention has not been paid shortterm learning effect that is the demand responsiveness increasing with cpp event experiences and seemingly inefficient behavior of preparatory and recovering reductions in off peak hours neighboring critical peak hours

correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies abstract in this paper multivariate garch models are used to model conditional correlations and to analyze the volatility spillovers between oil prices and the stock prices of clean energy companies and technology companies four different multivariate garch models bekk diagonal constant conditional correlation and dynamic conditional correlation are compared and contrasted the dynamic conditional correlation model is found to fit the data the best and generates results showing that the stock prices of clean energy companies correlate more highly with technology stock prices than with oil prices on average a 1 long position in clean energy companies can be hedged for 20 cents with a short position in the crude oil futures market

risk propensity in the foreign direct investment location decision of emerging multinationals a distinguishing feature of emerging economy multinationals is their apparent tolerance for host country institutional risk employing behavioral decision theory and quasi experimental data we find that managers domestic experience satisfaction increases their relative risk propensity regarding controllable risk legally protectable loss but decreases their tendency to accept noncontrollable risk e g political instability in contrast firms potential slack reduces relative risk propensity regarding controllable risk yet amplifies the tendency to take noncontrollable risk we suggest that these counterbalancing effects might help explain prior ambiguous findings on the relationship between experience slack and fdi decisions the study provides a new understanding of why firms exhibit heterogeneous responses to host country risks and the varying effects of institutions

oil prices stock markets and portfolio investment evidence from sector analysis in europe over the last decade this article extends the understanding of oil stock market relationships over the last turbulent decade unlike previous empirical investigations which have largely focused on broad based market indices national and or regional indices we examine short term linkages in the aggregate as well as sector by sector levels in europe using different econometric techniques our main findings suggest that the reactions of stock returns to oil price changes differ greatly depending on the activity sector in the out of sample analysis we show that introducing oil asset into a diversified portfolio of stocks allows to significantly improve its risk return characteristics

real time pricing in the nordic power markets abstract in this paper we study the potential effects of real time pricing rtp of electricity on the need for long run capacities in the nordic power markets a characteristic of the nordic power market is the large variety of production technologies of which hydro and nuclear power are capacity constrained we analyze the impact of rtp on the need for total peak and midmerit capacities total demand prices peak demand hours and economic welfare we have also studied whether the results of rtp are sensitive to the simultaneous implementation of tradable emission permits we find that rtp diminishes the need for total capacity even with inelastic demand our results show that even with modest assumptions related to rtp participation the annual midmerit and peaker capacity efficiency savings amount to 97 million euros which are around 6 of their total annual investment costs the price of the peak demand hour clearly diminishes as the share of the rtp customers increases or demand becomes more price elastic we compare rtp and tradable emission permits as two separate instruments in reaching energy use efficiencies and show how these two instruments must be seen as complementary and not as substitutable instruments we show how rtp and tradable emission permits have a positive correlation in promoting market access of renewable energy sources we find that welfare effects of the implementation of rtp are positive

the long run effects of a time of use demand charge modifications in demand due to time of use tou pricing have potential to improve the efficiency of electric power supply with long lead times for plant construction utility planners need long run estimates of response to tou rates existing evidence is primarily drawn from short run tou experiments we provide estimates of long run response to a nonexperimental residential tou rate offered by duke power the rate contains a demand charge applied to the maximum rate of energy consumption during the peak period we find that customer response increases over time in a manner that enhances the ability of tou rates to reduce system peak

do higher oil prices push the stock market into bear territory this paper investigates whether a higher oil price pushes the stock market into bear territory by using time varying transition probability markov switching models it examines different measures of oil price shocks empirical evidence from monthly returns on the standard poor s s p 500 price index suggests that an increase in oil prices leads to a higher probability of a bear market emerging

the management of political risk we explore a long standing prediction in the international business literature that managers subjective perceptions of political risk not just the level of risk are important for how firms manage political risk the importance attributed to political risk by corporate executives has increased over the last 15 years and our results show that political risk is now considered more important than commodity input risk our analysis suggests that nearly 50 of firms avoid not simply reduce foreign direct investment because of political risk using a unique survey based psychometric evaluation of manager risk aversion we show that firms with risk averse executives are more likely to avoid investment in politically risky countries a key implication of behavioral models this relation is economically stronger when agency problems are more likely to be severe for example when executives are less aligned with shareholder value maximization and when executives are younger and therefore might put their personal career concerns in front of shareholders interests while numerous studies have shown that political risk affects foreign direct investment using objective measures of such risk electoral uncertainty conflicts etc our study documents that executives subjective perceptions of political risk are also important for political risk management

compensation incentives and the duality of risk aversion and riskiness the common folklore that giving options to agents will make them more willing to take risks is false in fact no incentive schedule will make all expected utility maximizers more or less risk averse this paper finds simple intuitive necessary and sufficient conditions under which incentive schedules make agents more or less risk averse the paper uses these to examine the incentive effects of some common structures such as puts and calls and it briefly explores the duality between a fee schedule that makes an agent more or less risk averse and gambles that increase or decrease risk with the growing interest in executive compensation and agency problems

governance infrastructure and us foreign direct investment this paper examines the statistical importance of governance infrastructure as a determinant of us foreign direct investment fdi in broad terms governance infrastructure represents attributes of legislation regulation and legal systems that condition freedom of transacting security of property rights and transparency of government and legal processes our econometric analysis uses a two stage estimation procedure in the first stage the probability that a country is an fdi recipient is estimated the results indicate that countries that fail to achieve a minimum threshold of effective governance are unlikely to receive any us fdi countries that receive no us fdi are typically countries that do not promote free and transparent markets that have ineffective governments and that often have legal systems that are not rooted in english common law in the second stage the analysis is restricted to those countries that did receive fdi flows the estimated equations focus on the determinants of the amount of fdi received given that a country is a recipient of us fdi governance infrastructure including the nature of the legal system is an important determinant of the amount received

policy and non policy determinants of u s equity foreign direct investment this study examined the effects of policy and non policy variables on the location of new u s direct investment abroad as distinct from reinvested earnings of existing affiliates using 1977 and 1982 benchmark data the data revealed statistically significant effects for investment incentives positive performance requirements negative and host country effective tax rates negative with interesting differences between the two time periods and between developed versus developing countries significance was also found for non policy variables such as political stability cultural distance gdp per capita and infrastructure

why doesn t capital flow from rich to poor countries an empirical investigation we examine the empirical role of difierent explanations for the lack of ows of capital from rich to poor countries the lucas paradox the theoretical explanations include difierences in fundamentals across countries and capital market imperfections we show that during 1970i2000 low institutional quality is the leading explanation for example improving peru s institutional quality to australia s level implies a quadrupling of foreign investment recent studies emphasize the role of institutions for achieving higher levels of income but remain silent on the speciflc mechanisms our results indicate that foreign investment might be a channel through which institutions afiect long run development

alliances in international governmental organizations regional trade agreement formation and multinational enterprise regionalization strategy abstract drawing from political science alliance theories we explain why countries are likely to enter regional trade agreements we argue that the probability that this will happen is higher if the countries are allies in the same international governmental organizations igos as such alliances can help build trust and reduce political risk our results show that igo scope and also partner reliability and influence in the igo network play important roles our findings provide guidance to multinational enterprises in formulating regionalization strategies

managerial incentives and capital management the paper shows how career concerns rather than effort aversion can induce a natural incongruity in risk preferences between managers and superiors a model based on learning about managerial talent is developed to study second best contractual remedies we show that the optimal wage contract is an option of the value of the manager s human capital for insurance reasons and that consequently rationing of capital is often required to counterbalance the manager s resulting incentive to overinvest rationing is strictly superior to price decentralization offering one reason for the prevalence of centralized capital budgeting procedures