state characteristics and the location of foreign direct investment within the united states a conditional logit model of the location decision of foreign firms investing in manufacturing facilities in the united states is developed and estimated the authors results for 1981 83 indicate that states with higher per capita incomes and higher densities of manufacturing activity attracted relatively more foreign direct investment in addition higher wages deterred foreign direct investment while higher unemployment rates attracted it surprisingly higher unionization rates were associated with increased foreign direct investment overall higher taxes deterred foreign direct investment however more extensive transportation infrastructures and larger promotional expenditures were associated with increased foreign direct investment copyright 1991 by mit press

asymmetry in retail wholesale and shipping point pricing for fresh vegetables the linkage among retail wholesale and shipping point prices for a select group of fresh vegetables is measured using wolffram s asymmetry model procedures for dealing with discontinuous time series are shown and granger s causality test is used to show the direction of the price linkage wholesale prices are shown to lead both retail and shipping point prices asymmetry in the retail wholesale response indicates that wholesale price decreases are reflected at the retail more so than are wholesale price increases wholesale price decreases are more fully passed through to the shipping point relative to wholesale increases

determinants of u s direct investment in the e e c revisited abstract this paper expands upon an earlier work in this review concerning the specification of a model to identify the determinants of u s direct foreign investment dfi in the e e c compared to earlier studies a longer data series is used an improved tariff discrimination proxy is employed and predicted sales are estimated and used as the output variable in the empirical work a variable to capture the effect of the u s capital control programs is also included the findings reaffirm the importance of market size especially in the plant and equipment equations as being an important determinant of dfi strong support was also found for the growth hypothesis consistent statistical support was found for the tariff discrimination hypothesis in addition the findings imply that a variable to capture the effects of fluctuating exchange rates should be included in future studies

beliefs equilibria in an overlapping generations model we consider a standard two generations version of the overlapping generations model agents predict inflation rates on the basis of a perceived law of motion which is estimated by running a linear regression on past inflation rates we introduce the notion of beliefs equilibrium at such an equilibrium i the perceived law of motion is such that it fits the time series of inflation rates best and ii this time series of actual inflation rates is generated when agents use that perceived law of motion we show that beliefs might converge although inflation rates keep on fluctuating these fluctuations are consistent with the limit belief

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

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

determinants of u s direct investment in the e e c revisited again abstract this paper discusses the scaperlanda balough comment on a previous study of mine that appeared in this review the scaperlanda balough paper extends and improves upon my study by employing better variables to test the hypotheses however i offer a different interpretation of the empirical evidence they present concerning the efficacy of the u s controls on direct investment

stability of cycles and expectations the actual dynamics of an economy depends on how agents forecast the future at every date as a function of their information on the past while possibly learning the structure of their environment we show in the case of a one dimensional state variable that under mild conditions on expectations functions a given cycle with perfect foresight that is stable in the actual dynamics is stable in a fictitious backward perfect foresight dynamics we exhibit a restricted class of expectations functions for which the converse is true

on sustainable growth and collapse optimal and adaptive paths abstract we consider economic growth in the presence of a minimal survival consumption level when preferences are lexicographic giving highest priority to the survival of the current and then all future generations knowledge of production is incomplete so future output made possible by current saving must be estimated the resulting capital accumulation path is compared with the inter temporally optimal one with full knowledge of the production function although previous results with the standard utility function show that for sufficiently strong discounting the adaptive strategy converges to the optimal path in the present case in several scenarios the effect of adaptive economizing under incomplete information is drastic leading to demise of the economy although long run survival would be possible

relative prices complementarities and comovement among components of aggregate expenditures abstract recent work suggests that the standard real business cycle framework has difficulty accounting for co movement among aggregate expenditure components when they are disaggregated even slightly to include business and household investment in addition relative prices of these goods have displayed substantial variation over the post war period this paper reports that incorporating a source of empirically plausible relative price variability makes the framework s implications for comovement even worse compounding the comovement problem the possibility that complementarities in the production of household and business capital may help account for observed co movement is considered the results suggest that complementarities improved the framework s empirical performance

the role of household production in models of involuntary unemployment and underemployment a classic result in the theory of labor contracts with asymmetric information is that underemployment results if and only if leisure is an inferior good a classic result in models where unemployment occurs because of indivisibilities including implicit contract models and some equilibrium macroeconomic models is that unemployment is involuntary if and only if leisure is an inferior good the authors introduce household production into otherwise standard versions of these models and show that this implies they can have underemployment in asymmetric information models or involuntary unemployment in indivisible labor models without assuming that leisure is inferior

asymmetry and rigidity in farm retail price transmission this article demonstrates how retail price transmission asymmetry can arise from intertemporal optimizing behavior among spatially competitive retailers facing concave spatial demand and shows that vigorous competition among retailers may not necessarily result in the larger retail price declines farmers expect during periods of declining farm prices it also shows that when this particular class of retailers incurs repricing costs retail prices can be rigid over a range of upward and downward movements in the farm price this suggests that the rigidity of retail prices during periods of declining farm prices could be due to repricing costs it also suggests that the appropriate econometric model of price transmission is the model of friction where tobit analysis is the proper method of estimation rather than nonreversible functions

cotton market integration and the impact of china s new exchange rate regime this article studies the integration of china s cotton market with the international market especially the u s market investigating the futures prices from the intercontinental exchange ice in the u s and the zhengzhou commodity exchange zce in china with several time series models we find that a long run cointegration relationship exists between these two series the two markets share price transmissions and based on results from an autoregressive conditional heteroskedasticity arch model we find their price volatilities are similar we argue that china s recent exchange rate reform and its gradual liberalization in bilateral cotton trade since it joined world trade organization have had important impacts on these futures markets based on these findings several important economic and policy implications are derived

retail gasoline price dynamics and local market power using monthly data from the 48 contiguous states except nevada for the 1988 2002 period it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases moreover markets with high average retail wholesale margins experience a slower adjustment and a more asymmetric response since gasoline is the only variable input average margins in a state likely reflect the degree of retail market power this suggests that sticky prices and response asymmetries in the gasoline market are at least partially a consequence of retail market power

the survival of international new ventures international new ventures invs are a popular mode of entry into foreign markets invs those companies that enter foreign markets at inception often suffer the two liabilities of newness and foreignness which may increase the odds of their failure this paper empirically examines the survival of invs by comparing them with other sequential modes of international operations e g acquisitions data from 275 british firms show that invs have lower unconditional survival probabilities than other modes of foreign market entry our analyses also show that differences in survival probabilities disappear when the firms competitive strategies are considered

the optimal timing of a foreign direct investment analyses of the optimal timing of foreign direct investment fdi decisions have been curiously lacking in the general literature on multinational enterprises cf buckley 1979a b although comparative static analyses exist comparing exporting to the host country with market servicing from a production unit sited in the host country horst 1971 hirsh 1976 the only attempt to predict the timing of the switch from exporting to foreign based production is that of aliber 1970 although vernon 1966 gives a cost based rationale for the switch this chapter attempts to fill this gap in the theory of fdi section 2 1 outlines and criticises previous attempts to deal with the problem sections 2 2 4 present a simple model which ignores set up costs and sections 2 5 and 2 6 give a more detailed analysis including such costs further extensions of the theory are considered in section 2 7 and the conclusions are summarised in section 2 8 the problem emerges as being more complex than had previously been appreciated

asymmetry in farm retail price transmission for major dairy products an econometric model is used to estimate the net relationship between changes in the farm level price of milk and changes in the retail prices of four major dairy products fluid milk butter cheese and ice cream results indicate that the farm retail price transmission process in the dairy sector is asymmetric retail dairy product prices adjust more rapidly and more fully to increases in the farm price of milk than to decreases the role in pricing asymmetry of retail demand versus farm supply shifts is tested via a chow type test asymmetry is tested using the houck procedure for estimating nonreversible functions

taxing the multinational enterprise on the forced redesign of global value chains and other inefficiencies the taxation of the multinational enterprise mne has been a continuing concern for policymakers we argue that the changing nature of the mobile mne e g its improved ability to fine slice the value chain and disperse it geographically makes it increasingly important to rethink current tax policies first there should be more focus on the inefficiencies that arise when taxation leads to the inefficient location of mne activities thus mnes may shift activities to low tax jurisdictions that offer lucrative pecuniary and non pecuniary incentives but do not enable their investments to maximize their contribution to global value creation second international tax regimes should ensure that mnes pay for their consumption of local public goods and public finance scholars have long known that the taxation based distortions are minimized when the tax objects are immobile however the bulk of current tax policies are aimed at corporate profits that are both poor proxies for the consumption of local public goods as well as extremely mobile integrating theory from international business public finance and economic geography our analysis demonstrates that moving the incidence of taxation from corporate profits to dividends and consumption would unambiguously improve both wealth creation and efficiency

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

the role of duration in multinational investment strategies the location of investment by multinational enterprises has been investigated from many perspectives it has been suggested that investment may be motivated by experience of a particular location represented by tenure of operations in contrast portfolio considerations suggest that increased investment in a given location increases risk exposure in this paper the question of whether a multinational with a longer duration of operations at a particular location is more likely to invest further is addressed after taking portfolio risk into account a conceptual model of multinational investment strategy is developed and empirically tested using data from a survey of multinational enterprises operating in the west midlands region of the united kingdom two innovative non parametric tests for duration dependence are applied after normalising for portfolio considerations it is found that multinational investment is significantly duration dependent i e firms with a longer tenure of operations are significantly more likely to invest in any given period this finding has important implications for the strategy of inward investment agencies in particular an investment agency is short sighted if it seeks to attract new investors if that is at the expense of neglecting multinationals with current operations in its jurisdiction

core or periphery the effects of country of origin agglomerations on the within country expansion of mnes we show how the initial subnational entry location of foreign multinational enterprises mnes in china influences their subsequent within country location choices and expansion speed we distinguish between mnes that establish their first subsidiary in co ethnic cores dense agglomerations of other firms from the same country of origin and mnes that locate their first subsidiary in the periphery i e outside of these co ethnic cores to identify co ethnic cores in china we employ a geo visualization methodology which draws the boundaries of cores organically and dynamically over time we contrast our findings with the prevailing approach of using static administrative boundaries for identifying agglomerations our results provide evidence of path dependency in that a entry through subnational locations with strong co ethnic communities is followed by expansion into other locations where co ethnic communities are present and that b entry through co ethnic communities accelerates the pace at which mnes establish additional subsidiaries in china we also find that co ethnic community effects continue to influence within country mne activities over time despite a host of economic institutional and investment developments

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

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

existence uniqueness and stability of equilibrium in an overlapping generations model with productive capital abstract this paper analyzes the existence uniqueness and stability of a steady state equilibrium in an overlapping generations model with productive capital it is shown that for any feasible set of well behaved preferences there exists a production function that satisfies the inada conditions under which the economy experiences global contraction and the steady state equilibrium is characterized by the absence of production and consumption the study establishes a strengthened inada condition which is necessary to preclude global contraction and sufficient conditions for the existence of a unique and globally stable non trivial steady state equilibrium

price transmission and asymmetric adjustment in the u s beef sector the u s livestock sector has experienced numerous structural changes in recent years for example the meatpacking industry has experienced many mergers and acquisitions leading to significant increases in industry concentration in particular the four firm concentration ratio for steer and heifer slaughter a frequently cited statistic and an important indicator of industry concentration increased from 35 7 in 1980 to 79 8 in 1997 usda there have also been significant regional shifts in livestock production and changes in marketing practices with decreased use of public markets in many areas for some products traditional auction markets have been largely replaced by contract production and sales cattle inventories have also trended downward over the last two decades this has been accompanied by decreases in the number of producers and in some cases with significant increases in the scale of operations the vertical transmission of shocks among various levels of the market is an important characteristic describing the overall operation of the market of course price is the primary mechanism by which various levels of the market are linked the extent of adjustment and speed with which shocks are transmitted among producer wholesale and retail market prices is an important factor reflecting the actions of market participants at alternative market levels the nature speed and extent of adjustments to market shocks may also have important implications for marketing margins spreads and mark up pricing practices an extensive literature has examined mar

on learning and rational expectations in an overlapping generations model abstract this paper investigates whether learning does actually lead to rational expectations in an overlapping generations model with fiat money expectations are formed according to a family of expectations functions containing a rational expectations scheme and indexed by a single parameter this parameter is updated in every period to fit the latest observations one finds that unless the agents have rational expectations to start with expectations will generally not converge towards rational expectations in this simple model

is knowledge power knowledge flows subsidiary power and rent seeking within mncs in recent years as multinational corporation mnc subsidiaries have become more closely linked to international networks their knowledge intensity has risen and some of their r d has gained a more creative role simultaneously and often connectedly many subsidiaries have acquired considerable strategic independence in all aspects of their operations and therefore are able to exercise considerable intra firm bargaining power to influence the distribution of the firm s resources in this context we suggest that intra mnc knowledge flows are a key determinant of subsidiary bargaining power we argue that subsidiary managers can exploit such power to pursue their own ends such rent seeking behavior is implicit in much of the literature on managerialism but our analysis suggests that such behavior can now occur in headquarters subsidiary and subsidiary subsidiary relations thus subsidiary strategic independence designed to enhance the competitiveness of outputs market knowledge and inputs asset seeking and learning can be corroded when the pursuit of subsidiary objectives encourages rent seeking empirical analysis of a sample of high technology subsidiaries in the uk provides strong support for the theory we examine several avenues whereby the incentives of units within the mnc can be aligned

a family production overlapping generations economy abstract this paper provides a theoretical analysis of an overlapping generations economy in which production decisions and input output allocations are all carried out at the family level i consider a single class of output allocation schemes and various degrees of knowledge about the production technology under complete knowledge i show that a family organizational structure in which everyone receives his marginal contribution to output invests less in physical capital than under a perfectly competitive equilibrium environment under incomplete knowledge i analyze and compare how beliefs about the input output relationship affect the physical capital accumulation dynamics and the long run standards of living

identifying price linkages a review of the literature and an application to the world market of cotton this paper reviews the literature of price linkages and examines the degree to which cotton prices are linked it also tests whether such linkages have improved over the last decade it concludes that the degree of linkage has improved over the last decade while the main source of this improvement appears to be a result of short run price transmission and to a lesser extent long run co movement

do managers behave the way theory suggests a choice theoretic examination of foreign direct investment location decision making many empirical examinations of foreign direct investment location choice have relied on the use of secondary data and surveys on the choices made by firms about the form and location of overseas investment these studies have two inherent and related problems first they rely solely on the location choices made by different firms and assume that the domains of possible options considered were the same second there is an assumption about the rules used by firms to make these decisions yet the decisions are made by boundedly rational managers after reviewing the literature this study examines managers choices about foreign investment location through the use of structured experimentation the results show that in creating sets of investments to consider managers appear to follow fairly rational rules however the choice of actual investments appears less aligned to traditional models

price transmission and market integration vertical and horizontal price linkages for salmon relationships between prices are of interest when testing for market integration as well as analyses of supply chains a feature that has received little attention is that if two supply chains are linked by market integration at some stage then the whole supply chain will be linked furthermore the leading price in such a system can be in one supply chain and will not be revealed in market integration studies or analysis of a single supply chain an empirical analysis is provided for the supply chains for salmon which originates in norway and the united kingdom and is then sold at retail level in france as smoked salmon we find a high degree of price transmission in both supply chains as well as integrated markets

real options in multinational corporations organizational challenges and risk implications in this study we investigate how multinationality affects firms risk levels our investigation builds on the idea from real options theory that international operations offer switching options to multinational corporations yet we also emphasize different sources of coordination costs that can mitigate the benefits of operational flexibility the findings from tobit models accounting for self selection underscore the importance of unobserved heterogeneity in the relationships between international investments and risk levels consistent with the coordination costs surrounding international operations we find that the relationship between multinationality and downside risk is curvilinear risk first declines and then increases as a firm s portfolio of international investments becomes extensive in addition downside risk is an increasing function of the average cultural distance between a firm s home base and the host countries in which its foreign subsidiaries operate

sequencing the expansion of geographic scope and foreign operations by born global firms born global firms are not actually born global but rather internationalize rapidly from their inception by expanding their geographic scope and extent of foreign operations however it remains unclear whether such firms 1 simultaneously expand along both dimensions 2 focus on expanding along a single dimension at a given time and switch interchangeably between expanding geographic scope and extent of foreign operations in subsequent periods or 3 stick solely to a specific internationalization path over several subsequent periods this study theorizes and empirically demonstrates that born global firms stick to a dominant internationalization path over subsequent periods arguably this phenomenon reflects managerial efforts to reduce the perceived risk of internationalization and their preference to develop and leverage capabilities that are specific to either of the internationalization paths until the economies of further expanding this path are exhausted

chaotic learning equilibria chaotic temporary equilibrium trajectories under least squares learning are shown to exist in a standard version of the overlapping generations model theses trajectories show forecast errors that never vanish thus we do not find convergence to an equilibrium in which agents have perfect foresight complex trajectories can even be found in the case of savings functions which are monotonically decreasing in the expected gross rate of inflation in this case no cyclical or chaotic trajectories with perfect foresight exist thus learning alone is a source of chaotic dynamic journal of economic literature classification numbers d83 d84

mnes and industrial structure in host countries a portfolio analysis of irish manufacturing ireland has been very successful in attracting foreign mnes in high technology sectors although these sectors exhibit faster growth than the traditional low technology sectors populated primarily by indigenous firms the high technology sectors are also more volatile we use portfolio theory to show that ireland s fdi strategy has led to a more diversified manufacturing sector that exhibits higher growth without a commensurate increase in volatility and risk

price transmission asymmetric adjustment and threshold effects in the cotton supply chain a case study for vidarbha india this study examines price transmission asymmetries in vidarbha s india cotton supply chain from 2002 to 2012 the analysis takes account of thresholds in price adjustments toward their long run equilibrium the first stage considers the price dynamics between international and indian domestic cotton prices the second stage considers price transmission from domestic to farm gate cotton prices in vidarbha results from the first stage indicate that indian and international cotton markets are well integrated in contrast the second stage reveals significant threshold type nonlinearities as well as asymmetries in price transmission between domestic and farm gate prices the short run dynamics suggest that the pass through from domestic to farm gate prices is larger when domestic prices decrease than when they increase moreover back of the envelope calculations suggest that the loss in revenue for a typical farmer from a decrease in domestic price is larger than the gains from an increase in domestic price of the same magnitude the implication is that traders benefit from price fluctuations at the expense of farmers evidence from fieldwork in vidarbha suggest that asymmetries revealed in this analysis may be linked to trader s market power and inadequate market information among farmers