coping with uncertainty in international business international business as compared with domestic business is usually characterized by increased uncertainty a study of 10 multinational companies uncovered several methods of coping with uncertainty this paper focuses on 2 methods which may not be apparent control and flexibility a framework of analysis suggesting appropriate methods for coping with uncertainty is also developed

on the relationship between firm size and export intensity export marketing literature supports the view that firm size is positively related to export intensity although the empirical findings have been mixed a number of theoretical arguments are used to support this proposition i e international marketing economies of scale limited managerial and financial resources of small firms decisionmaker s risk perception based on a large survey of the italian manufacturing industry the article falsifies the proposition and challenges some widely held assumptions in export marketing literature

choice of foreign market entry mode impact of ownership location and internalization factors firms interested in servicing foreign markets face a difficult decision with regards to the choice of an entry mode the options available to a firm include exporting licensing joint venture and sole venture several factors that determine the choice of a specific foreign market entry mode have been identified in previous literature these factors can be classified into three categories ownership advantages of a firm location advantages of a market and internalization advantages of integrating transactions this study examines the independent and joint influences of these factors on the choice of an entry mode multinomial logistic regression model is employed to test the hypothesized effects

the politics of foreign direct investment into developing countries increasing fdi through international trade agreements the flow of foreign direct investment into developing countries varies greatly across countries and over time the political factors that affect these flows are not well understood focusing on the relationship between trade and investment we argue that international trade agreements gatt wto and preferential trade agreements ptas provide mechanisms for making commitments to foreign investors about the treatment of their assets thus reassuring investors and increasing investment these international commitments are more credible than domestic policy choices because reneging on them is more costly statistical analyses for 122 developing countries from 1970 to 2000 support this argument developing countries that belong to the wto and participate in more ptas experience greater fdi inflows than otherwise controlling for many factors including domestic policy preferences and taking into account possible endogeneity joining international trade agreements allows developing countries to attract more fdi and thus increase economic growth

multinational investment under uncertainty in the chemical processing industries this study uses a sample of chemical processing industries to evaluate the effect of two types of uncertainty on the decision to invest in an industry it analyzes the effects of relative price uncertainty through exchange rates and input prices and demand uncertainty on the probability of expansion in a particular country the study then focuses on the behavior of individual companies and distinguishes companies by whether or not they are multinationals in the production of the product the results confirm previous evidence that exchange rate uncertainty has a negative effect on capacity expansions by domestic corporations and no effect on investment by multinational corporations finally the study also shows that expansions of production capacity in this industry are more likely to occur in those countries where capacity utilization is higher

disease and development the effect of life expectancy on economic growth we exploit the major international health improvements from the 1940s to estimate the effect of life expectancy on economic performance we construct predicted mortality using preintervention mortality rates from various diseases and dates of global interventions predicted mortality has a large impact on changes in life expectancy starting in 1940 but no effect before 1940 using predicted mortality as an instrument we find that a 1 percent increase in life expectancy leads to a 1 7 2 percent increase in population life expectancy has a much smaller effect on total gdp however consequently there is no evidence that the large increase in life expectancy raised income per capita

many roads lead to rome implications of geographic scope as a source of isolating mechanisms studies examining the competitive implications of geographic scope have largely focused on creating competitive advantage in an attempt to investigate a less illuminated role of geographic scope that of sustaining competitive advantage this paper investigates the sources of and relationships among the causal factors leading to creation of isolating mechanisms or barriers to imitation this paper first distinguishes two sources of causal factors linked to the creation of isolating mechanisms intrinsic characteristics of knowledge and geographic scope of knowledge acquisition and then investigates the relationships among the causal factors from the two sources employing the fuzzy set qualitative comparative analysis method this paper examines equifinality and functional equivalence of causal factors from the two sources empirical analyses with united states patent and trademark office patent data of the semiconductor industry corroborate the main thesis of the paper that multiple paths can lead to the creation of isolating mechanisms and in these paths causal factors from the two sources of isolating mechanisms can be functionally equivalent the results also provide managerial implications that firms with different sets of resources and capabilities can implement different types of isolating strategies to sustain their competitive advantage

anonymous shell companies a global audit study and field experiment in 176 countries to test whether firms behave consistently with international law prohibiting anonymous incorporation we conducted a global audit study and field experiment using data from 1639 incorporation firms in 176 countries we requested anonymous incorporation and randomly assigned references to international law threat of penalties norms of appropriate behavior or a placebo we find a substantial number of firms willing to flout international standards and show that those in oecd countries proved significantly less compliant with rules than in developing countries or tax havens firms in tax havens displayed significantly greater compliance and were sensitive to experimental interventions invoking international law

global strategy and multinationals entry mode choice this paper makes a case directed towards establishing the importance of global strategic considerations in choosing multinationals entry mode specifically it is our contention that beyond the environmental and transaction specific factors well established in the literature to affect the entry mode decision we should also consider the strategic relationship a multinational envisages between its operations across borders in reaching this decision after incorporating various global strategic variables into an eclectic framework of the factors influencing the entry mode choice this paper tests both the validity of the overall framework and the importance of each entry mode determinant in differ entiating among entry modes this is done based on ninety six multinational managers responses to a survey questionnaire concerning their entry mode decision experiences the results suggest that an express incorporation of global strategic variables into an analysis of the entry mode decision is warranted

disease and development revisited acemoglu and johnson 2007 present evidence that improvements in population health do not promote economic growth we show that their result depends critically on the assumption that initial health has no causal effect on subsequent economic growth we argue that such an effect is likely primarily because childhood health affects adult productivity in our augmented model which includes initial health the instrumental variable proposed by acemoglu and johnson has no significant predictive power for improvements in health and does not identify the effect of contemporaneous improvements in health on economic growth this abstract was borrowed from another version of this item

the new econometrics of structural change dating breaks in u s labor productivity we have seen the emergence of three major innovations in the econometrics of structural change in the past fifteen years 1 tests for a structural break of unknown timing 2 estimation of the timing of a structural break and 3 tests to distinguish unit roots from broken time trends these three innovations have dramatically altered the face of applied time series econometrics in this paper we review these three innovations and illustrate their application through an empirical assessment of u s labor productivity in the manufacturing durables sector

learning to compete in a transition economy experience environment and performance does organizational learning as measured by experience in a host country affect international expansion performance if so does such a relationship between experience and performance hold over time how do the environmental forces in the host country affect such a relationship focusing on organizational learning by multinational enterprises mnes operating in a transition economy this study answers these three critical questions by exploring the relationships among experience environment and performance at the subsidiary level based on a recent survey of 108 mne subunits operating in china we find that the intensity and diversity of host country experience is an important predictor of subunit performance while the positive effect of the intensity of experience on performance diminishes over time the impact of the diversity of experience on performance remains unchanged moreover for mnes experiencing greater environmental dynamism complexity and hostility there is a stronger positive relationship between experience and performance

misreading liberalisation and privatisation the case of the us energy utilities in europe in response to energy market liberalisation and privatisation initiatives promoted by the eu and other european states in the 1990s a large number of us energy utilities expanded their activities in europe mainly through acquisitions the size of their investment was a decade later matched by the ensuing scale of their retreat wealth destruction and often forced exit combining interviews industry studies published financial data and company reports this article examines critically their strategy and in light of widespread failures seeks to answer the question of what went wrong it is argued that mistakes might have been avoided through greater appreciation of how market liberalisation evolves given changing government priorities and general sovereign risk

is dunning s eclectic framework descriptive or normative can dunning s oli ownership location internalization framework be used to predict the best performing international entry modes or merely the most commonly selected modes using data from german and dutch firms investing in central and eastern europe we investigate the relationship between dunning s oli variables entry mode selection and managerial satisfaction with firm performance we found empirical support for dunning s framework as both a descriptive and a normative model

improving new technology venture performance under direct and indirect network externality conditions this study compares the effectiveness of five responses to external uncertainty in markets with network externalities avoidance imitation control cooperation and real options reasoning as a form of strategic flexibility our analysis of 385 new technology ventures shows that direct and indirect network externalities have opposite effects on the effectiveness of these strategies moreover under network externalities attempts to make ventures less dependent upon environmental instabilities perform differently compared to attempts to control the environment finally we show that real options reasoning does not always perform better under conditions of higher uncertainty such as uncertainty due to direct network externalities

testing the bargaining hypothesis in the manufacturing sector in developing countries the bargaining power model of hc mnc host country multinational corporation interaction conceives of economic nationalism in terms of rational self interest and assumes both inherent conflict and convergent objectives in extractive industries there is strong evidence that outcomes are a function of relative bargaining power and that as power shifts to developing hcs over time the bargain obsolesces a cross national study of the bargaining model using data from 563 subsidiaries of u s manufacturing firms in forty nine developing countries indicates that while the bargaining framework is an accurate model of mnc host country relationships manufacturing is not characterized by the inherent structurally based and secular obsolescence that is found in the natural resource industries shifts in bargaining power to hcs may take place when technology is mature and global integration limited in industries characterized by changing technologies and the spread of global integration the bargain will obsolesce very slowly and the relative power of mncs may even increase over time

the exchange rate exposure of a global competitor this paper analyzes the exposure of operating cash flows to an exogenous exchange rate change for a firm operating internationally as a multimarket oligopolist i e a global competitor and facing demand that depends in a general way on the exchange rate it is shown that exposure is the sum of a base case exposure identified in other studies and two other components terms associated with exchange rate induced demand shifts and terms associated with competitors s reoptimization following the exchange rate shock in general the magnitudes of these additional terms are significant especially in the presence of asymmetries across markets and firms numerical examples are provided that incorporate asymmetries corresponding to stylized facts about some u s markets and u s manufacturers

the effect of asset and ownership structure on political risk some evidence from mitterrand s election in france abstract previous research suggests that political risk varies considerably from firm to firm yet few empirical tests of the cross sectional variation in political risk exist french assets were massively revalued the day after mitterrand was elected in 1981 providing a unique opportunity to test for the effect of firm specific factors on political risk although foreign ownership tends to increase political risk other factors can reduce it a simple model of political behavior is presented in which politicians value among other things economic growth a foreign firm with significant future growth options is likely to experience less political risk than other foreign firms and under certain circumstances less risk than even other domestic firms tests of these hypotheses are conducted using data from the french and u s capital markets the results are generally consistent with the hypotheses

government intervention in the venezuelan petroleum industry an empirical investigation of political risk two important aspects of political risk analysis that have not received much attention in the literature are a the reasons why multinational firms experience different types of intervention and b the timing of intervention in order to address these issues this research develops a conceptual model of political risk based on the premise that host government intervention is related to specific objectives of the government vis a vis multinational firms information reflecting the attainment of objectives motivates the government to intervene in a given manner the application of this model to the case of the venezuelan petroleum industry from years 1947 to 1976 provides some support for this model and gives insight into the timing of specific types of intervention

competing for capital the diffusion of bilateral investment treaties 1960 2000 over the past forty five years bilateral investment treaties bits have become the most important international legal mechanism for the encouragement and governance of foreign direct investment the proliferation of bits during the past two decades in particular has been phenomenal these intergovernmental treaties typically grant extensive rights to foreign investors including protection of contractual rights and the right to international arbitration in the event of an investment dispute how can we explain the widespread adoption of bits we argue that the spread of bits is driven by international competition among potential host countries typically developing countries for foreign direct investment we propose a set of hypotheses that derive from such an explanation and develop a set of empirical tests that rely on network measures of economic competition as well as more indirect evidence of competitive pressures on the host to sign bits the evidence suggests that potential hosts are more likely to sign bits when their competitors have done so we find some evidence that coercion and learning play a role but less support for cultural explanations based on emulation our main finding is that the diffusion of bits is associated with competitive economic pressures among developing countries to capture a share of foreign investment we are agnostic at this point about the benefits of this competition for development for useful comments on earlier drafts of this article we thank bill bernhard bear braumoeller frank dobbin robert franzese jeffry frieden geoffrey garrett tom ginsburg jude hays lisa martin bob pahre mark ramsayer steven ratner susan rose ackerman and john sides for research assistance we thank elizabeth burden raechel groom and alexander noonan

understanding the structural characteristics of a firm s whole buyer supplier network and its impact on international business performance building on the network theory and the concept of organizational ambidexterity we investigate the impact of structural characteristics of a firm s whole buyer supplier network network density betweenness centralization and average clustering coefficient on its international business ib performance we also explore the moderating roles of average path length and pagerank centrality using a manually collected dataset and a robust empirical methodology we find that while network density is negatively related betweenness centralization and average clustering coefficient have an inverted u shape and a u shaped relationship with ib performance respectively we also find significant moderation effects and in the process we show the economic importance of firms whole buyer supplier network to their ib performance we contribute to the international business and whole buyer supplier network literature

the credibility of a threat to nationalize abstract this paper empirically estimates the credibility of the african national congress s recent threat to nationalize south african mineral assets while south africa s financial press argued that the threat was negatively affecting mineral investment and asset values mining industry executives were confident that the threat was not credible using financial market data i estimate the annual probability of nationalization to have been relatively low at 1 4 although specific to the south african political environment this result can serve as a benchmark when including political risk in applied models of land and natural resource valuation investment timing and resource extraction

dodging bullets the heterogeneous effect of political violence on greenfield fdi the relationship between political violence and greenfield foreign direct investment is contingent on the type of violence characteristics of the investment receiving sector and extent to which the investing firm is geographically diversified this paper presents an analysis with a dynamic fixed effects model for a panel of 90 developing countries from 2003 to 2012 the analysis shows that nationwide political conflict is negatively associated with total and non resource related greenfield foreign direct investment but not with resource related greenfield foreign direct investment the insensitivity to political conflict of multinational firms in the resource sector is associated with the high profitability of natural resource extraction and the companies geographic constraints on location choice during the period of estimation in the non resource sector the less geographically diversified firms are most sensitive to the risk of conflict

environmental risks and joint venture sharing arrangements multinational enterprises mnes have responded to the open door policies of socialist countries in recent years by investing in their economies through joint ventures mnes must formulate their investment strategies to control and manage the environmental risks peculiar to a traditional centrally planned economy cpe in which contextual and transactional environments are blurred joint venture sharing arrangements may be structured to control exposures to uncertainties and to align the interests of transactional parties mostly state owned enterprises to those of the venture this study tests the hypothesis that a foreign investor s share in a joint venture in a cpe is inversely correlated with 1 the amount of uncertainties and risks and 2 the external dependency of the venture on the contextual and transactional relationships of the host country the hypothesis is supported by empirical evidence from data on american joint ventures in china

the power of the buckley and casson thesis the ability to manage institutional idiosyncrasies recent patterns of rapid internationalization in sectors characterized by strong public interest and both government and domestic capital constraints seem at first inconsistent with the drivers of internationalization identified by buckley and casson 1976 for manufacturing industries in the postwar era a more microanalytic perspective however identifies the ability to manage institutional idiosyncrasies as a firm level capability akin to research or advertising that can drive internalization across national borders and thereby internationalization these arguments are examined using evidence from the independent power production sector

the 45 years of foreign direct investment research approaches advances and analytical areas what are the main tenets associated with foreign direct investment fdi what research has been performed in the area of fdi to date which direction should research in this field proceed in the days to come as there is no article with comprehensive coverage of all the studies on fdi we review empirical research in this area between the years 1970 and 2014 as an attempt to answer these questions we identify the advances and analytical areas of fdi research list out the impactful research papers and authors theoretical and methodological approaches leading journals and variables of interest that exist in the area of fdi research as the research into the fdi has advanced significantly over the last two decades we have also tried to point out the gaps in the literature taken together our paper highlights the heterogeneous nature of fdi across countries and firms

the demise of expropriation as an instrument of ldc policy 1980 1992 this paper reports data collected on expropriation activity by developing countries from 1980 1992 extending previous work by kobrin 1984 kobrin s assumption that expropriation activity would continue to decrease over time and his reasons for this assumption are supported the paper introduces recent phenomena which further indicate that expropriation is unlikely to resurface in the near future as a source of multinational corporation developing country contention many developing countries now protect foreign direct investors from expropriation the broad scale movement in developing countries to privatize state owned enterprises also indicates that governments will not be eager to replace private sector activity with state ownership

management of foreign exchange risk a review article this paper reviews the literature on foreign exchange risk management ferm which has burgeoned during the last decade scholars and practioners emerging interest in foreign exchange risk management was spurred by the advent of fluctuating exchange rates in the early seventies as well as by the pronouncement of the infamous fasb statement no 8 in 1976 which laid down unambiguous guidelines for consolidating financial statements of multinational corporations a normative rather than a market view of foreign exchange risk management is taken and accordingly the author reviews first the two key informational inputs necessary for any foreign exchange risk management program forecasting exchange rates and measuring exposure to exchange risk available decision models for handling transaction and translation exposures are reviewed next a concluding section identifies gaps in the existing literature and suggests directions for future research

the lazarus drug the impact of antiretroviral therapy on economic growth abstract does better population health lead to growth in per capita income theory is ambiguous and empirical evidence is very limited in 2001 a steep fall in antiretroviral arv drug prices triggered rapid and massive expansion of arv therapy coverage in lower income countries exploiting the sharp resultant changes in population health i show that arv therapy coverage expansion led to growth in gdp per capita the positive effects on growth most likely persist for around four years arv therapy coverage expansion could explain around a third of the sub saharan african growth miracle

terrorism and international business a research agenda terrorism threatens international business ib through its direct and indirect effects as governments tighten security at public sites businesses have become more attractive terrorist targets with important implications for the operations and performance of multinational firms while terrorism has been substantially studied in other fields there has been little scholarly research to address terrorism and the distinctive challenges that it poses for ib in this article we conceptualize terrorism in relation to ib we provide background on the dimensions and effects of terrorism and develop a theoretical grounding for terrorism research by drawing on the literature from ib economics political science and other fields after discussing findings from the literature review we offer a comprehensive agenda for future research regarding the relationship between terrorism and ib our agenda emphasizes the effects of terrorism organizational preparedness company strategy and performance global supply chain and distribution channels and human resource issues our review helps establish a baseline for future empirical research consistent with the early stages of research ib scholars are encouraged to offer useful perspectives and effective solutions that shed needed light on terrorism and help reduce its destructive effects for ib and multinational firms

disease and development evidence from hookworm eradication in the american south this study evaluates the economic consequences of the successful eradication of hookworm disease from the american south the hookworm eradication campaign c 1910 began soon after i the discovery that a variety of health problems among southerners could be attributed to the disease and ii the donation by john d rockefeller of a substantial sum to the effort the rockefeller sanitary commission rsc surveyed infection rates in the affected areas eleven southern states and found that an average of forty percent of school aged children were infected with hookworm the rsc then sponsored treatment and education campaigns across the region follow up studies indicate that this campaign substantially reduced hookworm disease almost immediately the sudden introduction of this treatment combines with the cross area differences in pre treatment infection rates to form the basis of the identification strategy areas with higher levels of hookworm infection prior to the rsc experienced greater increases in school enrollment attendance and literacy after the intervention this result is robust to controlling for a variety of alternative factors including differential trends across areas changing crop prices shifts in certain educational and health policies and the effect of malaria eradication no significant contemporaneous results are found for adults who should have benefited less from the intervention owing to their substantially lower prior infection rates a long term follow up of affected cohorts indicates a substantial gain in income that coincided with exposure to hookworm eradication i also find evidence that eradication increased the return to schooling

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

disease and development a reply to bloom canning and fink bloom canning and fink 2014 argue that the results in acemoglu and johnson 2006 2007 are not robust because initial level of life expectancy in 1940 should be included in our regressions of changes in gdp per capita on changes in life expectancy we assess their claims controlling for potential lagged effects of initial life expectancy using data from 1900 employing a nonlinear estimator suggested by their framework and using information from microeconomic estimates on the effects of improving health there is no evidence for a positive effect of life expectancy on gdp per capita in this important historical episode this abstract was borrowed from another version of this item

the gift of the dying the tragedy of aids and the welfare of future african generations this paper simulates the impact of the aids epidemic on future living standards in south africa i emphasize two competing effects on the one hand the epidemic is likely to have a detrimental impact on the human capital accumulation of orphaned children on the other hand widespread community infection lowers fertility both directly through a reduction in the willingness to engage in unprotected sexual activity and indirectly by increasing the scarcity of labor and the value of a woman s time i find that even with the most pessimistic assumptions concerning reductions in educational attainment the fertility effect dominates the aids epidemic on net enhances the future per capita consumption possibilities of the south african economy

information costs agglomeration economies and the location of foreign direct investment in china1 he c 2002 information costs agglomeration economies and the location of foreign direct investment in china reg studies 36 1029 1036 foreign investors suffer from adverse information asymmetry and face internal and external uncertainties in host economies better access to information and a variety of agglomeration economies could attenuate the disadvantages that foreign investors encounter statistical results strongly buttress the argument that foreign investors are inclined to favour such locations that could minimize information costs and offer a variety of agglomeration economies theoretical and policy implications and further research directions are discussed at the end 1 this paper was presented at the 63rd annual meeting of the association of pacific coast geographers sept 13 16 2000 arcata ca

the african growth miracle measures of real consumption based on the ownership of durable goods the quality of housing the health and mortality of children the education of youths and the allocation of female time in the household indicate that sub saharan living standards have for the past two decades been growing about 3 4 3 7 percent per year that is three and a half to four times the rate indicated in international data sets

imitation costs and patents an empirical study it has long been recognised that the costs of imitating new products have an important effect on the incentives for innovation in a market economy as arrow i962 and others have pointed out if firms can imitate an innovation at a cost that is substantially below the cost to the innovator of developing the innovation there may be little or no incentive for the innovator to carry out the innovation in their discussions of the innovation process economists frequently have called attention to the major role played by the costs of imitation but there has been little or no attempt to measure these costs to test various hypotheses concerning the factors influencing them or to estimate their effects in this paper we report some findings of what seems to be the first study of this topic in addition we present data regarding the effects of patents on imitation costs and on the rate of innovation

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

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

market seeking mnes in an emerging market how parent subsidiary links shape overseas success this study extends research on parent subsidiary links applying new theoretical perspectives those of resource dependence and dynamic capability to the new empirical setting of an emerging market we suggest that parent subsidiary links help to mitigate emerging market threats by reducing external dependence and help to capitalize on emerging market opportunities by enhancing local responsiveness

what makes and what does not make a real option a study of equity shares in international joint ventures this paper examines the boundaries of real options logic with an application to joint ventures jvs we distinguish between forms of uncertainty that are resolved endogenously and those that are resolved exogenously and theorize that only exogenous uncertainty will have the impact predicted by real options theory on a foreign investor s choice of how large an equity share to take in a jv we theorize that macroeconomic and institutional variables generate exogenous uncertainty whereas by contrast cultural distance and choices pertaining to corporate scope and product or process development activities involve endogenous sources of uncertainty that investors can both assess and act upon without having to wait and see using a sample of 6472 sino foreign jvs we find support for our predictions we discuss and implement proper methods to test for the existence of null effects as is relevant to establish the boundaries of a theory such as real options theory we draw implications for research and practice on jvs specifically equity share decisions which deserve more attention and real options including suitable uses and desirable extensions of the concept

foreign investor reactions to risk and uncertainty in antitrust u s merger policy investigations and the deterrence of foreign acquirer presence motivated by the potential for antitrust and competition policies to be protectionist in effect we formulate the theoretical prior that merger policy deters foreign acquirer participation in local m a markets the policy risk and policy uncertainty characteristic of merger review may negatively affect foreign acquirers more so than domestic acquirers thereby disadvantaging foreign acquisitions of local firms and deterring future cross border investment activities we test this prior by employing sector level data on u s merger policy investigations and foreign acquirer presence in u s m a markets over the 2002 2017 period our panel data methodological approach indicates that the risk and uncertainty characteristic of u s merger policy disproportionately deters the acquisition activities of foreign investors the empirical results also suggest that the application of competition and merger policies in other national jurisdictions where there is less of a strong commitment to antitrust principles might also be effectively protectionist

credit rationing and rational behavior this paper shows that optimal consumption is weakly increasing in the borrowing ceiling while savings and the welfare losses caused by borrowing constraints are weakly decreasing more important the strict inequalities may hold even at high saving levels at which the constraints are not expected to bind any time soon in essence the paper shows that one can make a smooth transition between the two extremes of free and no borrowing further quantitative versions of the theory demonstrate that the distortive impact of borrowing constraints depends upon all the parameters of the economic environment in a complicated way copyright 1994 by ohio state university press

the obsolescing bargaining model mnc host developing country relations revisited the traditional bargaining model of mnc host developing country relations has become obsolete today those relations are better understood as the result of a two tier multi party bargaining process tier 1 bargaining between the governments of host and home countries occurs bilaterally or through multilateral institutions it produces macro rules on fdi that affect micro negotiations in tier 2 per the traditional bargaining model the extent of fdi liberalization resulting from tier 1 bargaining varies predictably across home host country pairs and industries suggestions for testing the two tier bargaining model are also presented

why franchise companies expand overseas abstract business format franchising is becoming an increasingly international activity from 1971 to 1985 u s franchisors added foreign outlets at a rate of 17 per year almost twice as fast as they added domestic outlets aydin and kacker 1990 as a result by 1990 more than 350 u s companies had more than 32 000 franchised outlets overseas by 2000 60 of all franchisors in the united states are expected to have outlets overseas hoffman and preble 1993 this study examines the 815 largest u s franchisors to understand what capabilities encourage them to expand overseas it finds that the key capability that predicts the intent to expand overseas is superior capability to reduce franchisee opportunism franchisors who seek foreign franchisees have developed a greater capability to bond against and monitor potential franchisee opportunism the data show that these differences are consistent across all industries in which franchising takes place the results of this study indicate that foreign entrepreneurs can identify the american franchisors most likely to expand overseas by looking at their pricing structure and their monitoring capabilities the easy identification of characteristics from which to find american franchisors will help to reduce the search costs of potential foreign franchisees this reduction in search costs will make the establishment of international franchise relationships less expensive this study also provides guidance to franchisors interested in expanding overseas the results show how franchisors can structure their franchise relationships to reduce potential franchisee opportunism this ability to reduce franchisee opportunism will make it easier for franchisors to enter high growth foreign markets using the franchising business mode this study also has implications for researchers it suggests that international business research examine further the mechanisms by which firms make contractual modes of international business work whereas many firms may internalize international market transactions under conditions likely to lead to market failure the large number of franchisors who use franchising as an international expansion mode despite conditions of market failure suggests that more attention be paid to mechanisms that companies can use to reduce the probability of failure of international contractual transactions by helping to explain how franchisors monitor foreign franchisees or bond them against opportunistic behavior this study suggests that the international business literature develop a more complex understanding of the workings of international business transactions than the simple choice of internalization or contractual entry modes

modeling the effects of health on economic growth abstract this paper investigates the effects of health indicators such as adult survival rates asr on gdp growth rates at 5 year intervals in several countries panel data were analyzed on gdp series based on purchasing power adjustments and on exchange rates first we developed a framework for modeling the inter relationships between gdp growth rates and explanatory variables by re examining the life expectancy income relationship second models for growth rates were estimated taking into account the interaction between asr and lagged gdp level issues of endogeneity and reverse causality were addressed lastly we computed confidence intervals for the effect of asr on growth rate and applied a test for parameter stability the results showed positive effects of asr on gdp growth rates in low income countries

offshoring innovation to emerging markets organizational control and informal institutional distance the literature on innovation offshoring has focused on the dichotomous choice between two distinct investment strategies captive offshoring and outsourced offshoring we use the concept of organizational control to investigate how differences in the informal institutions that prevail in the home and host countries influence multinational enterprise mne strategy or the organizational control decision with respect to subsidiaries established to offshore innovation while the relationship between formal institutions and mne strategy has been the subject of considerable academic scrutiny less is known about the role of informal institutions we propose that the type of uncertainty precipitated by informal institutions is critical to understanding the strategic behavior of foreign investing mnes we hypothesize that an mne s organizational control over a subsidiary will be contingent upon the type of informal institutional uncertainty encountered by the subsidiary more specifically we disaggregate the informal institutions construct and develop three new more explicit latent constructs behaviorally oriented informal institutions boii technology oriented informal institutions toii and demand oriented informal institutions doii our theory posits that while an increase in boii distance will precipitate a preference for greater organizational control heightened toii and doii distances will induce the opposite outcome a preference for lower levels of organizational control

why are developing countries privatization this article tests alternative hypotheses about why developing countries are pursuing privatization a policy that gained considerable popularity in the 1980s univariate and multivariate analysis indicate that privatization was more likely to be pursued by countries with high budget deficits high foreign debt and high dependence on international agencies like the world bank and the imf in regions such as latin america and asia the trend was also more likely in countries a that seemed to have overused state enterprises in the past and b those in which the private sector had grown faster than average and was thus more ready to assume tasks once assigned to state enterprises in africa however the policy may have been imposed by external agencies on countries that were not necessarily ripe for privatization for multinational firms the international opportunities created by privatization are likely to be greater in the 1990s than in the 1980s

international risk and perceived environmental uncertainty the dimensionality and internal consistency of miller s measure increasingly scholars have suggested that there is a need to approach the problem of international risk from a multidimensional perspective brouthers 1995 miller 1993 shan 1991 miller 1992 1993 developed and tested the most comprehensive framework to date miller 1993 showed high inter rater reliability in his measure of perceived environmental uncertainty peu in this paper we test the dimensionality of the scales from a statistical viewpoint and find that the statistical determination is reasonably consistent with miller s conceptual determination we also investigate miller s measure by comparing scales conceptualized by miller with ones determined by factor analysis we test the reliability of these scales and find that the conceptualized scales have generally high internal consistency in samples of both manufacturing and service firms however the findings also suggest that several changes in the peu measure are warranted resulting in a refinement of miller s measure which we have labeled peu 2

resource based fdi and expropriation in developing economies abstract globally foreign direct investment fdi assets are expropriated more in resource extraction industries compared to other sectors despite the higher apparent risk of expropriation in resources countries more likely to expropriate also have a larger share of fdi in the resource sector an incomplete markets model of fdi is developed to account for this puzzle the type of government regime is stochastic with low penalty regimes facing a relatively low exogenous cost of expropriating fdi and country risk is measured by the variation in these costs across different regimes the key innovation of the model is that the government before the regime type is known is able to charge different prices to domestic and foreign investors for mineral rights granting cheap access increases fdi and reduces the country s share of resource rents increasing the temptation to expropriate in a relatively low penalty regime in very high risk countries subsidizing resource fdi increases the total value of output by raising investment and the net gains from expropriating in a low penalty regime outweigh the rents foregone under a high penalty one however a stochastic resource output price results in relatively low risk countries restricting fdi inflows to the resource sector instead windfall profits in this sector raise incentives to expropriate when prices are high yet minimization of the ex ante risk of expropriation is preferred owing to the relatively high penalty for expropriating these results imply a higher average share of resource based fdi in countries most likely to expropriate while resources account for a high share of expropriated assets compared to the sector s global share of fdi we show that the model is able to reconcile observed patterns of foreign investment and expropriation for a sample of 38 developing and emerging economies

industry and country effects on managers perceptions of environmental uncertainties international management research highlights political government policy and macroeconomic uncertainties strategy studies focus on input supply product market and competitive uncertainties this study develops and tests the reliability of an instrument for measuring managers uncertainly perceptions data analyses using an international sample provide insights into the relative importance of country and industry factors for explaining managers perceptions of different environmental uncertainties

hedging foreign exchange exposures independent vs integrative approaches many financial managers think that foreign exchange hedging decisions are mainly a choice between to hedge or not to hedge nevertheless previous researchers applied ederington s portfolio approach and found that even for risk minimization a complete hedge does not lead to the lowest risk instead there exists an optimal hedging ratio which yields the lowest variance however the discussions of these former studies were concentrated on a single foreign currency cash flow in the real world financial managers are more likely to expect multiple cash flows arriving at different times even for the same foreign currency this paper therefore discusses whether financial managers should hedge these cash flows independently or combine them under one integrative hedging scheme it is shown that while the independent approach does not lead to the lowest risk its hedging effectiveness is close to that of the integrative approach given the time and resource constraints of financial managers the simpler independent approach appears to be a better choice

energy investment risk assessment for nations along china s belt road initiative abstract overseas energy investment as an effective way of securing energy supply is being favored by the world s leading energy consuming countries however energy investment has the potential high risk on multiple forms including political and regulatory risk currency liquidity and refinancing risk as well as resource risk and so on to effectively evaluate overseas energy investment risk this study proposed a new indicator system from six dimensions furthermore a fuzzy integrated evaluation model based on the entropy weight was constructed to rate the energy investment risk for 50 nations along china s belt road initiative the findings indicate that resource potential and chinese factors have become the main determinant of energy investment risk while environmental constraints and political risk should also be considered for investing decisions in conclusion saudi arabia united arab emirates pakistan kazakhstan and russia are the most ideal choices for china s energy investment balancing resource potential and investment environment

a framework for integrated risk management in international business treatments of risk in the international management literature largely focus on particular uncertainties to the exclusion of other interrelated uncertainties this paper develops a framework for categorizing the uncertainties faced by firms operating internationally and outlines both financial and strategic corporate risk management responses

phasing the operation mode of foreign subsidiaries reaping the benefits of multinationality through internal capital markets the lifetime of foreign equity partnerships is often limited research suggests that mncs abandon their local partners when the need for sharing ownership in foreign subsidiaries has diminished this study shows that mncs may abandon their local equity partners to reap the benefits of multinationality as mncs gain a competitive advantage from leveraging resources across borders they will initially benefit from sharing ownership with a local firm to embed their foreign subsidiaries in the local environment and access local resources more effectively later they will benefit from taking over the local partner s equity share to better embed their subsidiaries in the parent organization and transfer locally accessed resources to the mnc s other locations moderated mediation regressions provide evidence of such practice in the context of cross border transfers of capital resources this strategy seems to work as a corollary of our model panel regressions suggest that sharing ownership with local firms in a host country with a capital resource advantage is associated with appropriating more capital resources from the local debt market while abandoning these partner firms later is associated with transferring more capital resources from this host country via internal capital markets to other parts of the mnc

mexico s balance of payments crisis a chronicle of a death foretold this paper claims that the roots of mexico s balance of payments crisis are found in the prevailing high degree of capital mobility and financial globalization under these circumstances shifts in foreign capital flows and anticipation of a banking system bailout may produce large imbalances between stocks of financial assets and foreign reserves threatening the sustainability of currency pegs econometric analysis suggests that half of mexico s reserve losses could be accounted for by these phenomena large financial imbalances are also fertile ground for self fulfilling prophesy crises which lead devaluations to produce deep recessions these difficulties can be partly remedied by appropriate policies

does foreign aid mitigate the adverse effect of expropriation risk on foreign direct investment abstract we construct a model of fdi risk and aid where a country loses access to fdi and aid if the country expropriates fdi we show that i the threat of expropriation leads to under investment ii the optimal level of fdi decreases as the risk of expropriation rises and iii aid mitigates the adverse effect of expropriation risk on fdi the empirical analysis employs data for 35 low income countries and 28 countries in sub saharan africa over the period 1983 2004 we find that risk has a negative effect on fdi and that aid mitigates but cannot eliminate the adverse effect of risk

economic exposure and integrated risk management most corporate risk management research focuses on particular risk exposures to the exclusion of other interrelated exposures by contrast this study models corporate risk exposures using a multivariate approach integrating the distinct exposures of interest to finance international business and strategy researchers the paper addresses the implications of multivariate modeling for corporate risk management some key methodological issues arising in empirical estimation of corporate economic exposures and directions for research on integrated risk management 1998 john wiley sons ltd

country familiarity in the initial stage of foreign market selection focusing on the initial stage of foreign market selection i e narrowing a set of potential countries from which to make a final choice we theorize that manager s country familiarity influences both the decision making process and outcome we hypothesize that with increasing country familiarity a manager investment of cognitive effort process first increases and then decreases and b the likelihood of a country being included for further consideration outcome also increases and then decreases we further hypothesize that the effects of country familiarity are contingent on the managers international experience empirical evidence from verbal protocol analyses of managers provides strong support to our arguments these findings contribute to the emergent literature on the critical role of cognition in decision making about foreign markets manager cognition potentially influences sequential non sequential entry decision making possibly explaining some previously observed exceptions to internationalization process theory the contingent role of international experience further stresses that the influence of cognition in internationalization decision making is both important and complex involving at least innate cognitive processes idiosyncratic knowledge and international experience we discuss the theoretical implications along with practice implications of country familiarity and intuitive decision making in foreign market selection

the international control conundrum the case of hyperinflationary subsidiaries standard methods for financial controls of multinational corporations mncs foreign subsidiaries generally provide inadequate managerial support under conditions of extreme environmental turbulence resulting in a highly distortive performance evaluation system this article examines the specific conditions of monetary hyperinflation and how existing control systems should be upgraded or environmentalized in order to cope with such operating conditions a taxonomy of hyperinflationary environments and a control model based upon variance analysis aimed at smoothing excessive swings in the performance of foreign operations is developed thereby correcting for some of the dysfunctionalities in the traditional planning and control processes

the impact of political risk on the volatility of stock returns the case of canada this paper examines the impact of political risk in canada on the volatility of stock returns our results suggest that political news associated with the possible separation of quebec from canada plays an important role in the volatility of stock returns however our evidence indicates that investors do not require a risk premium supporting the idea that political risk is diversifiable we also show that stock return volatility varies with the degree of a firm s exposure to political risk namely the structure of assets and the extent of foreign involvement which indicates that firms most exposed to political risk bear the burden of diversification

cause of death and development in the us abstract exploiting cross state variation in infectious causes of death along with time variation arising from medical innovations toward the middle of the twentieth century this study examines the consequences of a positive health shock in the us it establishes that states with higher levels of mortality from infectious causes prior to the onset of the era of big medicine experienced greater increases in life expectancy population and total gdp after its onset whereas per capita gdp remained largely unchanged together the evidence suggests that the rise in life expectancy had no significant effect on living standards in the us during the time period 1940 1980 these results are robust to controlling for initial health and initial economic conditions

the state as strategist in international business research no matter what strategy managers choose cross national differences in states strategic capabilities and objectives affect multinational corporations capabilities to manage interdependent operations in this paper we develop four attribute dimensions along which states strategic economic capabilities vary we then apply these dimensions to show how they contribute to familiar international business models of managerial process mnc strategy and organizational structure and country competitiveness

bilateral investment treaties and fdi does the sector matter summary developing and transition countries have increasingly engaged in the signing of bilateral investment treaties bits in order to attract fdi based on the widely shared view that fdi can contribute significantly to economic development and poverty reduction however the degree to which foreign investments can be expected to generate employment offer access to international technology and know how and ultimately create growth varies considerably depending on the type of investment it is therefore important to determine what type of fdi is attracted by bits by providing a legal commitment to the fair and equitable treatment of foreign investors bits aim to decrease investment risk and to attract foreign investors we argue that bits can be expected to be most effective in those sectors of the economy with a larger risk of expropriation i e sectors characterized by large sunk costs relatively low levels of firm specific know how and in sectors that are politically sensitive to foreign ownership this paper represents the first attempt to empirically study the heterogeneous effect that bits may have across different sectors of investments we analyze investments made in 13 countries in the former soviet union and central and eastern europe disaggregated over seven sectors we indeed find the effect of bits to differ considerably across sectors of investment using capital intensity as a proxy we confirm that fdi in those sectors with higher sunk costs responds more strongly to the signing of bits given the considerable differences in the development impact that can be expected from fdi in different sectors it remains to be shown whether bits are an effective tool to attract those types of investments that are most beneficial for the development of the host economy

a survey of corporate programs for managing terrorist threats this article reports on a survey of united states based multinational corporations mncs and the corporate programs they use to reduce the impact of terrorism it was found that less than 50 of the mncs surveyed had formal programs to deal with a terrorist attack most of the mncs that did have an anti terrorist program spent their money on security equipment and not on training executives and their families the training that did take place concentrated on handling weapons and avoiding being kidnapped respondents were also critical of the federal government s lack of assistance in dealing with terrorists

how do mncs vote in developing country elections research on multinational corporations mncs and host government political risk in developing countries has largely ignored local electoral politics economic policies and the mnc investment ince

learning to carry the cat by the tail firm experience disasters and multinational subsidiary entry and expansion we investigate whether firm experience with discontinuous risks particularly high impact disasters that are episodic and difficult to anticipate moderates the relationship between disasters foreign entry and expansion decisions using a panel data set with 57 500 observations from 106 large european multinational corporations and their subsidiaries operating across 109 countries from 2001 to 2007 we find that although discontinuous risk was negatively related to firm entry and expansion firms that had experience with high impact disasters were more likely to expand in countries experiencing disasters

international corporate entrepreneurship and firm performance the moderating effect of international environmental hostility abstract globalization of the world economy has encouraged u s companies to leverage their resources and skills by expanding into existing or new foreign markets u s companies have also acquired new capabilities by locating important functional activities overseas and joining with foreign partners in new markets through alliances and joint ventures these opportunities however are tempered by the constraints imposed by the competitive forces that exist in international environments aggressive government intervention technological changes and fierce local rivalries all contribute to hostile international environments for u s firms global expansion success in global business operations requires resourcefulness and entrepreneurial risk taking the activities of u s companies in foreign markets therefore provide a unique opportunity to examine the effects of international corporate entrepreneurship ice efforts on company performance ice is defined as the sum of a company s efforts aimed at innovation proactiveness and risk taking these efforts offer an important means of revitalizing and renewing established companies and improving their performance few studies have empirically examined the effects of ice activities on companies financial performance this study used data from 98 u s companies to 1 determine the impact of ice efforts on firm performance and 2 explore the moderating effect that the perceived hostility of the international environment has on the relationship between ice and company performance the results showed that ice was positively associated with a firm s overall profitability and growth as well as its foreign profitability and growth those firms that aggressively pursued ice in international environments with higher levels of hostility had higher return on assets roa but did not achieve significantly higher levels of growth however as hostility in the international environment continued to intensify roa rose and then fell as companies increased their ice activities thus there was a point of diminishing returns to a company s aggressive pursuit of ice under excessive environmental hostility the results highlight both the rewards and risks of pursuing ice companies benefit from ice activities by achieving higher overall performance as well as foreign profits and growth in revenue however the aggressive pursuit of ice does not always guarantee superior performance our results show that the payoff from ice is moderated by executives perceptions of the hostility of their firm s international business environment our findings highlight the importance of ice for organizational success both overall and in foreign markets yet the results compellingly suggest that there are upper limits to the potential gains a firm achieves from its aggressive pursuit of ice when the international environment in which it competes is hostile

subsidiary expansion contraction during times of economic crisis this paper compares two real options within country growth and across country operational flexibility to examine subsidiary expansion contraction during times of economic crisis specifically we examine how the real options orientations of individual subsidiaries interact with the general characteristics of multinational enterprise networks our main findings are that a economic crises can be detrimental for subsidiaries with stronger within country orientations and advantageous for those with stronger across country orientations and b network characteristics are not the sole determinants of subsidiary expansion contraction what really matters is how the real options orientations of individual subsidiaries mesh with the overall characteristics of the network they belong to

arbitrage opportunities on the road to stabilization and reform abstract during the second half of 1993 when far reaching structural reforms had left mexican authorities bereft of policy instruments and macroeconomic stabilization had limited their policy options two private mexican banks were issuing short term euro dollar debt at a cost substantially below the yield on dollar linked government securities of similar maturity a detailed analysis of the authorities policy dilemmas together with a theoretical model that formalizes them suggests that this negative spread represented arbitrage opportunities for the two banks it further indicates that similar opportunities may arise again as more countries embark on programs of stabilization and reform

what makes and what does not make a real option a study of international joint ventures recently questions have emerged about the boundaries of real options logic when the firm that made an option like investment can subsequently affect the parameters of the decision this paper exam

the effect of national context on perceptions of risk a comparison of planned versus free market managers a model is developed to explain the effect of national context on risk related decisions an essential feature of risk related decisions is substantial uncertainty or inadequate information as well as significant consequences regarding future outcomes we argue that differences in information flows and consequences across national institutional environments affect the perceived uncertainty of decision situations for this reason the institutional environment in which managers reside should play a fundamental and systematic role in influencing their perceptions of risk we test our model on managers from two environments that contrast in terms of information and consequences related to risk a free market economy the u s and a centrally planned economy the czech republic in 1992 our results indicate that the institutional environment does indeed play a strong and systematic role in explaining managers risk related decisions thus national environment appears to be an important contextual condition to which the propensity to take risks is sensitive

explaining the national cultural distance paradox past studies of the relationship between national cultural distance and entry mode choice have produced conflicting results some scholars find cultural distance associated with choosing wholly owned modes others find cultural distance linked to a preference for joint ventures in this paper we provide both theoretical and empirical evidence to explain the discrepant findings and thus help to resolve the national cultural distance paradox

health nutrition and economic development the relationship between health and economic development is explored focusing on nutrition based health indicators the spotlight is placed on the inter related feedbacks between the influence of health on productivity on one hand and the influence of income on health status on the other disentangling causality in these relationships has preoccupied much of the literature we evaluate different empirical strategies that have been adopted and assess the results there is now a body of evidence based on careful empirical studies that demonstrates a causal relationship between health and labor productivity there is also evidence that at least among the very poor additional income is spent on improved nutrition there are two issues that have received little attention although we argue they are likely to be very important first measurement of health is discussed in detail evidence is presented on how taking into account differences in the extent of measurement error is critical for interpreting the impact of health on wages the same theme emerges in studies of the effect of income on health specifically calorie intake the key role of non linearities in these relationships is highlighted and we demonstrate that a good deal of the variation in estimates of income elasticities of demand for calories can be ascribed to the role of measurement and functional form authors

the effect of health on economic growth a production function approach abstract we estimate a production function model of aggregate economic growth including two variables that microeconomists have identified as fundamental components of human capital work experience and health our main result is that good health has a positive sizable and statistically significant effect on aggregate output even when we control for experience of the workforce we argue that the life expectancy effect in growth regressions appears to be a real labor productivity effect and is not the result of life expectancy acting as a proxy for worker experience

wait and see strategy risk management in the internationalization process model we interpret the wait and see strategy as a decision to maintain unchanged the firm s commitments to its business network relationships to explain why firms choose a wait and see strategy we propose an extension to the relationship commitment decisions aspect of the uppsala internationalization process ip model with this development we explain that the wait and see strategy can result from a change in the levels of risk assumed in the firm and not only from the decision to adjust the risk that the firm encounters by changing commitments to its network relationships this development enhances the ability of the ip model to accommodate contextual influences on relationship commitment decisions and to explain a more complete suite of internationalization trajectories extending the theoretical core of the ip model further confirms its efficacy its application to international strategy and its potential to be developed as a general process model of strategic change

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

malthus to solow a unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies our theory also explains the industrial revolution which is the transition from an era when per capita incomes are stagnant to one with sustained growth the authors use a standard growth model with several technologies the first denoted the malthus technology requires land labor and reproducible capital as inputs the second denoted the solow technology does not require land the authors show that in the early stages of development only the malthus technology is used and due to population growth living standards are stagnant despite technological progress eventually technological progress causes the solow technology to become profitable and both technologies are employed at this point living standards improve since population growth has less influence on per capita income growth in the limit the economy behaves like a standard solow growth model excerpt