optimal price and inventory adjustment in an open economy model of the business cycle this paper presents a macroeconomic model containing optimizing inventory holding firms that is consistent with a number of prominent empirical regularities concerning fluctuations in output exchange rates relative prices and money prices are sticky but they are not predetermined still our model is consistent with exchange rate overshooting in the sense of dornbusch typical sticky price models allow a divergence between current production and current demand but this divergence is never allowed to feed back into the model our optimal inventory adjustments reconcile divergences between current demand and production and the inventory stock movements provide expected future dynamics

short run strategies for attracting foreign direct investment this paper empirically investigates the effectiveness and feasibility of two fdi policies fiscal incentives and deregulation aimed at improving the attractiveness of a country in the short run using disaggregated data on sales by us mnes foreign affiliates in 43 developed and developing countries over the 1982 94 period results show that the provision of fiscal incentives or the deregulation of the labour market would exert a positive impact on total fdi given the drawbacks frequently associated with the use of incentive packages economy wide policies which ease firing procedures and reduce severance payments would certainly be the best policy option this paper also highlights the different aggregation and omitted variable biases that have affected results of previous studies and provides some support to recent theoretical models of fdi by showing that third country effects and spatial interdependence influence respectively the location of export platform fdi and vertical fdi

fdi and taxation a meta study despite the continuing political interest in the usefulness of tax competition and tax coordination as well as the wealth of theoretical analyses it still remains open whether or when tax competition is harmful moreover the influence of tax differentials on multinationals decisions is still insufficiently analyzed thus economists have increasingly resorted to empirical analysis in order to gain insights on the elasticity of fdi with respect to company taxation as a result the empirical literature on taxation and international capital flows has grown to a similar abundance during the last 25 years as the respective theoretical literature its heterogeneity leads to a rising need for concise reviews on the existing empirical evidence in this paper we extend former meta analyses on fdi and taxation in three ways first we add the most recent publications unconsidered in meta analyses up to date second we apply a different methodology by using a broad set of meta regression estimators and explicitly discuss which one is most suitable for application to our meta data third we address some important issues in research on fdi and taxation to the clarification of which meta analysis can make valuable contributions these issues are mainly the influence of variables which might moderate effects of tax differentials e g public spending the implications of using aggregate fdi data as opposed to firm level information on measured tax effects the implications of bilateral effective tax rates and the possible presence of publication bias in primary research

what separates us sources of resistance to globalization with increasing sophistication economists have been estimating gravity equations for five decades robust evidence shows that borders and distance impede trade by much more than tariffs or transports costs can explain we therefore advocate investigation of other sources of resistance despite the greater difficult involved in measuring and modelling them from our selective review of recent findings a unifying explanation emerges a legacy of historical isolation and conflict forged a world economy in which neither tastes nor information are homogeneously distributed cultural difference and inadequate information manifest themselves most strongly at national borders and over distance

fdi as an outcome of the market for corporate control theory and evidence abstract much foreign direct investment fdi takes the form of mergers and acquisitions m a it is commonplace in finance to view acquisitions as manifestations of the market for corporate control following on that insight we propose a model of fdi in which headquarters bid to control overseas assets we derive an equation for bilateral fdi stocks that resembles the recently developed fixed effects approach to modelling bilateral trade flows we estimate the model and use its parameters to construct benchmarks for evaluating multilateral inward and outward fdi

international bank lending channel of monetary policy abstract how does domestic monetary policy in systemic countries spillover to the rest of the world this paper examines the transmission channel of domestic monetary policy in the cross border context we use exogenous shocks to monetary policy in systemically important economies including the u s and local projections to estimate the dynamic effect of monetary policy shocks on bilateral cross border bank lending we find robust evidence that an increase in funding costs following an exogenous monetary tightening leads to a statistically and economically significant decline in cross border bank lending the effect is weakened during periods of high uncertainty in contrast the effect is found to not vary according to the degree of borrower country riskiness further weakening support for the international portfolio rebalancing channel

international portfolio reallocation diversification benefits and european monetary union abstract we investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries spanning over two sample periods 1997 2001 and 1997 2005 we find that the strongest drivers are the marginal diversification benefits arising from the pure asset component and the initial degree of underweight this evidence suggests that global portfolio reallocations over the asset boom and bust period were determined by optimal diversification considerations we also find that due to economic and monetary union emu the weight assigned by euro area investors to investment in euro area countries increased significantly in equity and fixed income portfolios with a trade diverting effect against the british bond market

the indirect effects of foreign direct investment on trade a network perspective the relationship between international trade and foreign direct investment fdi is one of the main features of globalisation in this paper we investigate the effects of fdi on trade from a network perspective since fdi takes not only direct but also indirect channels from origin to destination countries because of firms incentive to reduce tax burden to minimise coordination costs and to break barriers to market entry we use a unique data set of international corporate control as a measure of stock fdi to construct a corporate control network ccn where the nodes are the countries and the edges are the corporate control relationships network measures as the shortest path length and the communicability are then computed on the ccn to capture the indirect channel of fdi empirically we find that corporate control has a positive effect on trade both directly and indirectly the result is robust with different specifications and estimation strategies hence our paper provides strong empirical evidence of the indirect effects of fdi on trade moreover we identify a number of interplaying factors such as regional trade agreements and the region of asia we also find that the indirect effects are more pronounced for the manufacturing sector than for primary sectors such as oil extraction and agriculture

greenfield versus merger acquisition fdi same wine different bottles relying on a large foreign direct investment fdi transaction level dataset unique both in terms of disaggregation and time and country coverage this paper examines patterns in greenfield gf versus merger acquisition ma investment although both are found to seek out large markets with low international barriers important differences emerge ma is more affected by geographic and cultural barriers and exhibits opportunistic behaviours as it is more sensitive to short run changes such as a currency crisis on the other hand gf is relatively driven by long run factors such as origincountry technological and institutional development or comparative advantage these empirical facts are consistent with the conceptual distinction made between these two modes i e ma involves transfer of ownership for integration or arbitrage reasons while gf relies on firms own capacities which are linked to the origin countries attributes they also suggest that gf and ma are likely to respond differently to policies intended to attract fdi

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

empirical asymmetries in foreign direct investment and taxation abstract this paper assesses the sensitivity of the operations of multinational corporations mncs to host country taxation the empirical analysis is based on two different measures of mnc activity by u s majority owned foreign affiliates panel data for aggregate real gross product in manufacturing that originates in a given host country and micro data for a single year regarding the likelihood of a firm locating in a given host country the empirical estimates indicate that investment geared toward export markets rather than the domestic market is particularly sensitive to host country taxation that this sensitivity appears to be greater in developing countries than developed countries and that it is becoming greater over time

international business cycle co movement the role of fdi this article investigates the relationship between fdi and business cycle synchronization in the period 1982 to 2011 for eight industrialized countries we find that more synchronized business cycles are associated with stronger fdi relations in the period 1995 to 2011 but not before 1995 more intensive fdi links are also associated with a greater vulnerability to lagged output spillovers from abroad our findings suggest that fdi has become a separate channel through which economies may affect each other and that fdi stocks are now an essential aspect of economic interdependence

monopolistic competition credibility and the output costs of disinflation programs an analysis of price controls abstract brazil argentina and israel all used price controls as part of disinflation programs in 1985 1986 in each case they were intended to break an inertial component of inflation this paper focuses on the interaction between lack of credibility of government monetary policy announcements and the price setting behavior of forward looking firms we show that this interaction can lead to inertia extending well beyond the price setting period lack of credibility is then shown to lead to output losses during a disinflation program the paper analyses asset price behavior during disinflation programs with and without price controls and the influence of credibility problems finally we show that if past government policy has any information content about future government policy cheating on current announcements of tight policy buys current employment gains during the price control period at the cost of higher inflation afterwards sustaining low inflation after the price control period thus requires restrictive monetary policy during the price control period

multinational production data and stylized facts abstract we present a comprehensive data set on the bilateral activity of multinational firms with focus on two variables affiliate revenues and the number of affiliates across country pairs our

a comparative study of u s and japanese patent systems in an era of global competition adequate protection of intellectual property in triad regions of the world particularly in japan has become increasingly important this study focuses on the differences and similarities in patent practices between japan and the united states british and german patent practices are also examined to offer a balanced comparison findings indicate that the japanese patent practices seem to discriminate against foreign applicants with longer pendency periods than for domestic applicants while the u s german and british patent practices appear to discriminate against foreign applicants with lower patent grant ratios than for domestic applicants

capital market imperfections and the theory of optimum currency areas this paper studies how within and cross country capital market imperfections affect the welfare effects of forming a currency union the analysis considers a bank only world where intermediaries compete in cournot fashion and monitoring and state verification are costly the first part determines the credit market equilibrium and the optimal number of banks prior to joining the union the second part discusses the benefits from joining a currency union a competition effect is identified and related to the added monitoring costs that banks may incur when operating outside their home country through an argument akin to the brander krugman reciprocal dumping model of bilateral trade however in our framework whether joining a union raises welfare of the home country is ambiguous it depends on the relative strength of investment creation and intermediation diversion effects

do natural resources attract nonresource fdi abstract a new and extensive panel of outward nonresource and resource fdi is used to investigate the effect of natural resources on the different components of fdi our main findings are as follows first for countries which were not a resource producer before a resource discovery causes nonresource fdi to fall 16 in the short run and by 68 in the long run second for countries that were already a resource producer a doubling of resource rents induces a 12 4 fall in nonresource fdi third on average the contraction in nonresource fdi outweighs the boom in resource fdi aggregate fdi falls by 4 if the resource bonanza is doubled finally these negative effects on nonresource fdi are amplified through the positive spatial lags in nonresource fdi we also find that resource fdi is vertical whereas nonresource fdi is of the export fragmentation variety our main findings are robust to different measures of resource reserves and the oil price and to allowing sample selection bias

fickle capital flows and retrenchment evidence from bilateral banking data abstract we empirically examine the response of cross border capital flows to economic uncertainty using bilateral banking flow data we show that while banks reduce their exposure to a foreign country when it becomes more risky they tend to increase their exposure to their home country in bad times a retrenchment to further understand this puzzle we examine how the differential response to foreign and domestic uncertainty is affected by country specific characteristics bilateral characteristics and crises our analysis suggests that most of the current theories based on either information asymmetries between foreign and domestic investors or institutional risk cannot explain bilateral data well on the other hand our results show that global crises have an asymmetric impact on the risk attitudes of banking institutions towards country specific uncertainty global crises make investors more risk averse towards foreign uncertainty but have no effect on the responsiveness to domestic uncertainty

home bias and high turnover dynamic portfolio choice with incomplete markets why do investors trade a lot in foreign assets and hold so little of them in their portfolios this paper shows that both observations can arise naturally in the presence of nondiversifiable nontraded consumption risk when each country specializes in production preferences exhibit consumption home bias and asset markets are incomplete using a general equilibrium two country two sector tradable and nontradable model of the world economy with production i show that low diversification occurs because variations in relative prices i increase the riskiness of foreign assets and ii facilitate risk sharing across countries large and volatile capital flows are necessary to take advantage of international risk premia differentials that occur in response to productivity changes in the nontradable sector i characterize the optimal portfolio holdings the evolution of the investment opportunity set the risk premium and the dynamics of capital flows using a new methodology for solving dynamic general equilibrium models with incomplete markets and portfolio choice

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

business cycle convergence in emu a first look at the second moment we analyse the dynamics of the standard deviation of demand and supply shocks as well as of the demand component of gdp across countries in the european monetary union emu this analysis allows us to evaluate the patterns of cyclical comovement in emu and compare them the cyclical performance of the new members of the eu and other oecd countries we make use of sigma convergence methods to identify synchronization patterns in business cycles the eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s the new eu members have also experienced a strong pattern of convergence from 1998 to 2005 when a strong divergence trend appears an enlargement of the emu to 22 members would not significantly decrease its optimality as a currency area there is evidence for some europe specific characteristics as compared to global comovements in business cycles authors abstract

trade blocs currency blocs and the reorientation of world trade in the 1930s we analyze the impact of commercial and financial policies on the reorientation of trade in the 1930s we report evidence that commercial policies attenuated prior connections between income growth and trade and that exchange rate instability marginally discouraged international trade in contrast the tendency toward regionalization commonly ascribed to the formation of trade and currency blocs was already evident to a considerable extent prior to the regional policy initiatives of the 1930s this reorientation is more properly attributed to ongoing historical forces such as commercial and financial links between countries forged over many years

international capital flows under dispersed private information abstract it is well established that private information is critical to our understanding of asset prices in this paper we argue that it also affects international capital flows and use a simple two country dsge model to illustrate its impact we show that private information i increases the volatility of both net and gross capital flows ii leads to a high correlation between capital inflows and outflows iii leads to a disconnect of capital flows from observed macro fundamentals and iv implies that capital flows contain information about the future macro fundamentals we also show that dispersed information affects capital flows both through asset prices and directly so that the impact on flows is not just the mirror image of the impact on prices

optimal monetary policy in the euro area in the presence of heterogeneity abstract this paper examines the optimal design of monetary policy in the european monetary union in the presence of structural asymmetries across union member countries it derives analytically an optimal interest rate rule under commitment and studies the dependence of its coefficients on the parameters of the structural model of each economy the central bank s preferences for inflation and output stabilization as shown in its loss function and the relative size of each country based on a two country forward looking general equilibrium model which is estimated for two euro area countries germany and france we show that there are gains to be achieved by the ecb taking into account the heterogeneity of economic structures this finding appears to be robust under alternative weights given by the central bank to the stabilization of the target variables although the implementation of the proposed rule involves difficulties relating to data and estimation constraints as well as risks of accommodating structural divergences it is important that the ecb takes into consideration national characteristics in formulating its monetary policy especially in view of more countries joining the european monetary union in the future however as monetary and financial integration advances the welfare benefits of monetary policy responding to individual countries variables may become less significant

location decisions of foreign banks and competitor remoteness this paper examines the role of competitor remoteness the weighted average distance of all competing banks to a host country on the location decision of a foreign bank it uses unique bilateral data on 1 199 foreign banks from 75 home countries present in 110 host countries it finds that besides bilateral distance competitor remoteness importantly drives foreign banks location decisions the impact of distance and competitor remoteness is stronger for non oecd home and host countries when the scale of foreign bank inward and outward investment is limited and for host countries where foreign banks dominate

liquidity management of u s global banks internal capital markets in the great recession abstract the recent crisis highlighted the importance of globally active banks in linking markets one channel for this linkage is through how these banks manage liquidity across their entire banking organization we document that funds regularly flow between parent banks and their affiliates in diverse foreign markets we show that parent banks when hit by a funding shock reallocate liquidity in the organization according to a locational pecking order affiliate locations that are important for the parent bank revenue streams are relatively protected from liquidity reallocations in the organization while traditional funding locations are more extensively used to buffer shocks to the parent bank balance sheets

multinationals multi plant economies and the gains from trade a general equilibrium model of a multinational enterprise based on economies of multi plant operation is developed these economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm the multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms since this technical efficiency may come at the expense of increased market power the full determinants of home country host country and world welfare are considered

monopolistic competition relative prices and output adjustment in the open economy abstract this paper explains price and output dynamics in an open economy characterized by a monopolistic competitive market structure in which pricing decisions incur costs this leads producers to pre set the price path for several periods the paper derives an optimal pricing rule including the optimal pre setting horizon it does so for a rational expectation equilibrium characterized by staggered unsynchronized price setting for which the degree of staggering is endogenously determined

the paradox of preferences regional trade agreements and trade costs in services abstract this paper analyzes the relationship between regional trade integration and trade costs in services industries the empirical analysis relies on the one hand on a dataset of theory consistent bilateral trade costs calculated for 55 countries over the period 1999 2009 and on the other hand on an analysis of services commitments in 66 regional trade agreements to which these countries are parties despite the proliferation of services rtas in the past decade we find that trade costs are only slightly lower due to the impact of these agreements in addition we find that the trade cost reductions that do take place tend to happen before the agreement is signed this mechanism is consistent with countries using services rtas as a way of locking in reforms finally we find that the preferential margin of services rtas is quite thin members and non members both see slightly lower trade costs when an rta is signed we discuss the possible explanations for these findings in terms of the nature of services rtas and their relationship with regulatory reform in signatory countries based on these results we argue that regionalism in the case of services seems relatively non discriminatory and does not lead to substantial trade preferences

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

open economy macroeconomics under imperfect competition a two country model abstract this paper constructs a two country macroeconomic model where prices are set by imperfectly competitive firms and wages by trade unions unemployment benefit is nominally rigid in at least one country the effects of monetary expansion under both fixed and flexible exchange rates and exchange rate changes under fixed rates are considered the results change significantly if it is assumed that in one country unemployment benefit is fully indexed

the erosion of colonial trade linkages after independence high trade between countries with colonial ties may be explained by government policies that establish preferential access or as a consequence of networks formed through social interactions using bilateral trade data from 1948 to 2003 we examine the eect of independence on post colonial trade the severing of formal colonial relations can lead to an immediate reduction in trade as preferential access is eliminated as well as a gradual reduction corresponding to the deterioration of trading networks our results reveal that independence reduces colonial trade with its colonizer metropole the reduction cumulates over a 30 year period and the disruption is particularly severe for hostile separations we also find that overall colonial trade falls subsequent to independence but to a lesser extent than trade with the metropole

financial flows financial crises and global imbalances abstract in this lecture i document the proliferation of gross international asset and liability positions and discuss some consequences for individual countries external adjustment processes and for global financial stability in light of the rapid growth of gross global financial flows and the serious risks associated with them one might wonder about the continuing relevance of the net financial flow measured by the current account balance i argue that global current account imbalances remain an essential target for policy scrutiny for financial as well as macroeconomic reasons nonetheless it is critically important for policymakers to monitor as well the rapidly evolving structure of global gross assets and liabilities

same as it ever was europe s national borders and the market for corporate control abstract national borders continue to be strong barriers for mergers and acquisitions in europe using regional data we construct a gravity model and find that the restraining impact of national borders decreased by more than 17 percent between 1991 and 2007 however no significant change has occurred since the mid 1990s i e four years before the introduction of the euro in comparison we run a corresponding analysis in the united states using the 10 federal regions as country equivalents the resulting quasi border effect in the united states is weaker than that in the european union yet its decline by 43 percent is much stronger in the same period we conclude that european integration policy has had little effect on fostering m a cross border transactions

concentration indices and zipf s law abstract the relationships between zipf s law a relevant model for the firms size and the financial investment amounts and the major concentration indices are derived the hirschman herfindahl index is the most sensitive index in contexts where zipf s law applies

foreign acquisition plant survival and employment growth this paper analyses the effect of foreign acquisition on survival probability and employment growth of target plant using data on swedish manufacturing plants during the period 1993 2002 an improvement over previous studies is that we take into account firm level heterogeneity by separating the targeted plants into those within swedish mnes swedish exporting non mnes and purely domestic firms before foreign takeover the results controlling for possible endogeneity of the acquisition dummy using an iv and propensity score matching approach suggest that acquisition by foreign owners increases the lifetime of the acquired plants only if the plant was an exporter the effect differs depending on whether the acquisition is horizontal or vertical we also find robust positive employment growth effects only for exporters and only if the takeover is vertical not horizontal

history gravity and international finance abstract we analyse patterns of bilateral financial investment using data on us holdings of foreign bonds we document a history effect in which holdings seven decades ago continue to influence holdings today 10 15 of the cross country variation in us investors foreign bond holdings is explained by holdings 70 years ago plausibly reflecting fixed costs of market entry and exit and endogenous learning this effect is twice as large for bonds denominated in currencies other than the dollar suggesting the existence of even higher fixed costs of initiating us foreign investment in such currencies our findings point to history and path dependence as key sources of financial market segmentation

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

the impact of foreign patents on national economy a case of the united states japan germany and britain in an earlier study the focus was on the differences and similiarities in patent practices and their discriminatory implications among the united states japan germany and britain from a corporate perspective here the impact of foreign patents on each national economy is examined from a macroeconomic point of view findings suggest that discriminatory patent practices in these countries have affected their economic growth in some predictable ways given their respective domestic technological infrastructure

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

the pricing of manufactured goods during trade liberalization evidence from chile israel and korea this paper is an investigation of price setting behavior in chile israel and korea when each of these countries moved from a fairly closed to a more open international trade regime in some cases the intensification of the opening resulted from real appreciation rather than from a formal adjustment in tariff rates as in chile 1980 82 and israel 1983 84 the central thesis of this paper is that the structural price equation for import competing manufactured goods changes with the degree of openness to trade when the economy is fairly closed the main weight is commanded by domestic cost variables and excess demand and foreign prices only affect pricing through their effects on imported material prices during trade liberalization the rate of change of prices of an increasing proportion of manufacturing goods begins to be influenced by the landed cost of similar imports but domestic variables still have a role because selected domestic manufactured goods are considered imperfect substitutes for internationally traded products empirical results from time varying parameter estimation show that domestic currency prices of imports become progressively more important during the liberalization processes in the three countries

gravity in international finance abstract the past decade has witnessed an explosion of papers estimating gravity equations for cross border financial holdings without much of a theoretical foundation in this paper we develop a theory for bilateral asset holdings that takes a gravity form we discuss how to estimate international financial frictions and conduct comparative statics analysis within the context of the theory we also find though that reasonable extensions of the model no longer generate a gravity form while this does not significantly complicate estimation and comparative statics analysis it raises questions about the empirical validity of gravity specifications for cross border financial holdings that need to be addressed in future work

information and capital flows the determinants of transactions in financial assets abstract we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions our results support the hypothesis that informational asymmetries are responsible for the strong negative relationship between asset trade and distance this result is very important for theories of asset trade portfolio adjustments and home bias we strengthen it by investigating the roles of explicit informational variables as well as distance in explaining separately cross border trade in corporate equities corporate bonds and government bonds

how do cross border mergers and acquisitions answer to deregulation in services whereas competition in the manufacturing sector was progressively ensured beginning with the end of the second world war services have been progressively opened to international competition only since the late 1980s and are still among the most regulated sectors in oecd countries in this paper we analyse the impact of deregulation in that sector on cross border mergers and acquisitions m as in services we find that deregulation favours inward m as in services this positive effect occurs through two channels a reduction in entry costs and an increase in investment opportunities on the other hand deregulation has an ambiguous impact on outward m as that depends on the initial level of regulation in the acquiring country in particular we provide some evidence of a u shaped relationship between deregulation and outward m as in the service sector in countries that are initially highly deregulated deregulation fosters outward m as conversely in situations in which government control is large privatisation and deregulation are likely to reduce the incentive for firms to engage in cross border m a deals

financial market development in host and source countries and their effects on bilateral foreign direct investment we study an underexplored research question namely whether financial market development in both host and source countries has an effect on bilateral stocks of foreign direct investment fdi and particularly whether the effect of financial market development in one member of the country pair conditions the effect of financial market development in the other member we estimate gravity type models in a global sample of 43 source and 137 host countries over the period 2001 12 we address reverse causality concerns by restricting the sample to observations where reverse causality if existent should be less relevant our major and robust findings are that bilateral fdi increases with better developed financial markets in both the host and the source country and that for developing host countries financial market development in source and host countries functions as substitutes for each other

mergers and acquisitions trade a global value chain analysis the present paper deals with how the insertion in international trade and global value chains gvcs of countries affects their capacity of attracting foreign mergers and acquisitions m as to this end we combine data for bilateral m as and trade in value added for the period 2001 15 and estimate an augmented gravity equation results indicate that trade openness per se does not favour m as nevertheless bilateral free trade agreements heterogeneity of destinations sources for exports imports of intermediate and final goods and position and participation in global value chains are relevant for explaining bilateral m as moreover their role is significantly different depending on the level of development of the home and host countries

european market integration through technology driven m as merger and acquisitions m as have been an important tool for reorganizing the european market since the establishment of european economic and monetary union this article suggests that european integration helped and encouraged european firms to source technology across national borders in europe establishing european innovative firms the figures confirm that once barriers impeding the free movement of capital goods and labour had fallen european firms used m as intensively to enter foreign european markets enhancing technology competencies is found to be one of the main motives for cross border acquisitions in the 1990s but is not a factor in domestic acquisitions over the same period

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

exchange rates and traded goods prices abstract this paper presents a partial equilibrium model of the determination of domestic and export prices by a monopolistic competitive firm the model stresses the role of exchange rate uncertainty and expectations the most important result of the analysis is that the stochastic properties of deviations from the law of one price are crucially affected by the currency of denomination of export prices using data on domestic and dollar export prices of japanese goods i find that deviations from the law of one price are due to exchange rate surprises but also to price staggering and ex ante price discrimination

a pecking order of capital inflows and international tax principles abstract even though financial markets today show a high degree of integration the world capital market is still far from the textbook story of high capital mobility the purpose of this paper is to highlight key sources of market failure in the context of international capital flows and to provide guidelines for efficient tax structure in the presence of capital market imperfections the analysis distinguishes three types of international capital flows foreign portfolio debt investment foreign portfolio equity investment and foreign direct investment the paper emphasizes the efficiency of a non uniform tax treatment of the various vehicles of international capital flows

the great retrenchment international capital flows during the global financial crisis the current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization we identify the stylized facts and main drivers of this development the retrenchment in international capital flows is a highly heterogeneous phenomenon first across time being especially dramatic in the wake of the lehman brothers failure secondly across types of flows with banking flows being the hardest hit due to their sensitivity of risk perception and thirdly across regions with emerging economies experiencing a shorter lived retrenchment than developed economies our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows gian maria milesi ferretti and cedric tille

infrastructure endowment and corporate income taxes as determinants of foreign direct investment in central and eastern european countries this paper analyses the importance of taxes on corporate income and production related tangible infrastructure as determinants of foreign direct investment fdi in central and eastern european countries ceecs we operationalise taxes using effective average tax rates on the bilateral level and employ indices derived from principal component analysis as a proxy for the infrastructure endowment in the empirical analysis we control for a possible interrelation between taxes and infrastructure as determinants of fdi an issue usually neglected in the literature specifically a favourable infrastructure endowment may compensate for relatively high taxes hence higher taxes may not deter fdi the results from our panel econometric analysis of bilateral outward fdi flows of seven home countries in eight ceecs for the 1995 2004 period in an augmented gravity model setting show that i both taxes and infrastructure play a role in the location decisions made by multinational enterprises ii telecommunication and transport infrastructure are of special significance to fdi and iii the tax rate sensitivity of fdi indeed decreases with the level of infrastructure endowment copyright 2009 the authors journal compilation 2009 blackwell publishing ltd

evidence for the effect of monitoring costs on foreign direct investment abstract a proposed reason for the significant inverse relationship between distance both physical and cultural and foreign direct investment is the increased costs for a parent firm to monitor an affiliate when there is greater distance between them we provide the first direct test of this hypothesis using o net data on occupational skills to construct industry level measures of the importance of monitoring related skills we exploit this cross industry variation to examine whether physical and cultural distances have a greater impact on cross border m a in industries where monitoring related skills are more important using data on worldwide cross border m a activity from 2005 through 2014 we find significant evidence for the effect of monitoring costs on cross border m a activity we also show that the relatively low importance of monitoring related costs in manufacturing industries compared to those in other sectors is an important factor in explaining why cross border m a in manufacturing is so large despite its relatively small share in most countries

fluctuations in uncertainty this review article tries to answer four questions i what are the stylized facts about uncertainty over time ii why does uncertainty vary iii do fluctuations in uncertainty matter and iv did higher uncertainty worsen the great recession of 2007 2009 on the first question both macro and micro uncertainty appears to rise sharply in recessions on the second question the types of exogenous shocks like wars financial panics and oil price jumps that cause recessions appear to directly increase uncertainty and uncertainty also appears to endogenously rise further during recessions on the third question the evidence suggests uncertainty is damaging for short run investment and hiring but there is some evidence it may stimulate longer run innovation finally in terms of the great recession the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in gdp

the effect of the euro on foreign direct investment abstract in this paper the recent effect of the european monetary union on inward fdi flows is examined using a difference in differences approach the estimated results show that the introduction of the euro raised inward fdi flows by approximately 16 within the euro area by approximately 11 to non members and weakly by around 8 from non member countries into the euro area moreover the geographical effects of the euro are explored the results show partial agglomeration tendencies for the euro area there are also some indications of increased importance of vertical specialization in the sample

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

who bears the burden of international taxation evidence from cross border m as cross border m as can trigger additional taxation of the target s income in the form of non resident dividend withholding taxes and acquirer country corporate income taxation this paper finds that this additional international taxation is fully capitalized into lower takeover premiums in contrast acquirer excess stock market returns around the bid announcement date do not appear to reflect additional taxation of the target s income these findings suggest that international taxation is considered to be burdensome and that the incidence of this taxation is primarily on target firm shareholders

excess capacity monopolistic competition and international transmission of monetary disturbances analyzes the excess capacity monopolistic competition and international transmission of monetary policy disturbances in the united states sheds light on the international impact of monetary policy emphasis on the spillover effects of monetary disturbances similarity of framework used with open economy macroeconomics

financial entanglement a theory of incomplete integration leverage crashes and contagion abstract we propose a unified model of limited market integration asset price determination leveraging and contagion investors and firms are located on a circle and access to markets involves participation costs that increase with distance due to a complementarity between participation and leverage decisions the equilibrium may exhibit diverse leverage and participation choices across investors although investors are ex ante identical small changes in market access costs can cause a change in the type of equilibrium leading to discontinuous price changes deleveraging and portfolio flow reversals moreover the market is subject to contagion an adverse shock to investors in some locations affects prices everywhere jel d83 g11 g12 g32 g35

fdi in space spatial autoregressive relationships in foreign direct investment abstract there are a number of theoretical reasons why foreign direct investment fdi into a host country may depend on the fdi in proximate countries such spatial interdependence has been largely ignored by the empirical fdi literature with only a couple recent papers accounting for such issues in their estimation this paper conducts a general examination of spatial interactions in empirical fdi models using data on us outbound fdi activity we find that estimated relationships of traditional determinants of fdi are surprisingly robust to inclusion of terms to capture spatial interdependence even though such interdependence is estimated to be significant however we find that both the traditional determinants of fdi and the estimated spatial interdependence are quite sensitive to the sample of countries one examines

real dollar exchange rate under the bretton woods and floating exchange rate regimes abstract the focus of the paper is on real exchange rates for the dollar over the period 1957 to 1985 most such exchange rates followed an almost steplike pattern showing relatively little movement in the late 1950s and 1960s falling abruptly and then remaining low in the 1970s and finally in the 1980s rising back to levels close to those that prevailed initially contrary to much recent commentary therefore the period that appears different is not the last five years but the decade that preceded them an important factor underlying this pattern of exchange rate movement according to results presented in the paper was the behavior of monetary policy and hence inflation in the united states what remains to be established is the precise mechanism linking money and real exchange rates and the relative strength of those links

industrial and intellectual property rights in the uruguay round and beyond the current uruguay round of negotiations in gatt is considering the issues of industrial and intellectual property rights iiprs trade in services and direct foreign investment although these issues are not linked conceptually they have come to be integrated in a single policy initiative in which the us government is particularly active the major reason for targetting iiprs for reform is that there are major changes in technology which render the inherited regime anachronistic this article considers these changes in technology describes the implications for property rights and discusses the current policy negotiations in gatt it concludes by pointing to the key role being played by the usa and questions whether this is likely to endure given the undermining of the technologically dominant position of the us economy

cross border mergers and acquisitions and the role of trade costs abstract cross border mergers and acquisitions m as have increased dramatically over the last two decades this paper analyses the role of trade costs in explaining the increase in the number of cross border m as in particular we distinguish horizontal and non horizontal m as and investigate whether trade costs affect these two types of mergers differently we analyse this question using industry data for 23 oecd countries for the period 1990 2001 our findings suggest that while in the aggregate trade costs affect cross border merger activity negatively its impact differs importantly across horizontal and non horizontal mergers the impact of trade costs is less negative for horizontal mergers which is consistent with the tariff jumping argument

logistic infrastructure and the international location of fragmented production abstract casual evidence suggests that multinational companies increasingly look for places with adequate transport and logistic infrastructure to locate affiliates that participate in cross border production sharing yet there are no systematic empirical analyses examining how logistic infrastructure interacts with the location decisions made by multinationals most studies on the determinants of fdi address the issue of transportation logistics by examining the impact of distance on the relevant outcome but distance does not capture by itself the quality of the logistic systems in place we overcome this shortcoming in the literature by embedding indicators of infrastructure into an empirical framework that examines whether countries with adequate logistic systems attract more vertical fdi and particularly in industries that are more dependent on logistic services we find that logistic infrastructure positively impacts vertical fdi in addition to the impact typically found on distance a change from the first quartile to the third quartile of the distribution of logistic infrastructure is associated with an average increase in the number of vertically integrated subsidiaries equivalent to 29

nonresponse in panel data the impact on estimates of a life cycle consumption function if missing observations in a panel data set are not missing at random many widely applied estimators may be inconsistent in this paper we examine empirically several ways to reveal the nature and severity of the selectivity problem due to nonresponse as well as a number of methods to estimate the resulting models using a life cycle consumption function and data from the expenditure index panel from the netherlands we discuss simple procedures that can be used to assess whether observations are missing at random and we consider more complicated estimation procedures that can be used to obtain consistent or efficient estimates in case of selectivity of attrition bias finally some attention is paid to the differences in identification consistency and efficiency between inferences from a single wave of the panel a balanced sub panel and an unbalanced panel

inflation in open economies abstract this paper relates the time consistent inflation rate to the degree of trade openness of an economy the mechanism linking the welfare effects of monetary surprises and hence the incentives to inflate to openness does not rely on a large country terms of trade effect but rather is due to imperfect competition and nominal price rigidity in the non traded sector the empirical evidence supports the main predictions of the model 1997 elsevier science b v

outsourcing in a global economy we study the determinants of the location of subcontracted activity in a general equilibrium model of outsourcing and trade we model outsourcing as an activity that requires search for a partner and relationship specific investments that are governed by incomplete contracts the extent of international outsourcing depends inter alia on the thickness of the domestic and foreign market for input suppliers the relative cost of searching in each market the relative cost of customizing inputs and the nature of the contracting environment in each country

migrants ancestors and foreign investments we use 130 years of data on historical migrations to the u s to show a causal effect of the ancestry composition of u s counties on foreign direct investment fdi sent and received by local firms to isolate the causal effect of ancestry on fdi we build a simple reduced form model of migrations migrations from a foreign country to a u s county at a given time depend on 1 a push factor causing emigration from that foreign country to the entire u s and 2 a pull factor causing immigration from all origins into that u s county the interaction between time series variation in origin specific push factors and destination specific pull factors generates quasi random variation in the allocation of migrants across u s counties we find that doubling the number of residents with ancestry from a given foreign country relative to the mean increases the probability that at least one local firm engages in fdi with that country by 4 percentage points we present evidence that this effect is primarily driven by a reduction in information frictions and not by better contract enforcement taste similarities or a convergence in factor endowments

does the single currency affect foreign direct investment does the creation of the euro partly explain the sharp increase in european investments to address this question we derive a simple gravity like model for bilateral foreign direct investment fdi using this model we find that the economic and monetary union emu has increased intra emu fdi stocks on average by around 30 percent this effect varies over time and across emu members it is found to be larger for the outward investments of the less developed emu members moreover contrary to early expectations of fdi diversion effects emu countries have invested more in non emu countries since the launch of the euro

why is capital so immobile internationally possible explanations and implications for capital income taxation the evidence on international capital immobility is extensive including the lack of international portfolio diversification real interest differentials across countries and the high correlation between domestic savings and investment the authors develop a model with asymmetric information between countries that helps rationalize all the above observations and then examine the implications of this model for optimal domestic tax policy without asymmetric information past work showed that small open economies should not impose corporate income taxes with asymmetric information the optimal policy instead involves government subsidies to capital imports some omitted factors that argue against subsidizing capital imports are explored briefly copyright 1996 by american economic association

aid for trade and greenfield investment summary the aid for trade aft initiative was launched in 2005 at the hong kong ministerial conference where high income countries pledged to increase their aft contributions to developing countries aft comprised almost entirely of aid for trade related infrastructure and building productive capacity would promote growth by easing supply side constraints and improving transportation energy and communication infrastructure by lowering costs of operating in recipient countries aft may increase both trade and investment most research on the effects of aft on international transactions focuses on trade the sparse research on investment investigates aid and net foreign direct investment flows based on the international balance of payments we contribute to the literature by assessing aft effects on new greenfield investment using bilateral data for 25 donor and 120 recipient countries for the period 2003 13 we find that bilateral aft promotes greenfield investment our preferred specification includes bilateral and country time fixed effects and employs the poisson pseudo maximum likelihood ppml estimator robust effects emerge between the top five donors and more developed recipient countries cases where aid flows are large thus we see evidence that a critical level of aid is required to encourage greenfield investment both aid for infrastructure particularly transportation and energy and building productive capacity are found to exert strong effects to the extent that greenfield investment creates jobs and generates technology transfer it appears that aft is accomplishing its development objectives at least with regard to the more advanced recipient countries

external asymmetries in the euro area and the role of foreign direct investment soon after the introduction of the common currency a divide emerged between two groups in the euro area one comprised of the north european countries achieving external surpluses and the other of the south european countries with large external deficits this paper shows that different patterns of foreign direct investment fdi inflows across the euro area countries contributed to this divergence our theoretical framework shows that if the economy is relatively capital intensive in the production of traded non traded output fdi will be channeled in greater proportions to the traded non traded sector thus improving deteriorating the trade balance focusing on ten euro area countries over the period 1980 2009 we establish a positive negative long run effect of fdi inflows on the trade balance in the north south in the north the positive effect stems from the traded sector fdi inflows that were significantly higher in comparison to the south both before and after the emu in contrast in the south the increased fdi inflows in the post emu era were dominated by investments in the non traded sector when industry level data are employed a positive negative long run effect of manufacturing non manufacturing fdi inflows on the trade balance in the north south is further established

what drives international financial flows politics institutions and other determinants abstract this paper uses a large panel of financial flow data from banks to assess how institutions affect international lending first employing a time varying composite institutional quality index in a fixed effects framework the paper shows that institutional improvements are followed by significant increases in international finance second cross sectional models also show a strong effect of initial levels of institutional quality on future bank lending third instrumental variable estimates further show that the historically predetermined component of institutional development is also a significant correlate of international bank inflows the results thus suggest that institutional underdeveloped can explain a significant part of lucas lucas robert e 1990 why doesn t capital flow from rich to poor countries american economic review papers and proceedings 80 2 92 96 1990 paradox of why doesn t capital flow from rich to poor countries the analysis also does a first step towards understanding which institutional features affect international banking