the birth of a new industry entry by start ups and the drivers of firm growth the case of encryption software the paper analyses the birth of the encryption software industry esi a new niche in the software industry using a chandlerian perspective this work reports the main facts about fir entry and growth with a particular focus on start up strategies and actions since scale economies do not play a major role in esi the paper investigates the different sources of fir competitive advantages this work shows that innovation and product differentiation along with investments in co specialised assets are variables strongly correlated to young fir probability to survive and grow in doing so we have collected highly detailed information on product introduction us patents granted worldwide alliances and biographical data of fir founders 2004 elsevier b v all rights reserved jel classificatio m13 l86 o32

adaptive job search and null offers a model of quantity constrained search the model of search chosen for analysis here incorporates the possibility of unsuccessful search by assuming a probability of receiving a zero or null offer it is therefore a simple model of quantity constrained job search in which individuals learn about the quantity constraint they face during the course of search the distribution of wages being assumed known this sort of model is plausible if it is believed that labour markets are characterised by quantity rather than wage adjustment it is also a model popular in empirical studies of labour market transition probabilities in the next section the null offer model of job search is outlined and the reservation wage for the case of learning about the null offer probability is derived since only an implicit expression is possible for the reservation wage section ii presents the results of some numerical analysis conducted using the adaptive null offer model the implications of learning for a model of labour market transition probabilities are also considered in section iii some further applications of the model are discussed and the results of the paper summarised

new concepts and measures of the globalisation of production abstract the paper introduces a measure of cross border supply to allow for both armslength trade and direct production from foreign investments it explores the implications of this for measures of trade flows and for the concepts of intra industry supply

behavioral heterogeneity in dynamic search situations theory and experimental evidence abstract this paper presents models for search behavior and provides experimental evidence that behavioral heterogeneity in search is linked to heterogeneity in individual preferences observed search behavior is more consistent with a new model that assumes dynamic updating of utility reference points than with models that are based on expected utility maximization specifically reference point updating and loss aversion play a role for more than a third of the population the findings are of practical relevance as well as of interest for researchers who incorporate behavioral heterogeneity into models of dynamic choice behavior in for example consumer economics labor economics finance and decision theory

organisational and spatial determinants of the multi unit firm evidence from the french industry galliano d and soulie n organizational and spatial determinants of the multi unit firm evidence from french industry regional studies this article aims to analyse the factors internal characteristics spatial and industrial environments that determine the existence of multi unit firms and the intensity of their organizational fragmentation at a national scale the empirical models are based on individual data on all french industrial firms collected by the french national institute of statistics the results show the importance of internal characteristics scale economies specific assets as research and development and advertising skill level etc in organizational choice they also highlight the major role played by multi location and by the spatial profile of the firms on the intensity of their fragmentation galliano d and soulie n

unemployment insurance taxes and unemployment unemployment insurance is financed by a tax on wages below a given ceiling daniel s hamermesh 1977 advocates raising this ceiling on distributional grounds in a job search model this does decrease unemployment among low wage workers but also increases unemployment among high wage workers and lowers everyone s expected after tax wage an increase in the ceiling combined with a proportionate reduction in the tax rate decreases unemployment for low wage workers while increasing their after tax wage without affecting high wage workers at all when unemployment benefits and wages are taxed at one rate employment and wages are independent of that rate

endogenous market structures in international trade natura facit saltum abstract almost all of the large literature on international trade with imperfect competition assumes exogenous market structures the purpose of this paper is to develop a simple model that generates alternative market structures as nash equilibria for different parameterizations of the basic model equilibrium market structure is a function of the underlying technology familiar configurations such as a duopoly competing in exports or a single multinational producing in both markets arise as special cases small tax policy changes can produce large welfare effects as the equilibrium market structure shifts implying discontinuous jumps in prices quantities and profits

information technology and transnational integration theory and evidence on the evolution of the modern multinational enterprise reflecting amplified hazards in cross border exchange and imperfections in markets for intangibles internalization has been central in multinational enterprise mne theory this centrality notwithstanding the fact is that internalization coheres with lower powered incentives and carries an implicit drawback namely higher realized production costs with the emergence and deployment of information and communication technology ict modern mnes are reshaping their transnational governance to address this cost the modern mne uses ict to mitigate transaction costs and evolves more to arm s length exchange to incentivize lower production costs a testable prediction is that mnes in industries more susceptible to and employing more ict will exhibit a reduced propensity for transnational integration we examine this hypothesis using available data from 1982 to 1997 for us mnes across all manufacturing sectors regression results and robustness tests are strongly congruent with the prediction this study a first to explore empirically the role of ict in the evolution of transnational exchange suggests that mne theory until now founded primarily on transaction cost economics and a cross border control theory of value capture is more likely to keep pace with developments in mne practice by opening up to incentive theories of exchange governance and a cross border coordination theory of value creation

the relative economic performance of foreign subsidiaries in uk manufacturing there is now considerable evidence to show that domestically owned firms does have lower levels of labour productivity than foreign owned subsidiaries foss in uk manufacturing industry in explaining these productivity differences most studies refer to the firm specific advantages which multinationals possess allowing them to succeed in foreign environments in fact as barrell and pain 1997 point out if foreign owned assets are no more productive than those that are locally owned the rational for fdi particularly among developed countries disappears superior foreign owned assets are also important from a policy viewpoint in that there is a perception that host countries can benefit from the potential for spillover effects to domestic firms given the importance of firm specific advantages to fdi theory it is surprising that there has been little attempt to directly measure these assets in studies of relative productivity performance

direct tests of the reservation wage property this paper provides the first direct experimental tests of the reservation wages predicted by finite horizon job search models previous indirect tests were based on search duration and search income the authors show that such indirect tests are weak by demonstrating that a naive rule performs essentially as well as the risk neutral model in predicting search duration in contrast direct tests of predicted reservation wages imply rejections of both the naive rule and the risk neutral model the general concave model survives direct tests with reservation wage data as does a specific logistic concave model copyright 1992 by royal economic society

corporate taxes and the location of intangible assets within multinational firms intangible assets like patents and trademarks are increasingly seen as the key to competitive success and as the drivers of corporate profit moreover they constitute a major source of profit shifting opportunities in multinational enterprises mnes due to a highly intransparent transfer pricing process this paper argues that for both reasons mnes have an incentive to locate intangible property at affiliates with a relatively low corporate tax rate using panel data on european mnes and controlling for unobserved time constant heterogeneity between affiliates we find that the lower a subsidiary s corporate tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment this effect is statistically and economically significant even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern

nash equilibrium efficiency wage distributions this paper extends the shirking model of efficiency wages by introducing worker heterogeneity with respect to the disutility of effort heterogeneity leads to a problem of adverse selection in addition to the moral hazard problem that is present in the original model as a result of adverse selection an equilibrium in which all firms offer the same efficiency wage cannot exist rather a continuously differentiable distribution of wages will be offered in equilibrium we demonstrate this equilibrium by construction and derive it explicitly in the case of a uniform distribution of the effort aversion parameter

the effects of changes of the job offer arrival rate on the duration of unemployment generally it is acknowledged that changing the job offer arrival rate has two opposite effects on unemployment duration for a basic job search model sufficient conditions on the wage offer distribution have been derived ensuring that one of the effects dominates however these are not satisfied for the popular families of wage offer distributions here i show that the conditions can be weakened at virtually no cost the set of distributions satisfying the new conditions is considerably larger than the set previously established in particular it includes all wage offer distribution families that are popular in structural empirical research

the multinational firm direct investment is incorporated into a simple general equilibrium model of international trade the analysis focuses on an attempt to endogenize the internalization decision it is argued that a reasonable approach assumes that arm s length contracts must be simple so that complex arrangements require internalization the model relates direct investment to the degree of underlying uncertainty and to fundamental trade determinants such as relative factor endowments the behavior of the model contrasts sharply with that of the markusen helpman model which takes internalization for granted

strategic taxation of the multinational enterprise a new argument for double taxation abstract this paper analyzes the social welfare effects of multinational enterprise taxation by home and host governments in a general equilibrium model direct foreign investment arises to employ a firm specific asset abroad either a tax credit or deduction for foreign taxes paid results in the host fully taxing locally earned economic profits welfare endogenous market structure and profit results are identical in tax credit and deduction regimes because it lowers host government taxation in the subgame perfect equilibrium double taxation of foreign earned profits emerges as a weakly dominant strategy for the source government

determinants of international activity evidence from the chemical processing industry abstract this paper empirically investigates two important determinants of international activity through wholly owned operations joint ventures and technology licensing namely country risk and intellectual property rights iprs protection using a comprehensive database on investments in chemical plants during the period 1981 1996 we show that higher levels of country risk are associated with less activity into recipient economies the analysis also suggests that international activity with smaller resource commitment tends to be preferred in countries with higher levels of risk and that multinational investment is more responsive to changes in risk conditions than indigenous investment after controlling for several country characteristics we do not find iprs protection playing a significant role in fostering international activity or conditioning its mode

foreign direct investment in a two tier oligopoly coordination vertical integration and welfare we study foreign direct investment fdi by two independent investors entrants into a two tiered oligopolistic industry an fdi subsidy at a single stage of production can be sufficient to resolve the coordination problem facing investors thereby inducing entry at both stages however due to linkage offsetting fdi at both stages may yield lower domestic welfare than fdi at a single stage vertical integration not only solves the coordination problem it also eliminates double marginalization but since the integrated multinational does not sell the intermediate to local firms its entry generates no vertical linkages and can yield lower welfare than fdi by independent firms in this article we study foreign direct investment fdi via direct entry into a two tiered vertically related industry and derive the welfare effects of such fdi from the host country s perspective given the complementarity of production in vertically related industries it stands to reason that decisions regarding fdi into such industries are likely to be interdependent f or example fdi by an intermediate good supplier can enhance the fdi incentive of a final good producer by ensuring steady local supply of the intermediate helping lower its local price due to increased competition in the intermediate market or providing a higher quality version of the intermediate relative to local suppliers similarly an upstream intermediate good producer may find it more attractive to undertake fdi into a country if prior or simultaneous fdi into the downstream sector increases derived demand for the intermediate good thus fdi into one typeofproductionactivitymayinduceadditionalfdiintorelatedupstreamand ordownstream activities casual observation suggests that the aspects of fdi we model in this article are highly relevant in the real world for example the investment of japanese automakers in southeast asian countries in the 1970s and 1980s was accompanied by investment by producers of auto parts and subsystems 2 more generally fdi flows occur in virtually all interrelated sectors of the world economy including resource sectors manufacturing distribution and services in our two tiered oligopoly model two foreign investors one that produces an intermediate good and another that produces a final good decide independently whether or not to enter a host country fdi by either firm incurs a fixed cost and potentially generates technological

foreign direct investment competition and industrial development in the host country this paper analyses the impact of foreign direct investment fdi on the development of local firms we focus on two likely effects of fdi a competition effect which deters entry of domestic firms and positive market externalities which foster the development of local industry using a simple theoretical model to illustrate how these forces work we show that the number of domestic firms follows a u shaped curve where the competition effect first dominates but is gradually outweighed by positive externalities evidence for ireland tends to support this result specifically applying semi parametric regression techniques on plant level panel data for the manufacturing sector we find that while the competition effect may have initially deterred local firms entry this initial effect has been outpaced by positive externalities making the overall impact of fdi largely positive for the domestic industry

costly buyer search in laboratory markets with seller advertising in this experiment sellers simultaneously choose prices and advertising strategies buyers either purchase at an advertised price or search sequentially for other prices in the unique symmetric equilibrium sellers charge a high unadvertised price or advertise a price chosen from a lower interval increases in search or advertising costs raise equilibrium prices and affect equilibrium advertising intensity empirical results are consistent with most comparative static predictions sellers however price much lower and advertise more intensely than predicted consequently market outcomes more closely resemble a perfect information bertrand like equilibrium than the imperfect information mixed strategy equilibrium with significant seller market power

multinational corporations and trade structure first a model of horizontally and vertically integrated firms is developed these firms are then embedded in a general equilibrium model of trading countries it is shown how multinational corporations emerge as a result of differences across countries in factor compositions intersectoral intraindustry and intrafirm trade can coexist and intrafirm trade takes place in invisibles headquarter services and intermediate inputs it is shown how the various trade components depend on the structure of the world economy the model predicts trade patterns which are close to observed trade patterns the importance of multinational corporations in the conduct of foreign trade has been recognized for many years nevertheless there exists no well articulated theory that explains the conditions for their emergence and predicts under these conditions a structure of trade that comes close to observed trade patterns i have developed in helpman 1984 a theory which is designed to fill in this gap and it is the purpose of this paper to extend it in order to make it better fit reality my earlier work builds on the standard theory of monopolistic competition in differentiated products in which every firm produces a single variety the distinguishing feature of that study is the interpretation of the technology so as to allow for specialized inputs which service plants that are geographically separated from the location of the inputs employment in particular those inputs can be located in one country and service plants located in other countries management and product specific rd multinational corporations have often production facilities in several countries see for example u s tariff commission 1973 chapter iii moreover in my earlier work all intra firm trade consisted of trade in the services of the specialized inputs i e in headquarter services while empirically a large part of intra firm trade takes place in intermediate inputs see buckley and pearce 1979 hence there is a need to extend the theory in order to take account of these missing features and in order to evaluate their contribution to the explanation of trade patterns this task is undertaken in the following sections by incorporating the model of the horizontally and vertically integrated firm from helpman 1983 into the theory of

in search of substitution between foreign production and exports abstract are foreign production and exports substitutes or complements standard theory of the multinational corporation mnc assumes substitution while previous empirical work examining the relationship has generally found strong evidence of complementarity this study examines product level data which more closely fits the assumption of a single product firm often used in mnc theory and finds substantial evidence for both a substitution and a complementarity effect between affiliate production and exports with japanese automobile parts for the us market i also test for and find evidence of substitution using product level data on a set of japanese produced final consumer goods

an equilibrium search matching model of discrimination abstract a model in which firms have incomplete information about workers at the hiring stage is shown to entail discrimination as the unique stable equilibrium outcome even if no agents have a taste for discrimination and groups are ex ante identical groups which are discriminated against e g blacks women earn lower wages and endure longer unemployment spells

foreign direct investment and intellectual property rights evidence from hollywood s global distribution of movies and videos abstract traditional thinking about intellectual property rights ipr suggests that as a country strengthens its ipr standards firms will move their governance structures away from equity based institutions such as foreign direct investment fdi towards more market based relations such as licensing agreements this hypothesis is explored by examining the behavior of hollywood studios in both the feature film and video markets in 40 foreign countries the analysis reveals that the behavior of hollywood studios is more complex than this although moderate iprs are associated with a high degree of licensing both high and low standards of ipr encourage more integrated governance structures

horizontal and vertical intra industry trade in australian manufacturing does trade liberalization have any impact this paper contributes to the literature on intra industry trade iit by disentangling such trade into horizontally and vertically differentiated products and investigating their determinants in the context of trade liberalization in australia iit in australian manufacturing has increased following trade liberalization in 1980s and is increasingly dominated by vertically differentiated products industry level evidence confirms that the failure to segregate iit into horizontally and vertically differentiated products produces misleading results as their determinants differ also structural changes brought about by the policy liberalization appear to have an impact on total as well vertical iit

cross border acquisitions and taxes efficiency and tax revenues we develop a theoretical oligopoly model to study how international differences in profit and capital gains taxes affect foreign acquisitions reductions in foreign profit taxes tend to trigger inefficient foreign acquisitions while reductions in foreign capital gains taxes may trigger efficient foreign acquisitions foreign acquisitions can increase domestic tax revenues even when profit taxes are evaded the reason is that bidding competition between foreign firms ensures that all benefits from the acquisition including tax advantages are captured by a domestic seller paying capital gains taxes tax code issues such as the treatment of goodwill are shown to affect the pattern of foreign acquisitions jel classification f23

how do behavioral assumptions affect structural inference evidence from a laboratory experiment we use a laboratory experiment to investigate the effect that assuming rational expectations has on structural inference on a dynamic discrete choice decision problem our experimental design induces preferences up to each subject s subjective rates of time preference leaving unrestricted only this parameter and the decision rule that the subject uses in solving the problem we analyze the data under the assumption that all subjects use the rational expectations decision rule and also under weaker behavioral assumptions that allow for heterogeneity in the way people form decisions we find no evidence that assuming rational expectations distorts inferences about the cross sectional distribution of discount rates

investment spillovers and the allocation of property rights abstract in the context of the property rights theory of the firm we study the role of investment spillovers in shaping the efficiency ranking of ownership regimes in our model spillovers arise from asset embodied investment and footloose investment under the former the benefits of investment can be appropriated only through asset control under the latter the benefits of investment can be appropriated independently of asset control our model predicts that asset embodied investment favors the adoption of non integration while joint ownership may prevail in the presence of footloose investment

the composition of foreign direct investment and protection of intellectual property rights evidence from transition economies while existing literature has examined the impact of intellectual property protection on the volume of foreign direct investment fdi little is known about its effect on the composition of fdi inflows the author addresses this question empirically using a unique firm level data set from eastern europe and the former soviet union she finds that weak protection deters foreign investors in technology intensive sectors that rely heavily on intellectual property rights the results also indicate that a weak intellectual property regime encourages investors to undertake projects focusing on distribution rather than local production the latter effect is present in all sectors not just those relying heavily on intellectual property protection

fdi policies under shared factor markets abstract we examine the consequences of foreign direct investment fdi policies in a general equilibrium setting with several oligopolistic industries by shifting labor demand across countries fdi raises the wage in the host country and lowers the wage in the source country thereby raising profits of source country firms at the expense of host country firms the extent of cross ownership of firms the relative number of firms and the relative supply of skilled labor alter the impact of fdi policy on national welfare the tension between profits and wages determines whether the optimal policy is designed to encourage fdi

accounting for endogeneity when assessing strategy performance does entry mode choice affect fdi survival firms choose strategies based on their attributes and industry conditions therefore strategy choice is endogenous and self selected empirical models that do not account for this and regress performance measures on strategy choice variables are potentially misspecified and their conclusions incorrect i highlight how self selection on hard to measure or unobservable characteristics can bias strategy performance estimates and recommend an econometric technique that has been developed to account for this effect although this concern applies to a wide range of strategy questions to demonstrate its effect i empirically examine if entry mode choice acquisition versus greenfield influences foreign direct investment survival in specifications that do not account for self selection i find that greenfield entries have survival advantages compared to acquisitions this confirms previous findings however the significance of this effect disappears once i account for self selection of entry mode in the empirical estimates the results confirm that estimates from models that do not account for self selection of strategy choice can lead to incorrect or misleading conclusions

corporate tax systems multinational enterprises and economic integration abstract multinational firms are known to shift profits and countries are known to compete over shifty profits two major principles for corporate taxation are separate accounting sa and formula apportionment fa these two principles have very different qualities when it comes to preventing profit shifting and preserving national tax autonomy most oecd countries use sa in this paper we show that a reduction in trade barriers lowers equilibrium corporate taxes under sa but leads to higher taxes under fa from a welfare point of view the choice of tax principle is shown to depend on the degree of economic integration

the boundaries of multinational enterprises and the theory of international trade this paper begins with a review of empirical evidence on multinational firms conceptual underpinnings of a theory are developed relying in particular on the notion of knowledge capital as a mobile joint input into geographically separated production facilities this idea is embedded in a simple two country general equilibrium model that supports multinational production in equilibrium under conditions consistent with the empirical evidence the final section examines internalization and shows why certain properties of knowledge capital also imply a preference for transferring technologies internally within the firm rather than through arm s length markets

asymmetric demand information and foreign direct investment we examine the fdi versus exports decision of firms competing in an oligopolistic quantitysetting market under demand uncertainty and asymmetric information compared to a firm that chooses to export a firm that chooses to set up a plant in the host market has superior information about local market demand in addition to the well known tension between the fixed set up costs of investment the additional variable costs of exports and oligopoly sizes the incentive to invest abroad is explained by the strategic learning effect fdi may be observed even if trade costs are zero the analysis is robust to price competition and to the possibility that a foreign firm can engage in both fdi and exports

firm outsourcing decisions evidence from u s foreign trade zones deborah l swenson this article examines the operations of firms located in u s foreign trade subzones to study the responsiveness of outsourcing to international cost changes i find that firms reduce their reliance on foreign inputs when dollar depreciation increases the relative price of imported inputs the effect is pervasive across industries and is economically significant in addition firms that rely more heavily on imported intermediate inputs reduce their overall shipments when dollar depreciation elevates their imported input costs however the magnitude of the shipments effect is economically small suggesting that firms respond to exchange rate movements by adjusting their operations on other dimensions jel f23 f1 i introduction during the nafta debates u s industry argued that it would be placed at a competitive disadvantage if it failed to gain access to mexican parts that benefited from tariff reductions in the absence of such benefits it was argued that u s firms might even move their production off shore at the same time u s trade unions expressed great concern that jobs and high levels of economic activity would be lost if nafta caused a rise in the outsourcing of intermediate inputs although these countervailing concerns have attracted much attention very little is known about the responsiveness of firm outsourcing to relative price changes or about its secondary effects on firm shipments since outsourcing decisions are made at the firm level and appropriate data is rarely available to researchers this article seeks to address this void by analyzing a data set that provides information on these purchasing and shipment decisions recent aggregate evidence indicates that firms are purchasing an increasing portion of their intermediate inputs from their foreign affiliates or from unrelated parties located abroad 1 it is argued that advances in transportation and communications have facilitated the trend toward the dispersion of production activities while the aggregate trends are striking little research has focused on individual firm decisions one exception is brainard and riker s 1997 examination of multinational firms employment choices as they respond to international wage changes brainard and riker conclude that the degree of firm substitution among a firm s numerous foreign affiliates is much higher than that between parent firms and their foreign affiliates which is relatively small this labor market evidence suggests that foreign affiliate labor is not easily substituted for home labor and that the two may even be complements 2 in contrast a higher degree of substitutability is implied by work including feenstra a nd hanson 1996 and irwin 1996 for the united states or campa and goldberg 1997 for the united states united kingdom japan and canada which documents that the usage of imported intermediate inputs has increased in almost all cases since the 1970s 3 this article studies the issue of input sourcing flexibility and its consequences by examining individual firm decisions the analysis is based on the activities of a set of firms located in u s foreign trade subzones i focus on this subset of firms since the u s foreign trade subzones program provides a unique opportunity to examine firm level decisions regarding inputs and shipments the reporting requirements of the foreign trade zones program enable us to view aspects of firm sourcing decisions that are usually unobservable i use two estimation methods to measure the general substitutability of inputs and outsourcing flexibility first i develop a constant elasticity of substitution ces model of input demand i then use nonlinear least squares techniques to estimate the underlying demand parameters implied by the structural equations i then perform a tobit analysis of firm sourcing decisions the benefit of the second form of analysis is that it allows me to study additional determinants of outsourcing and it does not require strong assumptions about the functional form of the production function

are optimal search rules reasonable and vice versa and does it matter anyway abstract the economics of search has made rapid progress in recent years and its results have contributed siginificantly to economic knowledge recent work has been particularly marked for the steadily increasing realism of the assumptions describing the environment surrounding the searcher however concomitant with this improvement has been a steady growth in the technical complexity of the problem supposedly solved by the searcher indeed many of the recent models are so complicated that their solutions are beyond the capacity of even modern day computers after elaborating on this impracticability of optimal search rules the paper goes on to consider two more realistic and practical alternatives the adoption of either suboptimal or reasonable rules paradoxically reasonable rules may in some circumstances be better than optimal rules the paper contains a preliminary discussion of what might be meant by reasonable behaviour and shows that a minimal set of criteria for reasonableness leads to the major qualitative conclusions at a market level of optimal search theory

intellectual property rights and foreign direct investment abstract this paper develops a product cycle model with endogenous innovation imitation and foreign direct investment fdi we use this model to determine how stronger intellectual property rights ipr protection in the south affects innovation imitation and fdi we find that stronger ipr protection keeps multinationals safer from imitation but no more so than northern firms instead the increased difficulty of imitation generates resource wasting and imitation disincentive effects that reduce both fdi and innovation the greater resources absorbed in imitation crowd out fdi reduced fdi then transmits resource scarcity in the south back to the north and consequently contracts innovation

do foreign owners favour short term profit evidence from germany comparing domestic and foreign owned firms in germany this paper finds that foreign owned firms are more likely to focus on short term profit this influence is particularly strong if the local managers of the german subsidiary are not sent from the foreign parent company moreover the physical distance between the foreign parent company and its german subsidiary increases the probability of focusing on short term profit these findings conform to the hypothesis that foreign owners facing an information disadvantage concerning the local conditions of their subsidiaries are more likely to favor short term profit however we do not identify differences in short termism between investors from anglo saxon and other foreign countries rather results point in the direction of more general features of international business investment

strategic trade policy when firms can invest abroad when are tariffs and quotas equivalent abstract this paper investigates the equivalence of tariffs and quotas when the market in question is imperfectly competitive and open to direct foreign investment the absence of a foreign supply response under a quota so critical to the analysis of the differential impact of tariffs and quotas under imperfect competition is called into question by the potential occurence of direct foreign investment the paper proves the equivalence of optimal tariffs and quotas when the markets are oligopolistic and open to direct foreign investment

the effect of foreign acquisition on employment and wages evidence from finnish establishments employee characteristics by skill groups makes it possible to disentangle the effect of foreign ownership on wages from its effects on the quality of the workforce furthermore this information allows us to examine the heterogeneity of the effect of foreign acquisition on wages and employment third the long timespan of our data thirteen years enables us to consider the effects of foreign acquisition in the long run hiring and firing costs may delay the effects of foreign acquisition by looking at the effects of acquisition in several periods after it has taken place these delays can be taken into account we believe finland to be an interesting case study for the effects of foreign ownership it is a typical example of a small open economy where foreign investment plays an important role furthermore our data cover the years 1988 2001 when the share of foreign direct investments rose rapidly in finland this increase is depicted in figure 1 and it partly reflects the worldwide trend in foreign direct investment but the years 1988 2001 were also characterized by two phenomena which undoubtedly led to the increase in the share of foreign owned firms first finland experienced a very severe recession in the early 1990s and the recovery from this crisis was associated with a rapid restructuring of the economy and a growth of new industries in particular the export oriented high tech sector 2 second finland joined the european union in 1995 which naturally removed a considerable number of barriers to foreign investment in the finnish economy the results derived by both matching and regression methods indicate that foreign acquisition has a positive effect on wages in all skill groups this wage increase is not immediate but occurs within one to three years after the acquisition the magnitude of this effect increases with the level of schooling of the workers the results indicate that there is a small decrease in the share of highly educated workers after foreign acquisition the decrease in the share of highly educated workers after acquisition also seems to hold for domestic acquisitions the paper is organized as follows the next section briefly describes the theoretical background for the analysis and reviews some previous empirical findings the third section describes the statistical framework and the fourth section presents the data sets the results are provided in the fifth section the last section concludes the paper

licensing versus direct investment a model of internalization by the multinational enterprise a firm must decide whether to serve a foreign market by exporting building a foreign branch plant or licensing the production to an existing foreign producer the existence of reputations implies that any licensing agreement must provide a licensee with the incentive to maintain the reputation this creates a motive for the firm to internalize transactions by building a branch plant i e by becoming a multinational the model reflects a more general notion that the inability of the firm to control a licensee s agent s actions can provide incentives for multinational activity the paper explores the determinants of the firm s mode of operation as well as the consequences of certain government policies

who determines mexican trade policy using a political economy approach the authors analyze the pattern of protection in mexico s manufacturing sector during the period of trade policy reforms 1985 89 when mexico experienced significant trade liberalization and an important inflow of foreign direct investment they take into account the potential effect of foreign direct investment on endogenous tariff formation it turns out that the data support this analytic approach in which the formulation of trade policy reflects political support and in which the presence of foreign direct investment in the sector strongly affects the pattern of tariff protection before and after reform in mexican manufacturing especially sectors with heavy foreign direct investment received greater protection in import competing sectors although the move toward greater openness was associated with a reduction in the influence of industrial and foreign investor lobbying

intellectual property rights foreign direct investment and industrial development this paper develops a north south product cycle model in which innovation imitation and the ow of fdi are all endogenously determined in the model a strengthening of ipr protection in the south reduces the rate of imitation and it increases the ow of fdi indeed

contracts intellectual property rights and multinational investment in developing countries abstract the policy debate between multinational firms favoring strong contract law and host country governments who often oppose such protection motivates the paper local agents managers learn the multinational s technology and can defect to start a rival firm contract enforcement including binding the multinational itself makes the multinational better off outcomes for the host country are more complex depending on mode switches induced by enforcement if enforcement induces the multinational to switch from exporting to local production welfare improves if local production was occurring anyway enforcement may result in the loss of rents to local agents and lower welfare

multinational firms technology and location this thesis consists of four essays its main theme is the location of production in multinational firms subsidizing away exports a note on strategic trade policy investigates how strategic

between search and walras we present a model in which unemployed workers simultaneously sample n potential employers by varying n we nest search and walrasian type models of the labor market we show that low values of n yield typical search equilibria the wages are dispersed below the marginal productivity of labor interestingly as n exceeds a relatively small threshold the walrasian type equilibrium emerges with the competitive wage quoted by all firms for intermediate values of n the equilibrium is a hybrid of the walrasian and search equilibria the model generates wage rigidity and yields novel predictions regarding the comovement of wages firm turnover and unemployment

fdi spillovers over time in an emerging market the roles of entry tenure and barriers to imitation in this study we examine how foreign direct investment fdi spillovers to domestic firms in an emerging market occur over time from the organizational learning perspective we propose that as entry tenure of foreign firms in an industry increases domestic firms can learn from the foreign firms over time and improve their productivity we further build upon the competitor imitation argument to propose that this effect will be stronger when barriers to imitation faced by the domestic firms are lower based upon a comprehensive panel dataset on manufacturing firms in china in 1998 2007 our findings strongly support these arguments we find that entry tenure of foreign firms in an industry has a positive relationship with the productivity of individual domestic firms in the same industry albeit at a diminishing rate we also find that this positive relationship is stronger when the foreign firms have lower export intensity lower intangible asset intensity and have followed a more rhythmic i e less irregular entry pattern situations characterizing lower barriers to imitation

optimal price adjustment under imperfect information abstract variations in cost and demand do not have symmetrical impact on the optimal price of the imperfectly competitive firm this asymmetry is not so important as long as information regarding both cost and demand is sufficient however it becomes crucially important in case of incomplete information usually firms have more complete or harder information on cost than on demand this difference in information status on the cost and on the demand side can explain both cost based pricing and slow price adjustment to demand in an optimizing framework with bayesian learning about changed demand conditions

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

competing destinations gravity model an application to the geographic distribution of fdi the competing destinations formulation of the gravity model ensues from the fact that unlike the classical version this approach explicitly acknowledges the interdependence of the flows between a set of alternative locations i e country recipients are competing for foreign direct investment fdi this article examines empirically a range of theoretical hypotheses about the determinants of fdi location in a panel data regression framework the results of the estimation of a gravity model lend support to the proximity concentration and internalization hypotheses also the fact that fdi has been found to be decreasing in the competition posed by alternative locations is suggestive of the superiority of the competing destinations version of the gravity equation over its classical formulation

strategic trade policy and welfare foreign equity ownership is shown empirically to weaken significantly and occasionally reverse common strategic trade policy results existing levels of u s cross ownership for example reduce the average optimal export subsidy by 47 relative to the brander and spencer journal of international economics 1985 18 83 100 value in industries with particularly high cross ownership and relatively small imputed labor rents optimal subsidies fall to less than one seventh of their former level previous studies which overlook high rates of cross ownership overstate the effectiveness of strategic policies most sharply in sectors with above average expected profitability scope for strategic investments and barriers to rent dissipation

internalization an event study test abstract the internalization theory of multinational firms proposes that direct international investment occurs when a firm has information related intangible assets with public good properties we find that firms with characteristics suggesting the presence of information based assets experience a significantly positive stock price reaction upon announcing a foreign acquisition on the other hand firms apparently lacking such assets experience at best zero abnormal returns upon announcing overseas acquisitions

why not cut pay abstract i interviewed over 300 business people labor leaders business consultants and counselors of unemployed people all in the northeast of the united states during the recession of the early 1990 s in order to learn why wages and salaries declined in only a few firms employers were reluctant to cut pay because they believed doing so would hurt employee morale leading to lower productivity and current or future difficulties with hiring and retention it was thought that these effects would in the end cost more than the savings from lower pay there were few indications that unemployed people had excessive wage expectations on the contrary many unemployed were too flexible and found themselves rejected by firms as overqualified in most companies pay cuts were not a useful alternative to layoffs because pay cuts would not make it worthwhile to retain many employees and because layoffs harmed morale less than would pay cuts the findings support none of the theories of wage rigidity except those of solow and akerlof that emphasize morale

intellectual property rights and quality improvement this paper explores why theories about the effects of intellectual property rights ipr protection on foreign direct investment fdi and innovation have reached mixed conclusions in our model northern firms innovate to improve the quality of existing products and may later shift production to the south through fdi southern firms may then imitate the products of multinationals we find that imitation can increase fdi and innovation for quality improvements whereas the opposite occurs when innovators develop new varieties hence stronger ipr protection by reducing imitation may shift innovation away from improvements in existing products toward development of new products

multinationals cross border acquisitions and wage dispersion we examine the impact of cross border acquisitions on intra firm wage dispersion using a detailed swedish linked employer employee data set including data on all firms and about 50 of the swedish labour force with information on job tasks and education foreign acquisitions of domestic multinationals and local firms increase wage dispersion but so do also other types of cross border acquisitions hence it is the acquisition itself rather than foreign ownership that increases wage dispersion the positive wage effect is concentrated to ceos and other managers whereas other groups are either negatively affected or not affected at all

reputational comparative advantage and multinational enterprise 1 introduction when cultivating a new export market or attempting to expand its share of an existing market an exporter is likely to find that it has been preceded by its reputation minus a readily identifiable brand name quality reputation may solely reflect the country of origin for example when consumers are presented with a large amount of complex product information they may use the country of origin as a heuristic in forming product impressions without considering other product attributes 1 in this article i show that this heuristic decision making process can affect a firm s quality decision and can therefore become self fulfilling hence any bias that consumers have may be well founded however it is only correct because firms respond rationally to it colombia s garment industry provides an interesting example of a self fulfilling unfavorable quality reputation in international trade as described by morawetz 1981 a single colombian garment firm took a contract for 50 000 men s suits that was beyond its capability the poor quality result so tarnished the american importer s name that other high quality importers become wary of colombian sewn garments with the payoff to high quality production reduced colombian garment firms then concentrated on low quality markets and the newly found unfavorable reputation was justified in the model constructed here consumers see only a noisy signal of the product s quality at the time of purchase therefore their posterior beliefs are based on this noisy signal and the country of origin reputations as will be made clear higher quality firms benefit more from an increase in their country s reputation so that a better reputation generates an increase in the percentage of high quality firms in this way the reputation becomes self fulfilling and ex ante identical countries can be correctly perceived as differing in their percentage of high quality producers i next introduce an economy with two sectors one sector produces more complex goods where high quality is not easily verified and is more essential to the product s performance these may be technology intensive products or they may consist of the design and marketing of the goods produced in the other sector in particular high quality production costs and the consumer s value for high quality goods is greater in this sector i show that this sector becomes more profitable as the country of origin reputation increases hence if one country s equilibrium reputation is low and the other country s equilibrium reputation is high then the pattern of specialization and international trade can be determined solely by reputational comparative advantage 2 finally i show that reputational comparative advantage can overshadow a small technological comparative disadvantage in determining the pattern of international trade given this pattern of trade and specialization based on reputational comparative advantage a high reputation firm may expend resources to establish a multinational enterprise mne in the low reputation country for example many mne products require the differing specializations of both the high and low reputation countries although differing in motivation this result accords well with more traditional models of vertical mne 3 however this impetus for mne as well as its more traditional counterparts does not explain why the mne would choose foreign direct investment fdi over a less costly licensing arrangement 4 the quality uncertainty in this model along with the difference in equilibrium reputations allows us to address this question in particular appropriable reputational rents are generated by fdi when the high reputation parent firm procures and internalizes production with a low reputation host firm this fdi breaks the low reputation equilibrium of the host firm and generates reputational rents

corruption and cross border investment in emerging markets firm level evidence abstract this paper studies the joint impact of corruption on the entry mode and volume of inward foreign direct investment fdi using a unique firm level data set we find that corruption not only reduces inward fdi but also shifts the ownership structure towards joint ventures the latter finding supports the view that corruption increases the value of using a local partner to cut through the bureaucratic maze however r d intensive firms are found to favor sole ownership

firm size and foreign operations of multinationals the standard literature on multinationals emphasizes the importance of firm size in explaining foreign direct investment a typical statement for example by caves is that t he relation between direct investment and firm size with other factors held constant has been established statistically 1974 p 280 however descriptions of the role of firm size are often ambiguous as pointed out by hufbauer 1975 and swedenborg 1979 such descriptions do not make a clear distinction between the probability or likelihood that a firm would be a foreign investor and the extent of such investment or as expressed by swedenborg a firm s propensity to operate abroad the share of its production carried on outside its home country a study by horst 1972 which has become the basis for most statements about the importance of firm size dealt only with the probability that a firm would be a foreign investor or more specifically the probability that it would meet the criteria for being considered a multinational firm according to the definition used in the harvard studies including that of having a certain number of overseas operations cf vernon 197 1

trade liberalization in a multinational dominated industry abstract existing theoretical models in the trade industrial organization literature assume almost exclusively that firms are national enterprises so that there is no international coordination by multinational firms we develop a model in which multinationals compete among themselves but coordinate production pricing and sales decisions across multiple plants and markets free entry and exit is assumed and cases in which the multinationals can and cannot segment markets are considered the model is simulated using data from the north american auto industry results are compared with a counter factual model calibrated to the same data which assumes national ownership of firms

foreign direct investment and income inequality in mexico 1990 2000 in this article we explore the relationship between the investments of multinational corporations foreign direct investment and income inequality in mexico we argue that mexico s liberalization of foreign direct investment fdi inflows in the 1990s provides a natural experiment to test how fdi affects income inequality in a middle income country we use an instrumental variables approach as our identification strategy to mitigate problems of endogeneity and omitted variable bias in an empirical test of the determinants of changes in income inequality from 1990 to 2000 we find that increased fdi inflows are associated with a decrease in income inequality within mexico s thirty two states the authors would like to thank lawrence broz john freeman matt gabel geoff garrett quan li eddy malesky layna mosley katie ridgeway pablo pinto john stringer and andy sobel for comments and suggestions jacob gerber and mariana medina provided excellent research assistance thanks also to patricio aroca gonzalez for generously providing us with his data we acknowledge the financial support of the weidenbaum center on the economy government and public policy nate jensen s contribution to this article was written as a global fellow at ucla s international institute

competence and contract in the theory of the firm abstract the coase williamson response to the question why do firms exist is based on the idea that transaction costs in viable firms are lower than they would be if production was coordinated through the market the explanatory focus of this argument is on the diminution of costs related to transactions between given individuals however this ignores the possibility of activities which are in principle non contractible including aspects of the process of production further the reliance on comparative statics in transaction cost theory downplays the distinctive kind and rate of human learning that takes place within firms this paper argues that work on organizational learning and cultural transmission reinforces a competence based explanation of the existence and relative efficiencies of firms and this approach can also provide answers to the original question posed by coase accordingly the development of a research program involving a conjoint evaluation of both competence based and transaction cost approaches is proposed

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

investigations concerning the dynamics of consumer behavior in uncertain environments this paper reports the results of several experiments investigating dynamic consumer behavior when consumers know their incomes and prices but are uncertain about their preferences we find that they typically adopt a two step approach to locating optimal consumption bundles initially a grid search method is employed this is followed by a gradient search method an interesting phenomenon observed in many of our experiments is a tendency to consume a bundle well away from the optimum immediately after the optimum is located the effects of income and price changes are also studied

on the relationship between technology transfer and economic growth in asian economies in this paper fdi and licensing are incorporated using a model where increasing the international transmission of technology adds to efficient production in the receiving country and results in higher welfare the model is then tested with data from a selection of 11 asian economies and a strong positive relationship is found between fdi licensing and economic growth the policy recommendations from both our theoretical model and empirical results are that asian economies should improve their production efficiency to host international technologies to maximise the benefits of international technology transfers

corporate taxation and the choice of patent location within multinational firms corporate patents are perceived to be the key profit drivers in many multinational enterprises mnes moreover as the transfer pricing process for royalty payments is often highly intransparent they also constitute a major source of profit shifting opportunities between multinational entities for both reasons mnes have an incentive to locate their patents at affiliates with a relatively small corporate tax rate our paper empirically tests for this relationship by exploiting a unique dataset which links information on patent applications to micro panel data for european mnes our results suggest that the corporate tax rate differential to other group members indeed exerts a negative effect on the number of patents filled by a subsidiary the effect is quantitatively large and robust against controlling for affiliate size the findings prevail if we additionally account for royalty withholding taxes moreover binding controlled foreign company rules tend to decrease the number of patent applications

does the opening of central and eastern europe threaten employment in the west t he opening up of central and eastern europe posed a profound economic challenge for the european union eu virtually overnight eu countries were confronted with a group of neighbouring countries with structurally very different economic conditions the economic system of the central and eastern european countries ceec was built on nearly 50 years of centrally based planning and even more important was the huge gap in income wages and productivity compared to the gradual process that characterises post war european integration the demise of the communist legacy represented an abrupt shock after a deep recession in the early nineties several transition countries are now doing well if this trend continues some of the ceec including poland hungary and the czech republic will turn into fast growing high performing countries in western europe this prospect is not greeted with enthusiasm by those policymakers business and trade union representatives who fear the competition of the newly emerging economies in central and eastern europe not surprisingly the adjustment to this new reality has become a key issue on europe s policy agenda not in the least because poland hungary the czech republic slovenia and estonia have started negotiations to join the eu in the near future most of the policy concerns relate to employment eastern europe represents a large reservoir of low wage labour in the eu s backyard there is a concern that

strategic investments and the development of multinationals a model of multinational behavior is presented in which either the existence or absence of multinationals can be a nash equilibrium outcome the key determinant is the relationship between plant scale economies a force for geographic centralization and multiplant economies plus transport costs leading to multinationality the model predicts that multinational enterprise production arises when firm specific and transportation costs are large relative to plant scale economies the latter are both a technological and a strategic variable in the entry decision copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

equilibrium long term labor contracts the paper presents a labor market equilibrium analysis of implicit contract theory a two period single good model is used to propose consistent notions of labor market equilibrium for long term employment contracts both when labor is specialized and cannot move in the second period and when there is free mobility without costs the result that long term contracts emerge in equilibrium even without mobility costs is novel and contrary to common beliefs the main features of equilibrium are that risk neutral firms will insure risk averse workers against downside risk yielding downward rigid wages wages are not fully rigid as in earlier work on contract theory because workers may quit and wages have to be bid up to retain them the firm gets its return of the insurance deal by paying less than marginal product in the first period the resulting equilibrium is second best and lies between productive efficiency and full insurance workers gain from long term contracts in comparison to spot markets whereas owners may not in the model with specialized skills there exist transfer payments such that both parties are better off within an equilibrium with long term contracts

the firm as a community explaining asymmetric behavior and downward rigidity of wages abstract this paper models the firm as a community a la akerlof akerlof g a 1980 a theory of social custom of which unemployment may be one consequence quarterly journal of economics 94 749 775 to account for asymmetric behavior and in particular downward rigidity of wages it is shown that through social interaction among workers in the firm community wage cuts can give rise to a large discontinuous fall in labor productivity known as catastrophe furthermore this large fall in labor productivity will persist or display inertia known as hysteresis even if the wages are restored to the pre cut level and beyond our catastrophe hysteresis finding with respect to wage cuts can rationalize the downward rigidity of wage behavior and is consistent with the interview evidence of fragile worker morale emphasized by bewley bewley t f 1999 why wages don t fall during a recession harvard university press cambridge and others in explaining why employers are sensitive to and refrain from cutting worker pay

international investment location decisions abstract in international location tournaments governments compete for foreign investment with tax and other short run incentives such tournaments can be won if agglomeration economies are sufficiently powerful to overcome investors desire to spread investments as a hedge against risk we focus on manufacturing investments by u s multinationals in the 1980s our econometric results suggest that agglomeration economies are indeed the dominant influence on investor calculations paradoxically short run incentives have limited apparent impact on location choice we conclude that high cost tournament play is unnecessary for countries with good infrastructure development specialized input suppliers and an expanding domestic market

intellectual property protection and the industrial composition of multinational activity in a north south model with endogenous fdi we examine the impact of southern ipr protection on the mode and industrial composition of international technology transfer a novel feature of the model is that due to technological reasons industries differ with respect to their susceptibility to imitation in equilibrium licensing occurs in industries where the risk of imitation is low and fdi where it is of intermediate magnitude stronger iprs in the south i alter the industrial composition of multinational activity towards licensing at the expense of fdi ii reduce local imitation and iii increase licensing and to a lesser extent fdi

technical compatibility and the mode of foreign entry with network externalities we examine the preferences of a foreign firm and a local government over two modes of foreign direct investment de novo entry and acquisition of the domestic incumbent two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology the relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality the clash between the foreign firm s choice and the local government s ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm ce texte examine les preferences d une firme etrangere et d un gouvernement du pays hote quant a deux modes d investissement direct de l etranger entree de novo de la firme etrangere versus acquisition d une firme domestique en place deux facteurs pris en compte sont la presence d externalites de reseau et d incompatibilite partielle entre la technologie locale et celle introduite par la firme etrangere l impact relatif des modes d entree sur le mieux etre local depend du degre de concurrence sur le marche et de l importance des externalites de reseau le conflit entre les preferences de l entreprise etrangere et les preferences du gouvernement local peuvent etre a la source de politiques qui limitent le degre de proprieteetrangere permis

asymmetries and rigidities in wage adjustments by firms the authors use micro data from a survey of firms to test for labor market rigidities and asymmetries in response to demand shifts they analyze wage and employment adjustments to positive and negative shifts as measured by real sales growth the results show that wage adjustments are fairly small compared with employment adjustments they are also asymmetric with significant adjustments in response to positive shifts but not negative shifts these asymmetries are no more pronounced in large firms manufacturing heavily union or highly skilled industries than in other firms or industries in contrast employment adjustments show no consistent pattern of asymmetry copyright 1993 by mit press

no help wanted signs and the duration of job search in standard job search models the increased duration ofjob search in recessions is the result of workers failure to perceive the downward shift of the wage offer distribution they face an alternative explanation offered by okun i98i argues that the increase in no help wanted signs i e zero wage offers in recessions raises workers optimal duration of search since the increased duration of job search is explained without reference to faulty wage expectations unemployment does not automatically return to the natural rate as workers recognise the new wage offer distribution the effect of an increase in no help wanted signs a reduction in the probability of receiving a nonzero wage offer on the duration of search in sequential job search models is ambiguous in general barron i 975 this paper seeks to discover conditions under which such an increase raises the optimal duration of job search for this purpose a simple job search model with no help wanted signs is developed in the next section 2 section ii shows that if the distribution of wage offers is log concave the optimal duration of job search rises with increases in no help wanted signs other circumstances that yield this result are also examined the final section contains concluding remarks

the economics of franchise contracts as an organizational arrangement the franchise contract lies between anonymous price mediated exchange and centralized intrafirm employment in contrast to conventional market exchange franchise contracts typically impose on franchisees retail quality standards common hours of business price controls and nonlinear payment schedules for example fixed initial royalty fees plus a percentage of gross retail revenues while franchisors typically provide national advertising and training programs monitor and inspect the franchisees performance with varying intensity across industries and hold the residual power to terminate the franchise agreement observations of actual terminations indicate that franchisors sometimes exclude this power franchisors sometimes face persistent queues of potential franchisees in contrast to simple employment contracts franchise agreements provide for sharing of profits through royalties on revenue or output and considerable freedom for independent decisions by local franchisees 1 why do these franchise contracts exist