economic determinants of free trade agreements abstract the purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements ftas and of the likelihood of ftas between pairs of countries using a qualitative choice model we develop this econometric model based upon a general equilibrium model of world trade with two factors of production two monopolistically competitive product markets and explicit intercontinental and intracontinental transportation costs among multiple countries on multiple continents the empirical model correctly predicts based solely upon economic characteristics 85 of the 286 ftas existing in 1996 among 1431 pairs of countries and 97 of the remaining 1145 pairs with no ftas

foreign currency for long term investors conventional wisdom holds that conservative investors should avoid exposure to foreign currency risk even if they hold foreign equities they should hedge the currency exposure of these positions and hold only domestic treasury bills this paper argues that the conventional wisdom may be wrong for long term investors domestic bills are risky for long term investors because real interest rates vary over time and bills must be rolled over at uncertain future interest rates this risk can be hedged by holding foreign currency if the domestic currency tends to depreciate when the domestic real interest rate falls empirically this effect is important

premia for correlated default risk abstract using data on corporate default experience in the u s and market rates of cdx index and tranche swaps of various maturities we estimate reduced form models of correlated default timing in the cdx high yield and investment grade portfolios under actual and risk neutral probabilities the striking contrast between the estimated processes followed by the actual and risk neutral arrival intensities of defaults and between the parameters governing the actual and risk neutral dynamics of the risk neutral intensities indicates the presence of substantial default risk premia in cdx swap market rates the effects of risk premia on swap rates covary strongly across maturities and depend on general stock market volatility and several measures of credit spreads large moves in the effects of these premia on swap rates have natural interpretations in terms of economic and financial market developments during the sample period april 2004 to october 2007 our results suggest that a large portion of the movements in cdx swap market rates observed during the sample period may be caused by changing attitudes toward correlated default risk rather than changes in the economic factors affecting the actual risk of clustered defaults which ultimately governs swap payoffs

some macro data on the regionalisation globalisation debate a comment on the rugman verbeke analysis this paper critiques an earlier contribution by rugman and verbeke 2004 and it does so by considering the global distribution of foreign direct investment fdi it also adds several new dimensions to the regionalisation globalisation debate noticeably by i the incorporation of inward multinational enterprise mne activity ii evaluating changes in the geography of fdi between 1990 and 2003 and iii the introduction of the concept of revealed investment comparative advantage rica of countries and regions while broadly supporting the findings of rugman and verbeke our paper shows that much of the explanation for the regional concentration of fdi and mne activity reflects that of the gross domestic product gdp and trade of the countries concerned rather than any distinctive strategy on the part of investing firms

state ownership and transparency in foreign direct investment we contribute to ib literature on state owned multinationals by examining an understudied element of mne strategy transparency drawing insight from accounting finance and political science we develop theory and hypotheses regarding ownership effects on fdi disclosure we argue that transparency of outward fdi depends on both state ownership and home and host country institutions we also posit that host governments harness their soes to exploit information disclosed by foreign mnes discouraging inward fdi transparency we test our hypotheses using a unique transaction level database from the global petroleum industry analyzing a sample of 965 investment disclosures across 81 developing and developed countries we find state ownership reduces mne transparency soes are less sensitive to host country political risk than private firms soes from better governed countries are more transparent and regardless of ownership foreign mnes are more opaque when investing in the presence of a host country soe

a theory of international new ventures a decade of research oviatt and mcdougall s jibs article identified and defined international new ventures invs and their prominent role in the global marketplace the article spurred worldwide interest in invs by raising questions about the validity and efficacy of existing theory especially about the uppsala process model of internationalization the article also laid an important theoretical foundation for research into international entrepreneurship ie where younger and wellestablished companies use their entrepreneurial activities to create value as they internationalize their operations this paper reviews oviatt and mcdougall s original propositions highlighting their important contributions to the field the paper also highlights the progress made in research using oviatt and mcdougall s framework the major debates that persist about the nature and role of invs the source of their competitive advantages and the key issues to be explored in future research

power politics and international trade r recent literature attributes the relative scarcity of open international markets to the prisoner s dilemma structure of state preferences with respect to trade we argue that the prisoner s dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system namely their security externalities we consider these external effects explicitly doing so leads us to two conclusions 1 free trade is more likely within rather than across political military alliances and 2 alliances are more likely to evolve into free trade coalitions if they are embedded in bipolar systems than in multipolar systems using data drawn from an 80 year period beginning in 1905 we test these hypotheses the results of the analysis make it clear that alliances do have a direct statistically significant and large impact on bilateral trade flows and that this relationship is stronger in bipolar rather than in multipolar systems in the early 1970s students of international relations began what would become a long and heated debate about the political correlates of open international markets recently however an important element of consensus has begun to emerge most contributors to this debate now seem to agree that the prisoner s dilemma structure of state preferences with respect to trade explains the relative dearth of open international markets here we argue that what has become the standard prisoner s dilemma representation neglects the most critical aspect of free trade agreements in the anarchic international system namely their security externalities we consider these external effects explicitly in order to do so we construct and analyze a simple game theoretic model the results of this analysis demonstrate that tariff games between allies differ systematically from those played between actual or potential adversaries these differences imply that free trade is more likely within rather than across political military alliances however our analysis also suggests that the evolutionary prospects of alliances vary those that are the products of bipolar systems are more likely to evolve into free trade coalitions than are their multipolar counterparts less credible exit threats and clearer responsibilities for alliance stability explain the advantage of a bipolar system we test this argument using data drawn from an 80 year period beginning in 1905 the empirical analysis supports our argument it demonstrates that alliances have a direct statistically significant and large effect upon bilateral trade moreover it shows that on average alliances have a much stronger effect on trade in a bipolar than in a multipolar world 2

globalization derailed multinational investors response to the 1997 denial of fast track trade negotiating authority is globalization being derailed by opponents results of this event study analysis of the 1997 fast track denial suggest that investors 1 may have perceived fast track as a debate on globalization and 2 appear to have expected financial losses to result from the failure to enact fast track regression results further support the event study findings

us imbalances the role of technology and policy abstract this paper investigates the role of three likely suspects in driving the steady deterioration of the us external balance us technology developments changes in the us government fiscal position and the fed s monetary policy estimating several vector autoregressions on us data over the period 1982 2 2005 4 we identify five structural shocks a multi factor productivity shock an investment specific technology shock a monetary policy shock and a fiscal revenue and spending shock together these shocks can account for the deterioration and subsequent reversal of the trade balance in the 1980s while productivity improvements and fiscal and monetary policy easing also play an important role in the rapid deterioration since 2000 these structural shocks cannot explain why the trade balance deteriorated in the second half of the 1990s

north south lending and endogenous domestic capital market inefficiencies abstract we develop an open economy model of intertemporal trade under asymmetric information capital market imperfections are endogenous and depend on a country s stage of economic development relative to the perfect information benchmark north south capital flows are dampened and possibly reversed and world interest rates are lower whereas riskless rates are equalized across borders the domestic loan rate is higher in poorer countries the model can be applied to a number of policy issues including the debt overhang problem the indexation of foreign public debts and the effect of income distribution on growth

constructing polities and markets an institutionalist account of european integration as institutions and governance structures develop in modern markets they tend to feed back onto economic activity through such feedback loops market and political arenas can develop symbiotically into relatively coherent fields that gradually embed actors orientations and activities using these insights this article develops and tests a theory of european integration focusing on the case of the european community the first pillar of the european union traders organized interests courts and the ec s policy making organs over time have produced a self sustaining causal system that has driven the construction of the european market and polity the generality of this explanation to a sociology of markets and polity building projects is discussed in the conclusion

a perspective on regional and global strategies of multinational enterprises multinational enterprises mnes are the key drivers of globalization as they foster increased economic interdependence among national markets the ultimate test to assess whether these mnes are global themselves is their actual penetration level of markets across the globe especially in the broad triad markets of nafta the european union and asia yet data on the activities of the 500 largest mnes reveal that very few are successful globally for 320 of the 380 firms for which geographic sales data are available an average of 80 3 of total sales are in their home region of the triad this means that many of the world s largest firms are not global but regionally based in terms of breadth and depth of market coverage globalization in terms of a balanced geographic distribution of sales across the triad thus reflects a special and rather unusual outcome of doing international business ib the regional concentration of sales has important implications for various strands of mainstream ib research as well as for the broader managerial debate on the design of optimal strategies and governance structures for mnes journal of international business studies 2004 35 3 18 doi 10 1057 palgrave jibs 8400073

the impact of culture on the strategy of multinational enterprises does national origin affect ownership decisions this paper tests the proposition that national origin affects the strategies of multinational enterprises by looking at the determinants of the choice they make between entering the united states through partially versus wholly owned subsidiaries we pool entries into the united states made by firms based in two countries japan and finland which differ both in their cultural characteristics and in their cultural distance to the united states after carefully controlling for the known firm and industry level determinants of subsidiary ownership strategies we find that cultural distance between the home base of the investor and the target country or perhaps political risk exerts a powerful influence on ownership of subsidiaries but cultural characteristics of the home base do not

foreign direct investment in the united states an analysis by country of origin given the large size and rapid growth of foreign direct investment in the united states this subject is a central concern of u s firms and u s government policymakers this study explores the factors that contribute to the explanation of fdi in the united states by country of origin of investment evidence from the past twelve years shows that the main significant positive influences are home country s exports to the united states and home country market size significant negative influences include the home country s imports from the united states the cultural and geographic distances of the home country from the united states and the exchange rate fx

drivers of institutional change around the world the case of ifrs today more than ever it is crucial to understand the dynamic and intricate institutional landscape that mnes operate in however the drivers of institutional change are still little understood we focus on a recent fundamental institutional change the worldwide switch to international financial reporting standards ifrs the switch to ifrs was unexpected and not particularly welcomed by mnes given that most national accounting systems in the pre ifrs period were considered to be well aligned to the local cultural and environmental characteristics of each country we test the drivers of this institutional change in a sample of 168 countries between 2002 and 2012 using empirical constructs from policy diffusion theory our findings show that the country level decisions to adopt ifrs are not driven by local determinants but instead by adoption decisions by other neighbouring countries and influential organizations we find evidence for competition learning and emulation as driving forces for the international spread of ifrs we conclude that the switch to ifrs was not driven by an economic rationale only and diffused beyond the influence and interest of mnes understanding these drivers is essential because it enables management to anticipate and respond to institutional changes and consequently enhance performance and create competitive advantage

var analysis and the great moderation post world war ii us macroeconomic history is usually divided into two distinct subperiods the former period which extends up to the end of the volcker disinflation is characterized by a significant extent of macroeconomic turbulence with highly volatile inflation and output growth the latter period from the end of the volcker disinflation up to the present day is marked in contrast by significantly smaller volatilities for both inflation and output growth these dramatic changes in the reduced form properties of the us economy over the last several decades char acterize a phenomenon known as the great moderation see in particular chang jin kim and charles nelson 1999 margaret mcconnell and gabriel perez quiros 2000 a vast empirical literature has investigated the source s of the great moderation in an attempt to disentangle the relative contributions of two main explanations good policy and good luck based on time varying or markov switching structural var methods the good luck hypoth esis has been advocated by a number of authors including james h stock and mark w watson 2003 giorgio e primiceri 2005 christopher sims and tao zha 2006 and luca gambetti evi pappa and fabio canova 2008

mapping the institutional capital of high tech firms a fuzzy set analysis of capitalist variety and export performance we examine how institutional configurations not single institutions provide companies with institutional capital building on the varieties of capitalism approach it is argued that competitive advantage in high tech industries with radical innovation may be supported by combinations of certain institutional conditions lax employment protection weak collective bargaining coverage extensive university training little occupational training and a large stock market furthermore multinational enterprises engage in institutional arbitrage they allocate their activities so as to benefit from available institutional capital these hypotheses are tested on country level data for 19 oecd economies in the period 1990 to 2003 a fuzzy set qualitative comparative analysis yields several interesting findings a high share of university graduates and a large stock market are complementary institutions leading to strong export performance in high tech employment protection is neither conducive nor harmful to export performance in high tech a high volume of cross border mergers and acquisitions as a form of institutional arbitrage leading to knowledge flows acts as a functional equivalent to institutions that support knowledge production in the home economy implications of these findings for theory policy and the analysis of firm level behavior are developed

distance without direction restoring credibility to a much loved construct in this commentary we build on shenkar s 2001 award winning critique of cultural distance arguing that most distance constructs in fact suffer the same flaws because they oversimplify the relationship between countries overlook their subjective and context specific nature and pay insufficient attention to the mechanisms through which distance operates the idea of distance however has intrinsic value moreover its considerable appeal and undeniable effectiveness have made it a well entrenched construct therefore we see merit in redressing its weaknesses and offer several suggestions for doing so these include allowing for the influence of firm level characteristics that either moderate the effects of distance or render distance at least in part subjective with varying consequences for different mnes maintaining directionality by distinguishing between distance and the tendency toward a particular characteristic and acknowledging asymmetry and conceptualizing the effects of distance and the mechanisms through which it operates more carefully by drawing on concepts and measures from a variety of disciplines by offering ways to strengthen both its theoretical foundations and measurement we hope to enhance the usefulness of one of international business theory s most central constructs

institutions sans frontieres international agreements and foreign investment we examine whether the presence of international investment agreements iias negotiated among countries for foreign investor protection lowers political risk faced by multinational enterprises mnes drawing on research from international business political science and international law we argue that iias increase expected future cash flows and hence the value of foreign assets by limiting the ability of host governments to make discriminatory policy changes however the need for iia protection and the ability to benefit from it varies with firm characteristics using detailed transaction level data for sale of petroleum assets in 45 countries we find that mnes pay significantly higher amounts for those protected by iias than similar but unprotected assets an effect moderated by the firm s reserve size and state ownership

domestic alliance networks and regional strategies of mnes a structural embeddedness perspective we draw on a social network perspective to explain multinational enterprises mnes propensity to distribute their operations unevenly across various regions of the world we focus on how the positioning of mnes in their domestic network of strategic alliances affects their geographic scope i e whether they concentrate on their home region or expand beyond it we theorize that embeddedness in alliance networks constitutes a double edged sword to the geographic scope of mnes strong embeddedness in domestic alliance networks drives the development of location bound firm specific advantages fsas which may narrow down mnes geographic scope in contrast moderate embeddedness leads to more non location bound fsas which reduce liability of foreignness and hence motivate mnes to widen their geographical scope we thus predict a non linear relationship between domestic alliance network embeddedness and mne geographic scope furthermore the impact of the domestic alliance network on mne geographic scope hinges on the organizational ability to efficiently and effectively absorb resources stemming from the network we test our hypotheses using fdi data from 302 us mnes in the information and communication technology industry for the period of 2001 2008 and generally find robust support for the hypothesized relationships

bringing history back into international business we argue that the field of international business should evolve its rhetoric from the relatively uncontroversial idea that history matters to exploring how it matters we discuss four conceptual channels through which history matters illustrating each with a major example first historical variation is at least a worthy complement to contemporary cross sectional variation in illuminating conceptual issues as an example we show that conclusions reached by the literature on contemporary emerging market business groups are remarkably similar to independently reached conclusions about a very similar organizational form that was ubiquitous in the age of empire second historical evidence avoids spurious labeling of some phenomena as new and by so doing may challenge current explanations of their determinants whereas some firm types today were also present earlier some types have disappeared some have appeared and some have disappeared and reappeared later third history can allow us to move beyond the oft recognized importance of issues of path dependence to explore the roots of penrosian resources we argue that the choices made by jardine s and swire s in asia today for example are an outgrowth of strategic choices first in evidence more than a century ago these would remain obscured absent an historical analysis fourth there are certain issues that are unaddressable except in the really long that is historical run exploring the causal relationship if any between foreign direct investment a staple of the international business literature and long run economic development provides one important example throughout we advocate embracing rigorous methods for analyzing small sample and qualitative data when conventional regression techniques do not apply that is we suggest that re embracing history in the mainstream is not tantamount to sacrificing methodological rigor

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

expanding rtas trade flows and the multinational enterprise we test the relationship between the size of regional trade agreements rtas and openness by using a gravity equation with multilateral trade factors our sample includes 11 rtas seven with constant membership and four with expanding membership regional trade bias declines with the size of the club three of the four expanding rtas have already surpassed their optimal size we also explore the link between openness of the rta and the geographic strategy of the multinational enterprise we find strong evidence in favor of the regionalization strategy which has been enhanced by the presence of rtas

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

comparing capitalisms understanding institutional diversity and its implications for international business this paper examines the role of institutional analysis within the field of international business ib studies within ib institutions matter but the view of institutions tends to be thin utilizing summary indicators rather than detailed description and thus approaches institutions as unidimensional variables that impact on particular facets of business activity this paper argues that ib research would be usefully advanced by greater attention to comparing the topography of institutional landscapes and understanding their diversity a number of alternative case based approaches are outlined that draw on a growing comparative capitalisms literature in sociology and political science the paper develops a number of empirical examples to show the utility and limits of these approaches for ib scholars

a multilevel approach to trust in joint ventures this article examines issues of level in the study of joint venture trust in particular we explain how international joint venture ijv trust can be conceptualized and measured at the person group and firm levels to do this we 1 provide a definition of ijv trust applicable to persons groups and firms 2 promote alignment of levels of theory and measurement through the use of a 3 3 approach to guide researchers in identifying the level at which they are theorizing and the proper level of measurement and 3 propose operational measures of ijv trust across levels and dimensions in order to lay a solid foundation for theory testing

the architecture of globalization a network approach to international economic integration we combine data on international trade linkages with network methods to examine the global trading system as an interdependent complex network we map the topology of the international trade network and suggest new network based measures of international economic integration at both a global system wide level and a local country level we develop network based measures that incorporate not only the volume of trade but also the influence that a country has on the international trading system these measures incorporate the structure and function of the network and may provide a more meaningful approach to globalization than current measures based on trade volumes we find that in terms of participation and influence in the network global trade is hierarchical with a core periphery structure at higher levels of trade though integration of smaller countries into the network increased considerably over the 1990s the network is strongly balkanized according to geography of trading partners but not as strongly by income or legal origin using these new measures we find that a country s position in the network has substantial implications for economic growth we therefore suggest that a network approach to international economic integration has potential for useful applications in international business finance and development

a framework for assessing global imbalances since the mid 1990s and prior to the financial crisis external balances of systemically important economies widened significantly this paper takes a long run perspective and reviews the main determinants of widening global imbalances to this aim we first provide a set of newly derived statistical measures while large external imbalances are not new in economic history their persistence their concentration on one economy the united states and the specific role of emerging market economies make the present episode rather unique second we argue that the observed pattern of imbalances can be mostly understood as a result of various structural changes in the global economy which have allowed a widening trend of external positions three main features set the most recent period apart from past episodes of growing external imbalances i the emergence of new players in particular emerging market economies such as china and india which are quickly catching up with the advanced economies ii an unprecedented wave of financial globalisation with more integrated global financial markets and increasing opportunities for international portfolio diversification also characterised by considerable asymmetries in the level of market completeness across countries and iii the favourable global macroeconomic and financial environment with record high global growth rates in recent years low financial market volatility and easy global financing conditions over a long period of time running until the outburst of the financial crisis during the summer of 2007 these structural changes that have been supplemented by cyclical or policy induced factors ultimately facilitated the sudden disorderly unwinding of global imbalances that is reflected in the current financial crisis

alliances preferential trading arrangements and international trade c oncerns about the stability of the international trading system have become widespread in recent years many observers feel that the relatively liberal system forged after world war ii is being undermined by the proliferation of preferential trading arrangements these concerns have spawned a great deal of empirical research much of which has found that such arrangements exert a substantial effect on trade flows yet these studies have neglected the role political military alliances play in shaping patterns of commerce this omission is important because there is ample reason to expect that alliances guide trade flows and preferential trading arrangements often are comprised of allies as a result extant analyses risk confusing the effects of alliances and preferential trading arrangements on commerce and systematically overstating the effects of the latter in this study we analyze the effects of alliances and preferential trading arrangements on bilateral trade flows both factors are likely to promote trade among members but we argue that the interaction between them is central to explaining patterns of commerce the combination of an alliance which creates political incentives for participants to engage in trade and a commercial institution which liberalizes trade among members is expected to provide a considerable impetus to commerce among parties to both 1

semiglobalization and international business strategy if markets were either completely isolated by or integrated across borders there would be little room for international business strategy to have content distinctive from mainstream strategy but a review of the economic evidence about the international integration of markets indicates that we fall in between these extremes into a state of incomplete cross border integration that i refer to as semiglobalization more specifically most measures of market integration have scaled new heights in the last few decades but still fall far short of economic theory s ideal of perfect integration the diagnosis of semiglobalization does more than just supply a relatively stable frame of reference for thinking about the environment of cross border operations it also calls attention to the critical role of location specificity in the prospects of distinctive content for international business strategy relative to mainstream business and corporate strategy in addition it flags factors products subject to location specificity as being salient from the perspective of international business finally it highlights the scope for strategies that strive to capitalize on the large residual barriers to cross border integration as well as those that simply try to cope with them

diplomatic and corporate networks bridges to foreign locations firms and governments operate in broad networks in which the home government and its diplomatic service are a critical node or a referral point between firms and potential partners in foreign locations thus diplomatic relations between countries matter for the choice of foreign investment location using a network perspective we argue that the extent to which good diplomatic relations induce firms to invest in friendly host countries depends on their political connections to home governments those with stronger ties to home governments can better access and leverage intergovernmental diplomatic connections thus benefiting potentially from enhanced access to information reduced political risks and increased legitimacy such ability of politically connected firms is more useful where weak institutional impartiality in the host country inhibits neutral treatment of foreign investors empirically using overseas investment location decisions by chinese firms we find that the types of home government ties i e whether they are organizational or personal and whether those relationships are with central or local goverments and the impartiality of host institutions are both important contingencies affecting firms utilization of diplomatic relations we discuss the implications of our study to research on network theory political ties and internationalization of emerging market firms

is there convergence across countries a spatial approach we analyze convergence across countries over the last half century as a result of globalizing forces drawing on theories of modernization dependency the world system political trade blocs and the world society we consider economic demographic knowledge financial and political dimensions of convergence using a new methodology we calculate the minimum volume ellipsoid encompassing different groupings of countries finding that during the 1960 2009 period countries have not evolved significantly closer or similar to one another although groups of countries based on their core periphery status or membership in trade blocs exhibit increasing internal convergence and divergence between one another

institutions and inflows of foreign direct investment a fuzzy set analysis this study addresses the essential question of causal complexity and diversity related to the influence of institutions on the direct investments fdi of multinational enterprises using a relatively new methodological approach of fuzzy set analysis and 47 host countries from the period 1999 to 2003 the paper analyses how and why countries with different degrees of membership in different institutional constraints either attract or do not attract fdi the findings show that institutional factors have diverse influences similar institutions may even be associated with different outcomes if different regional categories of countries are examined countries may neither be attractive nor unattractive owing to the presence or absence of a single institutional factor instead the outcome usually results from a combination of institutional conditions moreover there typically are several possible paths to a specific outcome the study confirms some of the propositions of previous theory but most importantly it explains why earlier research has provided conflicting conclusions related to institutional factors the study also offers an approach for future international business research to apply fuzzy set methods and develop mid range theories

the pecking order of cross border investment abstract is there a pecking order of cross border investment in that countries become financially integrated through some types of investment rather than others using a novel database of bilateral capital stocks for all types of investment fdi portfolio equity securities debt securities as well as loans for a broad set of 77 countries we show that such a pecking order indeed exists the paper focuses on two key determinants of this pecking order information frictions and the quality of host country institutions overall we find that in particular fdi and to some extent also loans are substantially more sensitive to information frictions than investment in portfolio equity and debt securities we also show that the share as well as the size of fdi that a country receive are largely insensitive to institutional factors in host countries while portfolio investment is by far the most sensitive to the quality of institutions this provides new evidence in favor of some hypotheses but contradicts others put forward in the literature on trade in financial assets

social ties and partner identification in sino hong kong international joint ventures partner identification is an important and under studied precursor to selection and eventual performance of international joint ventures ijvs the mechanics of the identification process were investigated in depth across a sample of eighteen sino hong kong ijvs using the case study research method the cross case findings of this exploratory investigation support the idea that social networks provide a valuable resource for reducing ijv partner search costs specifically the findings reveal that while weakly linked bridge ties are valuable in identifying potential partners searches based on strong ties tend to be shorter and provide a more robust basis for inter partner cooperation

impact of historical conflict on fdi location and performance japanese investment in china historical relations between countries bring important explanatory power for foreign direct investment fdi decisions yet little is known on whether a home host country relation exhibits heterogeneous effects on fdi across the country s subnational regions in this study we examine the long term impact of historical conflict on fdi location choices and performance using a sample of 8 646 japanese fdi in china we show that civilian casualties in different provinces of china during the second sino japanese war exert deterring effects on japanese fdi location choices furthermore we demonstrate that civilian casualties negatively affect japanese fdi performance and political capital accumulation strategies in the forms of excessive tax payment and local employment can reduce this negative effect this study contributes to the discussion on how within country differences of historical factors affect fdi location decisions and performance the findings on firms political capital accumulation strategies also provide important implications for fdi operation in an environment characterized by historical animosity

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

do trade agreements stimulate international trade differently evidence from 296 trade agreements in a seminal article rose 2004 found that the assumed positive impact of the wto on international trade was questionable this finding has been scrutinised and modified in subsequent research using different data sets econometric methods and separating the wto from other forms of trade agreements a key characteristic of the subsequent literature is the rather simplistic way in which trade agreements are treated whereby all trade agreements are lumped together trade agreements come however in many different forms and shapes this study addresses these differences in trade agreements using a unique database of 296 trade agreements we distinguish 17 trade related policy domains and indicate whether the agreements contain legally enforceable commitments this extensive and novel taxonomy of trade agreements enables us to allow for the possible heterogeneity of the impact of trade agreements on international trade using a gravity model we find that trade agreement heterogeneity indeed matters for international trade and that countries experience significant trade increases due to comprehensive trade agreements even if not all participants are in the wto

how much does trust really matter some reflections on the significance and implications of madhok s trust based approach madhok s 1995 article defined and developed a trust based perspective on the stability of international joint ventures ijvs proposing a shift in focus from ownership to relationship and from governance form to process the article emphasised the role of trust in holding ijvs together and the importance of considering the dynamics of inter organisational collaboration by distinguishing between structural and social components of trust it contributed to a more nuanced understanding of what makes inter firm partnership durable and able to realise its value potential this paper reviews madhok s original ideas and highlights the influence they have had on the field of international business it concludes with avenues for further research inspired by the article

how institutions matter for international business institutional distance effects vs institutional profile effects extant institutional research has failed to make a distinction between the effects of institutional profile and institutional distance on mnes the problem stems from the fact that due to the use of a single reference country variation in institutional distance between the reference country and partner countries is essentially equal to variation in the institutional profiles of these partner countries making institutional distance and institutional profile effects indistinguishable this research begins by demonstrating that the problem of profile distance conflation is relevant for virtually all possible countries as reference points and then showing how this problem is mitigated by using more than one country as reference points from which to calculate institutional distance we conclude that current institutional research in international business is unable to explain how institutions matter for mnes and that a more careful theoretical and empirical distinction between the effects of institutions and institutional distance on cross border business activities is essential for pushing the institutional perspective in international business studies forward multiple reference point research designs are required to achieve this

a retrospective on the bretton woods system lessons for international monetary reform at the close of the second world war when industrialized nations faced serious trade and financial imbalances delegates from forty four countries met in bretton woods new hampshire in order to reconstruct the international monetary system over the next 25 years with currencies fixed to the american dollar world trade expanded vigorously inflation remained moderate and national income in industrialized countries rose faster than during any other period in this volume three generations of scholars and policy makers some of whom participated in the 1944 conference consider how the bretton woods system contributed to economic stability and rapid growth between 1945 and 1971 and discuss the future of the international monetary system in light of the bretton woods experience since president richard m nixon ended the bretton woods system in 1971 exchange rates have exhibited increasing flexibility after twenty years of floating rates however there is considerable interest in once again limiting exchange rate flexibility the apparent success of the european monetary system a fixed rate arrangement loosely based on the postwar system and the prospect of european monetary unification increase interest in a new internationally stable exchange rate moreover some academics and government officials see fixed rates as a way to help eastern europe and the former soviet union cope with pressing economic and political problems the economists historians political scientists and policy makers who contribute to this volume relate the bretton woods system to earlier fixed rate schemes and consider the political background of the original new hampshire meeting using recenteconomic theory for example work on time consistency and credibility they explore adjustment liquidity and transmission under the system the way it affected developing countries and the role of the international monetary fund in maintaining a stable rate the authors examine th

the theory and practice of regional strategy a response to osegowitsch and sammartino we are grateful to osegowitsch and sammartino for their critical analysis of our work on the regional and global strategies of multinational enterprises mnes in this response we demonstrate that changing the quantitative thresholds for classifying mnes as global vs non global has no bearing on our earlier conclusions first very few global firms exist second scholarly reflection on regional vs global mne strategy requires substantive extensions of extant international business theory

dyadic military conflict security alliances and bilateral fdi flows although multinationals operate under cross border jurisdictions the relevance of interstate security relations to international business has received little attention despite the impressive accumulation of knowledge in international business and international relations the two intellectual communities have largely ignored the insights from each other in this article we seek to bridge this gap we argue that interstate military conflict and security alliances as two central features of interstate security relations often change both government policies toward international business and investor expectations of political risk from the perspectives of both states and investors military conflict should reduce bilateral investment whereas security alliances increase it our empirical analysis applies the system gmm estimator to a gravity model of bilateral investment flows for 1117 directed dyads among 58 countries from 1980 to 2000 among 18 countries whose per capita real incomes remain consistently above 12 000 constant dollars the security factors do not affect bilateral investment in the high income low income dyads interstate military conflict and security alliances significantly influence bilateral investment as expected the findings depict two separate realms in which international politics does and does not interfere with international business helping us improve political risk assessments and understand the interactions between states and firms

international regimes and alliance behavior explaining nato conventional force levels with the end of the cold war the military posture of the north atlantic treaty organization nato has entered a period of profound change prior to the recent dramatic political events in europe however nato conventional force levels in the central region had been remarkably stable for some three decades this article seeks to explain this record of stability in terms of three widely used theories of international relations it argues that balance of power theory and public goods theory cannot alone provide a satisfactory account rather these traditional approaches for understanding alliance behavior must be supplemented by regime theory which emphasizes the constraining effects of enduring institutional factors even in the face of structural change specifically it shows how an international regime has influenced the provision of conventional forces in the central region by alliance members more generally this analysis seeks to contribute to the literature on international regimes in three ways first it demonstrates that regimes do matter by providing an example of their importance for explaining state behavior and international outcomes second it extends regime theory to relations among military allies third it elaborates a comprehensive model for understanding why states actually comply with regime injunctions the model stresses both the ways in which regimes effectively modify the international environment within which states operate altering the costs and benefits associated with different courses of action and the ways in which participating states may internalize regime norms and rules thereby making compliance increasingly automatic

revisiting multinational firms tolerance for joint ventures a trust based approach in spite of the increasing popularity of international joint ventures managers express a high level of dissatisfaction with them this paper argues that overemphasis on the outcome has resulted in a neglect of the social processes underlying the outcome the paper elaborates upon the rationale for a cooperative approach towards interorganizational collaborative relationships based on trust and discusses it in the context of joint ventures this is then applied towards understanding multinational ownership preferences and tolerance for joint ventures it is argued that trust centered logic is largely consistent with approaches that emphasize the issue of ownership and deepens and enriches the insights provided by the latter a shift in focus from ownership to relational dynamics is encouraged

an institutional approach to cross national distance cross national distance is a key concept in the field of management previous research has conceptualized and measured cross national differences mostly in terms of dyadic cultural distance and has used the euclidean approach to measuring it in contrast our goal is to disaggregate the construct of distance by proposing a set of multidimensional measures including economic financial political administrative cultural demographic knowledge and global connectedness as well as geographic distance we ground our analysis and choice of empirical dimensions on institutional theories of national business governance and innovation systems in order to overcome the methodological limitations of the euclidean approach we calculate dyadic distances using the mahalanobis method which is scale invariant and takes into consideration the variance covariance matrix we empirically analyze four different foreign expansion choices of us companies to illustrate the importance of disaggregating the distance construct and the usefulness of our distance calculations which we make freely available to managers and scholars

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

taking credit redistribution and borrowing in an age of economic polarization several recent studies link rising income inequality in the united states to the global financial crisis arguing that us politicians did not respond to growing inequality with fiscal redistribution instead americans saved less and borrowed more to maintain relative consumption in the face of widening economic disparities this article proposes a theory in which fiscal redistribution dampens the willingness of citizens to borrow to fund current consumption a key implication is that pretax inequality will be more tightly linked with credit in less redistributive countries the long run partisan composition of government is in turn a key determinant of redistributive effort examining a panel of eighteen oecd democracies the authors find that countries with limited histories of left wing participation in government are significantly more likely see credit expansion as prefisc inequality grows compared to those in which the political left has been more influential

common failings how corporate defaults are correlated we test the doubly stochastic assumption under which firms default times are correlated only as implied by the correlation of factors determining their default intensities using data on u s corporations from 1979 to 2004 this assumption is violated in the presence of contagion or frailty unobservable explanatory variables that are correlated across firms our tests do not depend on the time series properties of default intensities the data do not support the joint hypothesis of well specified default intensities and the doubly stochastic assumption we find some evidence of default clustering exceeding that implied by the doubly stochastic model with the given intensities why do corporate defaults cluster in time several explanations have been explored first firms may be exposed to common or correlated risk factors whose co movements cause correlated changes in conditional default probabilities second the event of default by one firm may be contagious in that one such event may directly induce other corporate failures as with the collapse of penn central railway in 1970 third learning from default may generate default correlation for example to the extent that the defaults of enron and worldcom revealed accounting irregularities that could be present in other firms they may have had a direct impact on the conditional default probabilities of other firms our primary objective is to examine whether cross firm default correlation that is associated with observable factors determining conditional default probabilities the first channel on its own is sufficient to account for the degree of time clustering in defaults that we find in the data

sovereign risk credibility and the gold standard 1870 1913 versus 1925 31 author s obstfeld maurice taylor alan m abstract what determines sovereign risk we study the london bond market from the 1870s to the 1930s our findings support conventional wisdom concerning the low credibility of the interwar gold standard before 1914 gold standard adherence effectively signalled credibility and shaved up to 30 basis points from country borrowing spreads in the 1920s however simply resuming prewar gold parities was insufficient to secure benefits countries that devalued before resumption were treated more favorably and markets scrutinized other signals public debt and british empire membership were important determinants of spreads after world war one but not before

twin deficit or twin divergence fiscal policy current account and real exchange rate in the u s abstract in spite of concerns about twin deficits fiscal and the current account deficits for the united states economy empirical evidence suggests that twin divergence is a more usual feature of the historical data i e when fiscal accounts worsen the current account improves and vice versa this paper empirically studies the effects of fiscal policy government budget deficit shocks on the current account and the real exchange rate during the flexible exchange rate regime period based on var vector auto regression models we identified exogenous fiscal policy shocks after controlling for business cycle effects on fiscal balances in contrast to the predictions of most theoretical models the u s results suggest that an expansionary fiscal policy shock or a government budget deficit shock improve the current account and depreciate the real exchange rate increases in private savings and declines in investment contribute to the current account improvement while a nominal exchange rate depreciation as opposed to a relative price level change is mainly responsible for the real exchange rate depreciation the twin divergence of fiscal balances and current account balances is also explained by the prevalence of output shocks i e output shocks more than fiscal shocks appear to drive the co movements of the current account and the fiscal balance

the intergovernmental network of world trade igo connectedness governance and embeddedness membership in certain intergovernmental organizations igos such as the world trade organization has long been argued to stimulate trade yet evidence linking igos to trade is mixed the authors argue that identifying the influence of igos requires attention not only to the institutions igos enact but also to the network through which they enact them this approach allows them to demonstrate that trade between two countries increases by an average of 58 with every doubling of the strength of igo connection between the countries they also contribute to debates regarding the mechanisms through which structural relationships influence economic behavior by showing that substantial trade benefits occur not only through economic igos but also through igos that were formed for social and cultural purposes and that connections through igos that are organizationally strong have more impact than those through minimalist igos

third country effects on the formation of free trade agreements the recent proliferation of free trade agreements ftas has resulted in an increasingly complex network of preferential trading relationships the economics literature has generally examined the formation of ftas as a function of the participating countries economic characteristics alone in this paper we show both theoretically and empirically that the decision to enter into an fta is also crucially dependent on the participating countries existing fta relationships with third countries accounting for the interdependence of ftas helps to explain a significant fraction of fta formations that would not otherwise be predicted by countries economic characteristics

asset prices exchange rates and the current account this paper analyses the role of asset prices in comparison to other factors in particular exchange rates as a driver of the us trade balance it employs a bayesian structural var model that requires imposing only a minimum of economically meaningful sign restrictions we find that equity market shocks and housing price shocks have been major determinants of the us current account in the past accounting for up to 30 of the movements of the us trade balance at a horizon of 20 quarters by contrast shocks to the real exchange rate have been less relevant explaining about 9 and exerting a more temporary effect on the us trade balance our findings suggest that large exchange rate movements may not necessarily be the key element of an adjustment of today s large current account imbalances and that in particular relative global asset price changes could be a potent source of adjustment

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

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