does foreign direct investment impede environmental quality in high middle and low income countries abstract under a multivariate framework this paper aims to investigate the nonlinear correlation between foreign direct investment and environmental degradation for high middle and low income countries with economic growth and energy consumption as additional determinants of environmental degradation all variables were found to be nonstationary and cointegrated based on recent panel data unit root tests and cointegration techniques on applying fully modified ordinary least squares fmols the long run results suggest the presence of an environmental kuznets curve in turn foreign direct investment increases environmental degradation thus confirming the pollution haven hypothesis phh moreover the bidirectional causality between co2 emissions and foreign direct investment is observed globally the findings are sensitive to different income groups and regional analyses in particular these empirical findings aid sound economic policymaking for improving environmental quality and sustainable economic development

governing offshoring in a stringent environmental policy setting evidence from italian manufacturing firms this paper provides evidence of how environmental regulatory stringency relates to firms offshoring decisions while controlling for firms characteristics and environmental strategies relying on an original dataset of italian manufacturing firms a distinction is drawn between international outsourcing and foreign direct investments and between offshoring destinations in northern versus southern regions our estimates show that a stricter environmental regulation is related to a higher probability of production being outsourced to foreign suppliers in the south but not to foreign direct investments the magnitude of this effect is very low however offshoring decisions are mainly affected by firms ict endowment marketing and internationalization strategies and adoption of environmental product innovations and standards in particular eco innovative firms are found more likely to adopt governance decisions that enable a stricter control over the supply chain as in the case of foreign direct investments

socio economic status health and lifestyle abstract the role of lifestyle in mediating the relationship between socio economic characteristics and health has been discussed extensively in the epidemiological and economic literatures previous analyses have not considered a formal framework incorporating unobservable heterogeneity in this paper we develop a simple economic model in which health is determined partially by lifestyle which depends on preferences budget and time constraints and unobservable characteristics we estimate a recursive empirical specification consisting of a health production function and reduced forms for the lifestyle equations using maximum simulated likelihood msl for a multivariate probit mvp model with discrete indicators of lifestyle choices and self assessed health sah on british panel data from the 1984 and 1991 health and lifestyle survey hals we find that sleeping well exercising and not smoking in 1984 have dramatic positive effects on the probability of reporting excellent or good sah in 1991 and that these effects are much larger having accounted for endogeneity the failure of epidemiological analyses to account for unobserved heterogeneity can explain their low estimates of the relevance of lifestyle in the socio economic status health relationship indicators for prudent alcohol consumption and eating breakfast in 1984 are not found to be statistically significant determinants of sah in 1991

tax evasion and public expenditures on tax revenue services in an endogenous growth model abstract this paper analyzes the relationship between tax evasion and the two main policy instruments affecting tax compliance namely the announced tax rate and the share of tax revenues allocated to tax monitoring mechanisms for doing so we adopt a simple one sector endogenous growth model modified under tax evasion following the roubini and sala i martin 1995 analysis on income taxes and tax compliance our model confirms barro s 1990 theoretical finding stating that the optimal tax rate is equal to the elasticity of public capital however introducing a welfare function where governments care also about the degree of fiscal corruption in the economy the effective tax rate is lower than the output elasticity of public capital in line with futagami et al 1993 and turnovsky 1997 theoretical results finally our model is calibrated using data on tax evasion from 35 oecd and 110 non oecd countries for 2011 simulation results suggest that both tax evasion and output growth are decreasing with the share of tax revenues allocated to monitoring expenses while government s utility maximization imply an announced tax rate lower from the elasticity of public capital for both groups of countries

fiscal transparency political parties and debt in oecd countries abstract many believe and argue that fiscal or budgetary transparency has large positive effects on fiscal performance however the evidence linking transparency and fiscal policy outcomes is less compelling to analyze the effects of fiscal transparency on public debt accumulation we present a career concerns model with political parties this allows us to integrate as implications of a single model three hitherto separate results in the literature on deficit and debt accumulation that transparency decreases debt accumulation at least by reducing an electoral cycle in deficits that right wing governments at least for strategic reasons tend to have higher deficits than left wing governments and that increasing political polarization increases debt accumulation to test the predictions of the model we construct a replicable index of fiscal transparency on 19 country oecd data simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits independent of controls for explanatory variables from other approaches

environmental regulation and french firms location abroad an economic geography model in an international comparative study abstract in this study we re examine the pollution haven hypothesis by a fresh take on both its theoretical and empirical aspects the originality of our work is twofold first we apply an economic geography model with the aim of deriving a rigorous specification for the impact of environmental regulation on firms location choice second we test a conditional logit model using french firm level data in an international comparative study we confirm evidence of a strong pollution haven effect for our pooled sample of countries receiving french direct investments however through a sensitivity analysis we validate this finding for developed countries and most of emerging economies and central and eastern european countries but not for most countries of the commonwealth of independent states and developing countries where a more stringent environmental regulation seems to attract investments furthermore we highlight a forward looking behavior of firms in terms of their location decision making

firm heterogeneity and location choices evidence from foreign manufacturing investments in china this paper develops a model which indicates that foreign firms location choices are determined jointly by site attributes and firm heterogeneity the model is estimated using data on 2565 foreign manufacturing investments in china the conditional logit estimates and simulation results provide supportive evidence an increase in a firm s labour intensity magnifies the impact of labour cost while a location s local communications infrastructure has a stronger influence on foreign firms that have adopted modern information technology it is also found that agglomeration effects decrease with firm size and labour quality implications for researchers and policy makers are discussed in the conclusion

financial and legal constraints to growth does firm size matter using a unique firm level survey database covering 54 countries we investigate the effect of financial legal and corruption problems on firms growth rates whether these factors constrain growth depends on firm size it is consistently the smallest firms that are most constrained financial and institutional development weakens the constraining effects of financial legal and corruption obstacles and it is again the small firms that benefit the most there is only a weak relation between firms perception of the quality of the courts in their country and firm growth we also provide evidence that the corruption of bank officials constrains firm growth

effects of environmental regulation on foreign and domestic plant births is there a home field advantage abstract whether environmental regulations alter capital flows remains a hotly debated issue this paper uses county level data to examine the location decisions of domestic and foreign firms in a single empirical model and tests for asymmetries by firm origin in the degree to which capital flows are influenced by environmental standards we find that while domestic firms are influenced by environmental regulations foreign firms are not since the benefits of foreign investment are well documented foreign plants typically provide more jobs and increase local wages by more than domestic plants this result suggests a double dividend is available foreign plants provide an economic stimulus and are not unduly influenced by environmental protections

environmental regulations in gravity equations evidence from europe one implication of the pollution haven hypothesis is that countries export more by applying more lenient environmental regulations most studies that apply gravity type equations do not find robust support for environmental regulations to affect bilateral exports in this paper we show that one can obtain robust negative effects of stringency as long as gravity equations are well specified with respect to theory our results based on the european data are both very consistent with us studies on environmental regulations and another line of very recent studies that infer non biased price or substitution elasticities from trade equations we show that more stringent environmental regulations when depicting a pure cost effect are reducing exports the coefficient is even larger in the case where exporting countries are central and eastern european countries comparing to the eu15 further we show that there is no significant difference in the impact of regulations on trade in case of dirty and clean sectors finally when using gmm estimation our environmental stringency coefficient gets significantly reinforced

business culture and tax evasion why corruption and the unofficial economy can persist abstract this paper shows that business and tax inspection culture can create multiple equilibria in bad equilibria high cheating and corruption increases in penalties or auditing can have perverse impacts and increase cheating the source of the multiple equilibria is the externalities created by business and tax inspection cultures as tax evasion and corruption become more common they become more acceptable and their cost is lowered a third externality that between firms and inspectors is the source of the perverse effect more cheating by firms is good for bribe taking inspectors and more bribe taking inspectors are good for cheating firms

the effect of cultural distance on entry mode choice international diversification and mne performance a meta analysis although a growing literature indicates that cultural distance that is differences between national cultures is an important determinant of organizational actions and performance both empirical and theoretical concerns abound in this study the relationships of cultural distance with entry mode choice international diversification and mne performance are examined by meta analyzing data from 66 independent samples with cumulative sample sizes ranging from 2 255 to 24 152 regression results failed to provide statistical evidence of significant relationships between cultural distance and entry mode choice international diversification and mne performance the examination of moderator effects however yielded important results we found a strong negative association between cultural distance and entry mode choice for us based mnes the cultural distance international diversification relationship was negative for high technology industries while it was positive for other industries cultural distance also had a strong positive effect on mne performance for developed country investments a similar strong positive relationship was found between cultural distance and international diversification in studies with more recent samples results of this study indicate that substantial additional research is needed before the role of cultural distance is fully understood

rent seeking political influence and inequality a simple analytical example a simple model allowing an analysis of the interaction between economic policy decisions and rent seeking by private agents competing for political influence is developed rent seeking may be of the directly unproductive type requiring resources that are withdrawn from productive activities or it may manifest itself as income transfers corruption to political decisionmakers

reconciling the conflict between the pollution haven hypothesis and an emerging trajectory of international technology transfer abstract many developing countries have relied on technology transfer through foreign direct investment fdi from developed countries as a primary means of technology acquisition however recent increased global eco consciousness and linking of trade and investment with environmental issues has the potential of disrupting these investment flows this paper investigates the validity of the pollution haven hypothesis which claims that an open market regime will encourage the flow of generally low technology polluting industries to developing countries from a neo technology trade perspective in the process an emerging trajectory of international technology transfer favoring high technology industries is established this paper concludes that positive measures enhancing fdi is not only crucial for technology upgrading but at the same time brings about enhanced environmental welfare through transfer of eco friendly products and production processes

avoiding tax avoidance a repeated game theoretic approach abstract we propose an optimal auditing scheme for the tax authorities who face a given tax and penalty functions and a given budget constraint under our proposed strategy individuals can be classified into one of three groups each group is characterized by two parameters i the probability of being audited in that group and ii into which group will an individual move if ii a he reported truthfully ii b he cheated it is then shown that there is a choice of these parameters so that in equilibrium i e when every individual maximizes his payoff given the auditing strategy the percentage of individuals that cheat is arbitrarily small

samurai accountant a theory of auditing and plunder a risk neutral principal wishes to exact a payment from a risk neutral agent whose wealth he does not know but may verify through a costly auditing procedure we characterize efficient schemes for the principal when he is allowed to choose schedules for preaudit and postaudit payments and audit probabilities subject to the constraint that only monetary incentives can be used and that the principal may never make a net payment to the agent the main results are that efficient schemes involve preaudit payments which are increasing in the agent s wealth audit probabilities are decreasing in the agent s wealth and also satisfy certain constraints as equalities in general such schemes involve stochastic auditing and rebates after an audit in this paper we analyse the problem of a principal extracting wealth from an agent who is reluctant to part with it and is also better informed than the principal as to the amount he owns we assume that the principal has a costly means of discovering the agent s

regional industrial dynamics under the environmental pressures in china abstract this study investigates how air pollution affects industrial path creation and industrial dynamics in china moving beyond existing literature that pays more attention to environmental effects of industrial development this paper focuses on how industrial development path changes due to environmental pollution using the data from chinese customs trade statistics ccts which covers the export trade data of prefecture level cities in china during 2002 2006 and 2012 to 2016 this paper probes into the effect of air pollution on industrial dynamics econometric model and instrumental variable iv regression are used in empirical analysis given the potential endogeneity issue results suggest that the interaction term between air pollution and density is negatively related to new industries entry it means that air pollution can reduce the effect of relatedness on industrial diversification and lead to path breaking further a channel for how air pollution affects industrial dynamics is examined in order to respond to air pollution local government conducts environmental regulation to lower the negative influence of air pollution which can lead to path breaking during industrial diversification process finally this paper seeks to bridge two strands of literature environmental economic geography and evolutionary economic geography

pollution haven hypothesis revisited a comparison of the brics and mint countries based on vecm approach abstract the aim of this study is to investigate the existence of pollution haven hypothesis phh and test the casual relationship between inward foreign direct investment fdi and environmental pollutions as well as other potential influencing factors of environmental performance to this end a panel vector error correction model vecm and panel co integration test is conducted for two country groups the brics i e brazil russia india china and south africa and the mint i e mexico indonesia nigeria and turkey during 1982 2014 empirical results illustrate a bidirectional and positive causality between fdi inflows and gdp per capita for both groups implying a virtuous circle of fdi growth nexus more importantly both the brics and mint countries illustrate bidirectional and negative causality between fdi inflows and environmental pressures i e per capita energy consumption for brics and per capita carbon emissions for mint such findings indicate the pollution haven hypothesis does not stand in this case in addition it is also found that the opening degree of trade can be promoted by fdi inflows which has rarely been deeply analyzed in prior studies concluding remarks and policy suggestions are proposed in the last section

the culture of corruption tax evasion and economic growth this study uses a dynamic general equilibrium model to quantify the effects of corruption and tax evasion on fiscal policy and economic growth the model is calibrated to match estimates of tax evasion in developing countries the calibrated model is able to generate reasonable predictions for net tax rates the corruption associated with public investment projects and the negative correlation between corruption and tax revenue the presence of corruption and evasion is shown to have significant but not large negative effects on economic growth the relatively moderate effects help explain the absence of a robust negative correlation between growth and corruption in cross country data the model also implies that cracking down on tax evasion before addressing corruption can be a bad idea and that higher wages for public officials can improve welfare jel h3 o4

the informal sector in developed and less developed countries a literature survey the main goal of this study is two fold 1 to provide ageneral overview of the contributions to the literature on theinformal sector with a special focus on the public choiceapproach and 2 to compare these contributions across twoinstitutionally different types of countries developed andless developed developing and transition countries thepaper focuses on the criteria used to define the informalsector the relationship between the formal and informaleconomy tax evasion and public choice analysis it isstressed throughout this paper that the distinction betweenthe two types of countries is of key importance

getting into the energy efficiency scene does corporate social responsibility matter for energy efficiency in smes a growing body of literature argues that improving energy efficiency is an essential step that firms must take to mitigate climate change issues it is assumed that corporate social responsibility

an empirical investigation of the pollution haven effect with strategic environment and trade policy abstract using a new dataset on the stringency and enforcement of environmental policy this study is the first to find robust confirmation of a pollution haven effect in a cross country context by accounting for strategically determined environment trade and intellectual property right ipr policies a simple game theoretic approach to policy determination is described which suggests an identification strategy based on other country characteristics it is found that for the top 20th percentile of countries in terms of growth in u s multinational affiliate value added as much as 8 6 of that growth between 1999 and 2003 can be attributed to declining relative stringency and enforcement of environmental policy the results are robust to a number of identification tests weak iv tests and third country spatial effects further evidence is found that relatively footloose industries are more likely to be affected by environmental policy than more traditionally dirty industries and enforcement of environmental policies tends to be a more important deterrent than the stringency of the policy set

the economics of corporate social responsibility a firm level perspective survey this paper analyzes the economics of corporate social responsibility csr as a private response to market imperfections in order to satisfy social preferences depending on whether they affect regulation competition or contracts market imperfections driving csr decisions are classified in three categories public goods and bads and altruism imperfect competition and incomplete contracts we successively present these drivers of csr decisions and highlight the nature of incentives external or internal at work and the testable and tested hypotheses in the reviewed studies we finally review the link between csr and financial performance as well as between csr and social and environmental performance a twofold discrepancy appears in the literature opening future research paths a disconnection between our understanding of csr drivers and csr impacts and a knowledge gap between csr financial and social consequences the latter having received little attention

notes on bribery and the control of corruption abstract existing models of corruption that allow for bribery have ignored an important recursive problem when an auditor or a policeman bargains over a bribe with a person he has arrested he has to take into account the fact that he may in turn be caught for taking this bribe and be involved in a similar bargain but from the other side the purpose of this paper is to provide a simple model for capturing this recursion having done so it goes on to analyse some conditions for the control of corruption these turn out to be different from what conventional wisdom suggests

three new empirical tests of the pollution haven hypothesis when environmental regulation is endogenous the validity of existing empirical tests of the pollution haven hypothesis phh is constantly under scrutiny due to two shortcomings first the issues of unobserved heterogeneity and measurement error in environmental regulation are typically ignored due to the lack of a credible traditional instrumental variable second while the recent literature has emphasized the importance of geographic spillovers in determining the location choice of foreign investment such spatial effects have yet to be adequately incorporated into empirical tests of the phh as a result the impact of environmental regulations on trade patterns and the location decisions of multinational enterprises remains unclear in this paper we circumvent the lack of a traditional instrument within a model incorporating geographic spillovers utilizing three novel identification strategies using state level panel data on inbound u s fdi relative abatement costs and other determinants of fdi we consistently find i evidence of environmental regulation being endogenous ii a negative impact of own environmental regulation on inbound fdi in pollution intensive sectors particularly when measured by employment and iii larger effects of environmental regulation once endogeneity is addressed neighboring environmental regulation is not found to be an important determinant of fdi

can corruption foster regulatory compliance the legal and economic literatures overwhelmingly support the notion that regulatory compliance is always less in the presence of corruption this paper departs from those literatures and shows that whenever public officials are paid fixed wages an increase in corruption may actually foster compliance the conditions that make this possible are laid down in a theoretical model empirical evidence that corroborates the theoretical findings is provided using firm level data for 26 transition economies

do environmental regulations influence the location behavior of french firms this paper investigates the impact of environmental regulations on the location choices made by firms for their industrial activities using a sample of newly appeared imports of french firms from foreign industrial subsidiaries a simple static model based on the production cost minimization is developed in order to control for heterogeneous factor costs within countries distinguishing skilled labor unskilled labor and capital environmental regulations are then shown to be neither statistically nor economically a significant determinant of the location behavior of french firms

the standard error of regressions statistical significance as used in economics has weak theoretical justification in particular it merges statistical and substantive significance the 182 papers using regression analysis in the american economic review in the 1980s were tested against 19 criteria for the accepted use of statistical significance most some three quarters of the papers did poorly likewise textbooks in econometrics do not distinguish statistical and economic significance statistical significance should not be the focus of empirical economics

does the private sector help or hurt the environment evidence from carbon dioxide pollution in developing countries abstract how does the nature of enterprise ownership affect the environment in an economy conventional wisdom and theoretical conjectures are split on this important question in this paper we estimate a reduced form random effects model using data from 44 developing countries over nine years 1987 95 to study for any systematic empirical relationship between the relative level of private sector involvement in an economy and the environmental performance of the economy in terms of its emission of industrial carbon dioxide we control for both observed and unobserved crosscountry heterogeneity along various institutional and structural dimensions such as the scope of financial market industrial sector composition and level of foreign direct investment the regression results indicate that the higher the degree of private sector involvement in a developing economy the lower is its environmental degradation in addition its environmental degradation is likely to be further reduced in presence of a well functioning domestic capital market and through increased participation by developed economies in its private sector development

shadow prices environmental stringency and international competitiveness abstract empirical tests of the relationship between international competitiveness and the severity of environmental regulations are hampered by the lack of pollution abatement cost data for non u s countries the theory of the firm suggests that environmental stringency can be measured by the difference between a polluting input s shadow price and its market price we make a first attempt at quantifying such a measure for two industries located in nine european oecd countries overall we provide i a new approach to measure cross country regulatory differences in that we use a theoretically attractive measure of industry specific private compliance cost and ii empirical estimates that are an attractive tool for researchers and policymakers who are interested in examining how economic activity is influenced by compliance costs

foreign direct investments environmental externalities and capital segmentation in a rural economy this paper examines the possible effects of external investment inflows on the development of local rural economies taking into account two recurrent features of many developing countries capital market segmentation and environmental externalities to investigate this issue we examine a model with two sectors the local sector and the external sector physical capital accumulation in the latter sector is driven by foreign direct investments while in the former sector it follows a solow type accumulation mechanism we assume that the production activity of the external sector damages the environment while the local sector relies on natural resources in this context we give the conditions under which capital inflows can promote diversification of host economy while improving welfare of local populations if these conditions are not satisfied external investments fuel a welfare reducing process for the local community and a self enforcing growth of the external sector at the expense of the local one

a dynamic model of corruption deterrence abstract this paper presents a model of corruption deterrence with a simple overlapping generations structure built into it a crucial assumption is that when corruption becomes more prevalent in the economy it is harder to audit a corrupt official effectively it is shown that this assumption may give rise to several stationary equilibrium levels of corruption this possibility has been exploited to explain why sometimes a government may temporarily resort to an extremely severe deterrence policy and why the same deterrence scheme may imply quite different levels of corruption a case study is provided to give empirical support to the model

how does foreign direct investment affect pollution toward a better understanding of the direct and conditional effects this paper seeks to investigate the impact of foreign direct investments fdis on industrial pollution hbox co 2 hbox so 2 hbox no mathrm x and bod emissions on a large sample of highly heterogeneous countries by using panel data on manufacturing fdis from france germany sweden and the united kingdom between 1995 and 2008 and by developing an empirical model with first and second order interaction terms we investigate the existence and the conditionality of the most controversial fdi induced effects on industrial emissions i e pollution haven factor endowments and pollution halo hypotheses the paper has three main findings 1 the central hypotheses linking pollution to fdi are found to act simultaneously with opposing effects 2 fdis are associated with pollution reduction i e predominating pollution halo induced effect in countries with low to average capital to labour ratio but not too lax environmental regulation 3 fdis are found to increase pollution i e prevailing pollution haven and or factor endowments induced effects in countries with average capital endowments and lax environmental regulations as well as in all the capital abundant countries though with a smaller magnitude in countries having strict environmental regulations and or a high skilled labour force some specific and interesting findings are discussed regarding different fdi origin countries and fdi host country groups

bilateral versus multilateral trade and investment liberalisation to assess the welfare effects of bilateral versus multilateral trade and or investment liberalisation in general equilibrium we set up a three country and three factor knowledge capital model of trade and multinational activity numerical simulation results indicate that multilateral liberalisation tends to dominate bilateral liberalisation in welfare terms a transition economy tends to prefer bilateral over multilateral liberalisation to avoid plant relocation for similar reasons a developed country may prefer bilateral over multilateral liberalisation if the other economies exhibit big relative factor endowment differences

corruption tax evasion and the laffer curve in a corrupt tax administration a rise in tax ratesets off complicated strategic moves by both taxpayersand administrators it is shown that in somecircumstances this may bring about laffer likebehavior of overall tax revenue i e a higher taxrate results in smaller net revenue for thegovernment further a more intense tax effort byincreasing the number of returns audited may alsoreduce net revenues finally if tax and fine ratespositively influence the level of corruption in theadministration these outcomes become more likely

what explains china s rising urbanisation in the reform era china has been transforming from a rural to an urban economy over the past century especially since 1978 when economic reforms were initiated and rapid economic growth began this paper attempts t

is fta epa effective for a developing country to attract fdi the knowledge capital model revisited to prepare an answer to the question of how a developing country can attract foreign direct investment fdi this paper explored the factors and policies that may help bring fdi into a developing country by utilising an extended version of the knowledge capital model with a special focus on the effects of a free trade agreement fta or an economic partnership agreement epa between a pair of market and non market countries simulations with the model revealed the following i although fta epa generally tends to increase fdi to a developing country the possibility of improving welfare through increased demand for skilled and unskilled labour decreases as the size of the country grows ii a developing country may suffer severe welfare losses through fta epa if the availability of skilled labour is extremely limited and iii a developing country can enhance welfare gains from a fta and it is even possible to recover the welfare effects from negative to positive by making the arrangement an epa

delegation as commitment the case of income tax audits in this article we study the value of delegating authority over income tax audit policy arising from the incompleteness of contracts consider a utilitarian government whose ability to commit is limited to aggregate dimensions of its audit policy as publicly verifiable information about detailed allocations of audit budgets is not available we show that the welfare level associated with the full commitment solution can be attained by delegating authority over audit policy to a manager the latter is offered a simple incentive scheme based only on the aggregate variables which are publicly observable in contrast if the government retains authority direct commitment to these same variables does not allow the full commitment welfare level to be achieved thus despite sharing a common informational basis delegation may perform better than centralized arrangements in the presence of incomplete contracts

does competition kill corruption corrupt agents officials or gangsters exact money from firms corruption affects the number of firms in a free entry equilibrium the degree of deep competition in the economy increases with lower overhead costs relative to profits and with a tendency toward similar cost structures increases in competition may not lower corruption the model explains why a rational corrupt agent may extinguish the source of his bribe income by causing a firm to exit assessing the welfare effect of corruption is complicated by the fact that exit caused by corruption does not necessarily reduce social welfare

environmental regulation and location of industrialized agricultural production in europe this paper analyzes empirically the extent to which environmental regulation influences production location in the pig industry the analysis is based on a general empirical location model that captures interactions between region and sector characteristics in determining production location and data on pig production in 43 european regions we find that while environmental regulation may not have a measurable effect on the e u pig industry location per se it is a strong influence on the sectoral composition of the industry relatively highly polluting sectors of the pig industry are attracted to relatively lax jurisdictions which become pollution havens hot spots of hog waste

transparency and economic policy we provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary government spending is larger than in a world of perfect observability transfers are partly financed through government debt and the size of the debt is higher in less transparent political systems the model provides an explanation of fiscal churning it also predicts that groups whose transfers are less visible to others receive higher transfers and that imperfect transparency of transfers may lead to underprovision of public goods from the policy perspective the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues we show that the transparency of the political system does not unambiguously improve efficiency transparency of spending is beneficial but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending

the distribution of health and income a theoretical framework a general framework is developed to analyse variations in the distribution of population health where individual health is modelled as a function of income conditional upon the level of another factor such as health related behaviour results are derived for the response of the level of average health in a population and the degree of health inequality to alternative health promotion policies and equiproportionate income growth qualitative results are shown to depend on characteristics of the individual health production functions and the frequency distribution of the other factor at each income level these results are independent of the distribution of income the discussion focuses on the implications of these results for contemporary research into inequalities in health and income

foreign direct investment and country specific human capital i introduction the past three decades have witnessed an unprecedented increase in foreign direct investment fdi in the world annual fdi flows from and to organisation for economic cooperation and development oecd countries have increased more than 30 fold from 1982 to 2005 while the world trade merely quadrupled during the same period the ratio of gross private capital flows to gross domestic product gdp has risen from 10 3 in 1990 to 32 4 in 2005 the ratio of fdi flows to gdp has climbed up from 2 2 in the early 1990s to 4 4 in 2005 1 as fdi gained importance in the international movement of capital a variety of theoretical and empirical studies have investigated the factors that determine fdi 2 in this article we offer an important but under studied determinant of fdi foreign educated labor in fdi host countries specifically using international bilateral data on fdi and foreign education we present empirical evidence on the role of country specific foreign educated labor in an fdi host country as a determinant of foreign direct investments production involves the process of combining physical capital and the human capital of employees human capital includes the general skills of workers but it also includes their knowledge of firm specific technology managerial skills specific to the organization and efficient communication skills with co workers consequently the labor that possesses these firm specific skills which can be readily used by a firm can be more productive in that firm than in other firms when a firm invests in a foreign country through a subsidiary that shares the technology of the parent firm the labor force that has acquired various types of human capital specific to the parent firm and thus to the subsidiary can be more productive in the foreign subsidiary for instance the local managers of a foreign subsidiary who are able to speak the same language of the managers of their parent firm or who know thoroughly well how the parent firm and its subsidiaries are organized and operated can be more productively utilized in the subsidiary firm since human capital specific to a firm and its foreign subsidiaries can be acquired through education provided in the country of the parent firm the availability of workers in a potential fdi host country who studied in the parent firm country can be an important deciding factor for a firm in investing abroad through its foreign subsidiary 3 foreign training can provide various types of country specific human capital that would increase labor productivity more in the host country of training than in other countries country specific human capital includes language capital which has been shown by numerous papers such as chiswick and miller 1993 and lazear 1999 to have considerable importance in labor market performances knowledge on firm organization and social system is another example of country specific human capital that can be acquired through foreign training foreign education can also enhance the productivity of students in firms of the host country because it provides information about the ability and potential of students in a form that can be more easily processed by firms in the host country greater knowledge regarding employees allows firms to utilize manpower more efficiently and enhance workers productivity as pointed out by becker 1993 who discusses low worker mobility across countries as evidence of the importance of country specific training earlier theoretical models in international trade such as macdougall 1960 attribute international capital movement to the difference in factor endowment measured by physical capital per worker 4 empirical findings however show that the actual capital flows fall short of the theoretical prediction that capital moves from developed economies to developing economies to take advantage of the higher rates of returns to capital

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

are we a nation of tax cheaters new econometric evidence on tax compliance the theoretical basis for the economic approach to tax compliance has at least until recently been inadequate and the limited empirical work based on it is seriously flawed in this paper we briefly review both as well as new theoretical and especially empirical work on the tax compliance problem with respect to the latter we present preliminary results based cm a state level time series cross section data set drawn in part from the annual reports of the commissioner of internal revenue

footloose and pollution free in numerous studies economists have found little empirical evidence that environmental regulations affect trade flows in this paper we propose and test several common explanations for why the effect of environmental regulations on trade may be difficult to detect we demonstrate that whereas most trade occurs among industrialized economies environmental regulations have stronger effects on trade between industrialized and developing economies we find that for most industries pollution abatement costs are a small component of total costs and are unrelated to trade flows in addition we show that those industries with the largest pollution abatement costs also happen to be the least geographically mobile or footloose after accounting for these distinctions we measure a significant effect of pollution abatement costs on imports from developing countries and in pollution intensive footloose industries

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

the relationship between communicable diseases and fdi flows an empirical investigation this paper focuses on the impact of communicable diseases which affects the population health component of human capital on worldwide fdi flows the model controls for endogeneity that can stem from the interconnected relationship between fdi population health and per capita gdp after controlling for this endogeneity we find that communicable diseases have a statistically significant negative effect on fdi which is 2 to 5 times larger than when using ordinary least squares the results remain robust to alternative model specifications

reversal of fortunes democratic institutions and foreign direct investment inflows to developing countries does increased democracy promote or jeopardize foreign direct investment fdi inflows to less developed countries we argue that democratic institutions have conflicting effects on fdi inflows on the one hand democratic institutions hinder fdi inflows by limiting the oligopolistic or monopolistic behaviors of multinational enterprises facilitating indigenous businesses pursuit of protection from foreign capital and constraining host governments ability to offer generous financial and fiscal incentives to foreign investors on the other hand democratic institutions promote fdi inflows because they tend to ensure more credible property rights protection reducing risks and transaction costs for foreign investors hence the net effect of democracy on fdi inflows is contingent on the relative strength of these two competing forces our argument reconciles conflicting theoretical expectations in the existing literature empirical analyses of fifty three developing countries from 1982 to 1995 substantiate our claims we find that both property rights protection and democracy related property rights protection encourage fdi inflows after controlling for their positive effect through property rights protection democratic institutions reduce fdi inflows these results are robust against alternative model specifications statistical estimators and variable measurements

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

investigating the validity of pollution haven hypothesis in the gulf cooperation council gcc countries this study investigated the validity of the pollution haven hypothesis in the gulf cooperation council gcc countries using a multivariate framework to achieve the goal of this study the non stationary panel techniques were used to examine the hypothesis from 1980 to 2009 based on the pedroni cointegration test results it was found that the variables are cointegrated moreover the fully modified ols results showed that energy consumption and gdp growth increase co2 emission while foreign direct investment inflows have a long run negative relationship with co2 emission furthermore based on the short run granger causality test results fdi has no short run causal relationship with co2 emission and energy consumption while energy consumption and gdp growth have a positive causal relationship with co2 emission thus the results of this study indicate that energy consumption and gdp growth are the source of pollution in the gcc countries and not the foreign direct investment inflows thus the study recommended that these countries should utilize policies to encourage inward foreign investment since it plays an important role in stimulating gdp growth

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

dutch sectoral energy intensity developments in international perspective 1987 2005 this paper makes use of a new dataset to investigate energy intensity developments in the netherlands over the period 1987 2005 the dataset allows for a comparison with 18 other oecd countries a key feature of our analysis is that we combine a cross country perspective with a high level of sectoral detail covering 49 sectors particularly innovative is our evaluation of energy intensity developments in a wide range of service sectors we find that across sectors energy intensity levels in the netherlands on average decreased only marginally and increased in services this performance is in general worse than the oecd average especially between 1987 and 1995 changes in the sectoral composition of the economy play an important role in explaining aggregate trends in the manufacturing sector about half of the efficiency improvements were undone by a shift towards a more energy intensive industry structure in contrast in the service sector efficiency decreased which was undone for about one third by a shift towards a less energy intensive sector structure

the environmental consequences of trade evidence from subnational trade flows abstract the debate over the environmental consequences of free trade is not only quite heated but also entails significant policy ramifications recently cross sectional analysis at the country level has made use of exogenous determinants of trade to identify the causal effect of trade on the environment finding moderate evidence of a beneficial impact of expanded trade on environmental quality given the stakes involved we revisit this finding using subnational data on trade flows across us states and several measures of pollution not only does the analysis shed further light on the debate at the international level but also addresses a heretofore unexamined question does greater inter regional commerce at the subnational level harm the environment our findings are striking providing further evidence against a negative environmental impact of trade for the majority of measures analyzed however several sources of heterogeneity arise that are noteworthy

environmental regulation and industry location in europe this paper estimates the effect of environmental regulation on industry location and compares it with other determinants of location such as agricultural education and r d country characteristics the analysis is based on a general empirical trade model that captures the interaction between country and industry characteristics in determining industry location the johnson neyman technique is used to fully explicate the nature of the conditional interactions the model is applied to data on 16 manufacturing industries from 13 european countries the empirical results indicate that the pollution haven effect is present and that the relative strength of such an effect is of about the same magnitude as other determinants of industry location a significant negative effect on industry location is observed only at relatively high levels of industry pollution intensity

trade in environmental goods and air pollution a mediation analysis to estimate total direct and indirect effects based on panel data covering 114 countries between 1996 and 2011 this study investigates the impact on pollution of trade in environmental goods egs we check the validity of the implicit consequences assumed by the win win scenario in the current trade climate negotiations arguing that market dynamics should guarantee that egs liberalization is automatically in the interest of all countries regardless their market and institutional capacities we show that trade in egs alone fail to address environmental problems effectively in particular although we found efficiency gains from trade in egs in terms of co2 and so2 emissions per 1 us of gdp and more recurrently for net exporters than for net importers our results often failed to highlight environmental effectiveness in terms of total co2 and so2 emissions a general conclusion that emerges from our empirical results is that trade in egs cannot effectively replace non market based solutions when it comes to non trade objectives however it seems to complement them efficiently our multiple equation gmm estimations reveal specific direct indirect and total effects on pollution depending on the countries net trade status leading to several policy recommendations for an increased environmental effectiveness of trade in egs

electoral competition globalization and subnational education spending in mexico 1999 2004 this article examines the determinants of primary education spending among 29 mexican states from 1999 to 2004 there is wide variation in spending despite expectations of policy convergence due to market forces associated with globalization and in spite of the unique potential of education spending to complement economic strategies in achieving equitable growth this study exploits significant advantages of subnational analysis in exploring political and economic variables that have been useful in explaining spending levels cross nationally consistent with these studies this article shows that greater electoral competition leads to increased spending in contrast to other work however this study finds that exposure to the global economy has distinctly mixed effects on education spending these findings thus further highlight the positive returns to higher quality democracy while underscoring the need to examine the effects of many different aspects of globalization representing a wide variety of strategies employed by governments in engaging the international economy

costs of distrust the virtuous cycle of tax compliance in jordan tax compliance has been extensively researched yet the classic question why do people pay taxes remains unanswered in jordan tax evasion is widespread the state and citizens have been trapped in a continuous hide and seek game which has taken the form of a virtuous cycle this paper investigates tax evasion along with the most noticeable features of the jordanian tax system it also highlights how the virtuous cycle of tax evasion has been established and what could possibly be a way out of it we argue that sociocultural values are the most prominent cause for tax evasion that is the procedures of state formation and functionality in jordan have created mutual distrust between the state and its citizens having been raised in a community characterized by deep distrust tax evasion is no longer considered immoral by substantial numbers of the jordanian population we argue that successive governments need to create a high trust based culture and formulate strategies that serve to acquire normative ethical values in order to enhance voluntary compliance the way to accomplish this necessity is through enforcing the state s transparency and accountability the taxation system needs to concentrate on income tax rather than raise tax rates on essential commodities to collect substantial tax revenues thus further reform of the taxation system along with a reduction in tax incentives need to be considered moreover lowering the exceptionally high personal income tax threshold would bring jordan in line with its peers expand the base and introduce more progressivity there would also be a scope to introduce a minimum tax based on sales as a tool to address tax evasion

determinants of foreign direct investment a tale of nine theoretical models abstract this paper presents a review of nine theoretical models of foreign direct investment fdi discussed are early studies of determinants of fdi 1 as well as determinants of fdi based on the neoclassical trade theory 2 ownership advantages 3 aggregate variables 4 the ownership location and internalization advantage framework 5 horizontal and vertical fdi models 6 the knowledge capital model 7 diversified fdi and risk diversification models 8 and policy variables 9 from each of the nine theories the relevant determinants of fdi are derived empirical studies indicate the importance of these determinants in the real world the paper shows that there is not one single theory of fdi but a variety of theoretical models attempting to explain fdi and the location decision of multinational firms therefore any analysis of determinants of fdi should not be based on a single theoretical model instead fdi should be explained more broadly by a combination of factors from a variety of theoretical models such as ownership advantages or agglomeration economics market size and characteristics cost factors transport costs protection risk factors and policy variables

achieving optimal fines for political bribery a suggested political reform allowing appropriately high fines for political bribery would eliminate 1 the large and allocatively arbitrary bribes paid to our most senior retiring politicians 2 the more moderate but ubiquitous and still allocatively arbitrary bribes paid to less senior but strategically successful politicians and 3 the permanent loss through censure or expulsion of some highly proficient but strategically less successful legislative representatives moreover with fines appropriately set the incentives theoretically describing the entire political system would be elevated from allocative arbitrariness to approximately pareto optimal levels

human capital and fdi inflow an assessment of the african case summary this study assesses the role of human capital hk on fdi inflows to sub saharan africa it uses panel data for the period 1980 2012 to asses if changing skill needs influence fdi inflows several measures of hk are used to assess whether the quality of labor explains fdi flows over the study period various versions of an fdi model were estimated and the results show that all measures of hk have a significant influence on fdi as are the traditional variables there is no evidence of the increasing importance of hk on fdi over time probably reflecting the type of fdi flowing into ssa

human capital and fdi inflows to developing countries new empirical evidence abstract despite the dramatic increase in total foreign direct investment fdi flows to developing countries in the last few years the bulk of the inflows has been directed to only a limited number of countries it has been argued that developing countries might enhance their attractiveness as locations for fdi by pursuing policies that raise the level of local skills and build up human resource capabilities nevertheless the empirical evidence in the literature in support of this recommendation for a large sample of developing countries is scant this paper evaluates this argument in the light of the evolution in the structural characteristics of fdi and empirically tests the hypothesis that the level of human capital in host countries may affect the geographical distribution of fdi the empirical findings are a human capital is a statistically significant determinant of fdi inflows b human capital is one of the most important determinants and c its importance has become increasingly greater through time

the complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment abstract the behavior of many multinational enterprises is not well described by existing models of foreign direct investment fdi firms often follow strategies that involve vertical integration in some countries and horizontal integration in others a strategy known as complex integration this paper presents a three country model that is used to analyze why firms might follow a strategy of complex integration my analysis reveals that complex integration strategies create complementarities between potential host countries that have important implications for the structure of fdi the analysis also shows that falling transport cost between countries may increase the importance of complex integration strategies

how much income redistribution an explanation based on vote buying and corruption this paper studies how income tax rates are determined and how they are related to government corruption in the form of fund capture a model is presented where rich voters can block redistribution by buying the votes of some poor voters in equilibrium there is only limited redistribution and income tax rates are a negative function of government corruption when rich voters can bribe the government an additional equilibrium with zero taxation is possible the link between corruption and tax rates is tested using cross country data the empirical evidence is fully consistent with the predictions of the model

why are some people healthy and others not the determinants of health of populations each topical chapter in this volume crystallizes the findings of a five year study under the auspices of the population health program of the canadian institute for advanced research that probed the links between social hierarchy the macroenvironmental factors in illness patterns the quality of the microenvironmental and other determinants of health in its aggregate this volume will prove essential to an understanding of the underlying public health issues for the next several decades

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

corruption in tax administration abstract we extend the game theoretic model of graetz reinganum and wilde 1986 to allow for corruption in tax administration in the presence of corruption audit rates are generally higher than in its absence in fact in the presence of corruption it is possible to sustain equilibria in which all returns are audited moreover when some auditors accept bribes it is possible for increases in the fine rate or the tax rate to reduce expected government revenue

does human capital constrain the impact of foreign direct investment and remittances on economic growth in ghana this article empirically investigates whether human capital constrains the impact of foreign direct investment fdi and remittances on economic growth in ghana an economic growth model for ghana is specified and estimated using fully modified ordinary least squares fmols estimator and employing annual data spanning the period 1965 to 2008 empirical results indicate that fdi and remittances are key determinants of economic growth in ghana results indicate that human capital enhances the impact of fdi and remittances on economic growth although both government expenditure and trade openness are growth enhancing government expenditure appears to crowd out private investment empirical results also indicate that domestic inflationary pressures unstable political environment and volatile global economy exert a negative impact on economic growth in ghana

dirty industries patterns of change in industrial countries this article concerns itself with the environmental role of heavily polluting industries since 1970 analysing its development in 11 basic industries as well as electricity production and road transport in 32 industrial countries it argues for a green industrial policy demonstrating that other mitigations of environmental pressure in industrial countries end of pipe treatment relocation to the third world structural change in the industrial sector and even environmentally oriented modernization have so far been unable to solve the problems of dirty industries although some approaches have shown some promise

mark pauly on welfare economics normative rabbits from positive hats mark pauly s pauly 1994a editorial comment on labelle et al 1994a sows seeds whose harvest is a dangerous confusion of intellectual categories out of that confusion he dismisses as irrelevant an approach to the evaluation of social arrangements in health care that we and many others consider a useful normative framework and that is increasingly widely used this abstract was borrowed from another version of this item

environmental regulations transfers and trade theory and evidence abstract this paper develops a theory of compensation of producers for the costs associated with environmental regulations we show that the existence of transfers can give counter intuitive effects of environmental policy on both output and trade flows in particular the compensation obtained by producers neutralizes the effect of environmental policy on output and consequently on trade flows this may help explain why previous empirical research has found weak evidence that environmental regulations affect trade patterns the theory is tested using agricultural sector data the evidence supports the hypothesis that environmental regulations and transfers are positively correlated

environmental regulation and mnes location does csr matter abstract we investigate whether firms with relatively low environmental standards are more often located in countries that are poor corrupt or have weak environmental regulations we find new empirical evidence in favor of the pollution haven hypothesis which states that mnes are transferring their dirty operations to countries with weak environmental regulation our findings suggest that these are not necessarily the poorest or most corrupt countries we establish that mnes with strong social responsibility avoid locating their operations in countries with weak environmental regulation

agglomeration effects in foreign direct investment and the pollution haven hypothesis does environmental regulation impair international competitiveness of pollution intensive industries to the extent that they relocate to countries with less stringent regulation turning those countries into pollution havens we test this hypothesis using panel data on outward foreign direct investment fdi flows of various industries in the german manufacturing sector and account for several econometric issues that have been ignored in previous studies most importantly we demonstrate that externalities associated with fdi agglomeration can bias estimates away from finding a pollution haven effect if omitted from the analysis we include the stock of inward fdi as a proxy for agglomeration and employ a gmm estimator to control for endogenous time varying determinants of fdi flows furthermore we propose a difference estimator based on the least polluting industry to break the possible correlation between environmental regulatory stringency and unobservable attributes of fdi recipients in the cross section when accounting for these issues we find robust evidence of a pollution haven effect for the chemical industry

unilateral climate policy and foreign direct investment with firm and country heterogeneity we analyse the effects of unilateral climate policy in a two country two firm model with endogenous plant location and heterogeneity in both country size and firm s characteristics the effectiveness of unilateral climate policy is shown to depend on the joint effect of country and firm heterogeneity and on their impact on equilibrium location choice for being effective and not leading to production relocation in the long run unilateral climate policy should be moderate implemented by a sufficiently larger area and complemented by mechanisms promoting the international transfer of clean technologies the model indicates that the smaller area cannot take the lead in global climate mitigation for a protracted time period finally when the local community is not environmentally concerned the unilateral policy unambiguously makes the society worse off

taxes and bribery the role of wage incentives this paper presents a simple model to evaluate alternative payment schemes for tax inspectors in the presence of corruption we consider problems of both moral hazard which arises because taking bribes cannot be observed without costly monitoring and adverse selection since not all potential tax inspectors can be identified as being honest or dishonest we identify three wage regimes first one could pay the same wage that a tax inspector could earn elsewhere his reservation wage second one could pay a wage which solves the moral hazard problem i e deters bribery this we call an efficiency wage by analogy with recent models examined i n macro economics third the government could pay a wage below the reservation wage at which only the dishonest become tax inspectors the capitulation wage we make precise the conditions under which each yields the greatest amount o f tax revenues net o f administrative costs many countries in the developing world are undergoing structural adjustment programmes which require fundamental fiscal changes outside agencies advise restoration of budget balance a task which involves expenditure cuts and tax increases the treatment of public employee pay scales often poses a particular dilemma i n this process wages and salaries are a significant component of government expenditures and one important question concerns the extent to which wages rather than employment cuts should be used to save money there is sometimes a reluctance to advocate wage cuts stemming in part from a feeling that this might impair the performance of the public sector hence tanzi 1990 argues that a policy of wage cutting is likely to increase the inefficiency of public sector employees especially at a time when the public sector is expected to play a larger role in restructuring the economy p 16 in the context of tax collection the issue is particularly pressing given the need to raise more tax revenues a reduction in efficiency in this branch of the government i s likely t o mean that fewer returns are processed and when individuals living standards are squeezed their incentive to accept bribes in lieu o f collecting taxes i s increased o n this count i t i s even sometimes suggested that wages of tax inspectors should be increased to aid the effort to the comments of henry bienen john hey and two anonymous referees have been helpful in revising this paper the authors are also grateful t o the john m olin program for the study o f economic organization and public policy at princeton university and the pew charitable trusts for financial support mclaren also acknowledges support from the international finance section of princeton university none of the above should be implicated in any way see for example goode 1984 chapter 1 3 and gould and amaro reyes 1983

do civil and political repression really boost foreign direct investments multinational enterprises are often accused of having a preference for investing in countries in which the working populations civil and political rights are largely disregarded this article presents an empirical investigation of the popular political repression boosts fdi hypothesis and arrives at the conclusion that the hypothesis is not supported on the contrary multinational enterprises rather appear to be attracted by countries in which civil and political freedom is respected

vertical multinationals and host country characteristics abstract we inquire into the question of what country characteristics particularly market size and labor force composition attract inward investment this approach is motivated by the empirical observation that the poorest countries attract a far smaller share of world direct investment than their share of income small markets receive less investment per capita than larger ones we develop a model that generates both stylized facts in equilibrium suggesting the existence of a development trap for small skilled labor scarce countries