some nonlinear tax effects on asset values and investment decisions under uncertainty abstract tax system nonlinearities are often ignored but with uncertainty may have important implications for the magnitude and direction of tax effects this paper studies a particular nonlinear tax rule the policy subsidizes asset values but may discourage some investments and encourage earlier shutdown of some projects the marginal effective tax rate varies with project risk furthermore a corporate cash flow tax can encourage investment due to interactions with the nonlinear policy the paper also presents a general statement of the stochastic equilibrium valuation method which can be used to analyze other nonlinear taxes numerical examples demonstrate computational feasibility

s based taxation under default risk abstract this article studies the characteristics of a s based tax system under default risk in particular we show that its neutrality properties depend on whether debt is protected or unprotected in the former case this system is neutral in the latter case where default timing is optimally chosen by shareholders the s based system is neutral with respect to real decisions only if the firm s and the lender s tax rate are equal however the shareholders decision to default is always distorted

disentangling the migration trade nexus the pro trade effects of immigrants and emigrants in the presence of vertical and horizontal product differentiation this paper presents an exploration of the migration trade nexus taking the case of italy by crossing the two dimensions of migration immigration and emigration and the two dimensions of intra ind

the nature of option interactions and the valuation of investments with multiple real options this paper deals with the nature of option interactions and the valuation of capital budgeting projects possessing flexibility in the form of multiple real options it identifies situations where option interactions can be small or large negative or positive interactions generally depend on the type separation degree of being in the money and the order ofthe options involved the paper illustrates through a generic example the importance of properly accounting for interactions among the options to defer abandon contract or expand in vestment and switch use it is shown that the incremental value of an additional option in the presence of other options is generally less than its value in isolation and declines as more options are present therefore valuation errors from ignoring a particular option may be small however configurations of real options exhibiting precisely the opposite behavior are identified comparative statics results confirm that the value of flexibility despite interactions manifests familiar option properties

horizontal and vertical intra industry trade an empirical test of the homogeneity hypothesis in this paper we study if and how country specific factors affect intra industry trade iit when heterogeneity among sectors is allowed for the paper is novel in that it is the first that addresses an issue raised by greenaway et al oxford bulletin of economics and statistics 1999 61 365 specifically employing data on a sample of oecd countries over a 10 year period 1997 1998 we build on and take forward a methodology pioneered by balassa and bauwens economic journal 1987 97 923 to study the determinants of horizontal and vertical iit using a multi industry approach in doing this we seek to avoid the more extreme measurement problems by allowing for heterogeneity among sectors when country specific factors are analysed and among countries when industry specific factors are considered the results are compared to those obtained using the traditional method that does not consider intersectoral heterogeneity we find that the two models yield statistically different results moreover the tests regarding the choice of model that is econometric tests designed to compare one model with another when different sets of explanatory variables are used confirm the relevance of intersectoral heterogeneity in affecting iit to the best of our knowledge a similar analysis has not yet appeared in the empirical literature on iit

critical evidence on comparative advantage north north trade in a multilateral world there are two principal theories of why countries trade comparative advantage and increasing returns to scale which is most important in practice the large volume of intra oecd trade is frequently cited as critical evidence on this question it is argued that comparative advantage unlike scale economies is incapable of accounting for the large volume of trade between seemingly similar economies this is a theoretical claim in this paper i show that it is possible to give an account of this trade based on comparative advantage the elements that may give rise to a large volume of north north trade are traced to identifiable features of technology and endowments

oil supply shocks and international policy coordination abstract this paper examines the value of international cooperation in an oil supply disruption the perspective is that of oil importing countries since the oil market is integrated internationally the actions of one have spillover effects on the others we focus on buffer stock policies with each player maximizing the present value of national income less the cost of operating the stockpile program we contrast cooperative and cournot nash solutions to the dynamic game paying special attention to the asymmetries between small and large countries the principal results are reviewed to assess the viability of current international agreements

business groups and product variety in trade evidence from south korea taiwan and japan abstract we analyze the impact of market structure on the trade performance of south korea taiwan and japan south korea has many large vertically integrated business groups known as chaebol whereas business groups in taiwan are smaller and more specialized in the production of intermediate inputs we test the hypotheses that a greater presence of business groups leads to less product variety but higher product quality using data on exports from these countries to the united states we find that taiwan tends to export a greater variety of products to the us than korea and this holds particularly for final goods in addition taiwan exports higher quality intermediate inputs whereas korea exports higher quality final goods a comparison with japan is also presented which has greater product variety in its sales to the us than either taiwan or korea due to its larger size

intra industry trade reconsidered the role of technology transfer and foreign direct investment this paper investigates novel determinants of intra industry trade iit of late 1990s japanese trade our empirical analysis shows that iit is increased not only by the similarity of gdp and factor endowment but also by technology transfer via japanese fdi in particular the current high proportion of japanese iit with asian countries can be explained by technology transfer licensing between headquarters and overseas affiliates via fdi

the asymmetric effect of endowments on vertical intra industrial trade este articulo trata de analizar los determinantes del comercio intra industrial vertical en espana con una muestra de paises extensa se contrasta empiricamente la hipotesis de la ventaja comparativa con esta finalidad hemos construido series de capital fisico humano y tecnologico en media cuando se utiliza la estimacion mco las diferencias en dotaciones suponen una limitacion al comercio intra industrial vertical usando la tecnica de regresion por cuantiles se observa que este efecto negativo disminuye en terminos absolutos a medida que los flujos de comercio intra industrial vertical se incrementan y en algunos casos llegan a ser positivos en los cuantiles altos de la distribucion este resultado ofrece evidencia a favor de una version reducida de la hipotesis de la ventaja comparativa

international bureaucrats and the formation of intergovernmental organizations institutional design discretion sweetens the pot bureaucrats working in international intergovernmental organizations igos regularly help states design new igos sometimes international bureaucrats possess limited discretion in institutional design sometimes they enjoy broad discretion in fact they gain discretion even when they openly oppose state preferences this contravenes conventional thinking about delegation discretion should decrease as preference divergence between states and international bureaucrats increases we develop a principal agent theory of how much discretion states grant to international bureaucrats in the design of new igos this is novel while principal agent theories of international delegation are common scholars have not analyzed principal agent relationships in the creation of new igos we argue that even an international bureaucracy that disagrees with states design preferences may enjoy substantial design leeway because of states need for bureaucratic expertise in developing this argument we employ a formal principal agent model case studies and an original data set

measuring globalization of international trade theory and evidence summary measuring globalization requires a standard of perfect international integration as a benchmark that a single world space would reach under conditions of geographic neutrality in international trade we define this standard and present indicators for openness connectedness and integration for each specific economy and for the world economy we apply our indicators to data on trade flows for 59 countries for the 1967 2004 period results show that trade integration is higher than what traditional openness indicators suggest several economies find high levels of integration but the low degree of openness in some large economies jeopardizes the progress of globalization

intra industry trade and business cycles in asean a new resolve for both increased economic integration and monetary and exchange rate cooperation has started to emerge in the association of southeast asian nations asean especially since the 1997 1998 asian financial crisis according to the optimum currency area theory the degree of trade integration is one of the most important criteria for joining a currency union the large increase in intra asean trade in recent years raises the question of whether the asean countries are becoming better prepared to form a currency union this article sets to test whether the recorded increase in intra asean trade is leading the asean members to closer economic integration and thus to better satisfy the criteria for a common currency two separate models are estimated for that purpose first a variation of the model of frankel and rose 1997 was estimated for the asean members next a new panel data methodology was conducted the results with our own model were very significant and robust when four of the ase

the economic significance of national border effects to address the economic significance of national border effects this paper provides evidence on two fundamental questions 1 do large border effects arise because of high perceived price wedges between foreign and domestic products or because imports and domestic goods are very close substitutes and 2 if price wedges are important do they reflect distortionary barriers to trade or do they arise from nondistortionary factors such as differences in transactions costs or product characteristics i conclude that while border effects may imply barriers welfare costs and a role for policy distortions are probably not as substantial as initial border results suggested jel f1

venture capital staged financing and optimal funding policies under uncertainty abstract our paper presents a dynamic model of entrepreneurial venture financing under uncertainty based on option exercise games between an entrepreneur and a venture capitalist vc in particular we analyze the impact of multi staged financing and both economic and technological uncertainty on optimal contracting in the context of vc financing our novel approach combines compound option pricing with sequential non cooperative contracting allowing us to determine whether renegotiation will improve the probability of coming to an agreement and proceed with the venture it is shown that both sources of uncertainty positively impact the vc investor s optimal equity share specifically higher uncertainty leads to a larger stake in the venture and renegotiation may result in a dramatic shift of control rights in the venture preventing the venture from failure moreover given ventures with low volatility situations might occur where the vc investor loses his first mover advantage based on a comparative static analysis new testable hypotheses for further empirical studies are derived from the model

real investment options with multiple sources of rare events abstract we value real investment options when the underlying asset follows a mixed jump diffusion process involving various types sources of rare events jumps these jumps are assumed independent of each other with each type having a log normally distributed jump size and a random poisson distributed arrival time they may represent uncertainties about the arrival and impact on the underlying investment of new information concerning technological innovation competition political risk regulatory effects and other sources an analytic solution is presented for european claims call or put options with multiple sources of jumps a discrete time markov chain methodology implemented within a finite difference scheme is proposed for the valuation of american as well as european options the approach is also applicable to financial options with multiple types of rare events the approach is illustrated through valuing complex real options with compound features involving interactions between optimal investment and subsequent operating decisions specifically we value a growth option and an extension option

the impacts of exchange rate volatility on vegetable trade flows trade flows of commodities are generally affected by the principles of comparative advantage in a free trade however trade flows might be enhanced or distorted not only by various government interventions but also by exchange rate fluctuations among others this study applies a commodity specific gravity model to selected vegetable trade flows among organization for economic co operation and development oecd countries to determine the effects of exchange rate uncertainty on the trade flows using the data from 1996 to 2002 the results show that while the exchange rate uncertainty significantly reduces trade in the majority of commodity flows there is evidence that both short and long term volatility have positive effect on trade flows of specific commodities this study also tests the regional preferential trade agreements such as the north american free trade agreement nafta the asia pacific economic cooperation apec and the eu and their different effects on commodities

openness to trade in manufactures in the oecd abstract how open are the advanced economies to trade with each other in this paper openness is calculated relative to the predictions of the monopolistic competition trade model using data on manufacturing trade and production in the oecd in 1985 the paper finds that 1 japan imports much less than other large oecd countries while the european countries have larger import volumes than does the us 2 japan and the us engage in less intra industry trade than the rest of the oecd and 3 the eu countries are less open to imports from japan and the us than those countries are open to imports from the eu

alternative hypotheses and the volume of trade the gravity equation and the extent of specialization we examine why the gravity equation works and the implications for its use first we demonstrate that the gravity equation as a statistical relationship can be generated from a model with incomplete specialization and trade costs second we analyse the predominance of zero bilateral trade values as a puzzle broadly inconsistent with the complete specialization models typically used to derive the gravity equation but consistent with the alternative hypothesis of incomplete specialization third we demonstrate that the explanation for why the gravity equation works has considerable relevance for how the gravity equation is interpreted and used and how we view bilateral trade diverses hypotheses et le volume du commerce l equation de gravite et le degre de specialisation les auteurs examinent comment fonctionne l equation de gravite et les implications de son usage on propose trois contributions d abord on montre que l equation de gravite en tant que relation statistique et non pas en tant que prediction specifique de commerce bilateral peut etre produite a partir d un modele avec specialisation incomplete et couts de transaction ensuite on analyse la predominance de valeurs zero dans les commerces bilateraux en tant qu enigme generalement incompatible avec les modeles de specialisation complete utilises habituellement pour deriver l equation de gravite mais compatible avec l hypothese de rechange de specialisation incomplete enfin on montre que les raisons pour lesquelles l equation de gravite fonctionne ont un impact sur la facon de l interpreter et de l utiliser et sur notre facon de concevoir le commerce bilateral

drivers of vertical intra industry trade the case of the hungarian agri food sector this article investigates the drivers of vertical intra industry trade viit in hungarian agri food trade with the european union eu it identifies three possible ways to measure intra industry trade iit flows ghm ff and n methods and defines six hypotheses to test for the drivers of viit with three panel data models static dynamic and fevd the results suggest that factor endowments are negatively while economic size is positively and significantly related to viit distance and viit were found to be negatively related as is commonly the case in the standard gravity model it was also found that viit is greater if a new member state nms is exporting agri food produce to an nms while eu accession has ambiguously influenced the share of viit in general it seems that our results are independent from model estimations and interestingly they do not differ considerably as we a priori expected moreover our results seem surprisingly robust across various measurements of itt

the valuation of multiple claim insurance contracts this paper provides a closed form solution for the value of a multiple claim insurance contract that is subject to a deductible amount and or an upper limit on claims the solution is a time integral of european option prices the model provides three important insights first systematic risk in insurance policies is altered in the presence of deductibles and maximum indemnity levels second idiosyncratic risk affects policy valuation and the required rates of return on underwriting portfolios finally contrary to traditional actuarial intuition changes in the risk free interest rate may either increase or reduce policy values

multi stage product development with exploration value enhancing preemptive and innovation options abstract we provide a real options framework for the analysis of product development that incorporates research and exploration actions product attribute value enhancing actions with uncertain outcome as well as preemption and innovation options we derive two stage analytic formulas and propose a general multi period solution using a numerical lattice approach our analysis reveals that exploration actions are more important when the project is out or at the money near zero npv and less important for high project values in a multi stage setting exploration actions are important even for in the money projects when follow on actions exist that can enhance the expected value of the project with path dependency early actions are more valuable since they enhance the impact or reduce the cost of subsequent actions preemptive controls affecting rare event jump frequency and innovations that introduce positive jumps are more valuable for firms with higher frequency of competitive threats involving low volatility

trade creation and diversion revisited accounting for model uncertainty and natural trading partner effects summary the effect of preferential trade agreements ptas on trade flows is subject to model uncertainty stemming from the diverse and even contradictory effects suggested by the theoretical pta literature the existing empirical literature has produced remarkably disparate results and the wide variety of empirical approaches reflects the uncertainty about the correct set of explanatory variables that ought to be included in the analysis to account for the model uncertainty that surrounds the validity of the competing pta theories we introduce bayesian model averaging bma to the pta literature statistical theory shows that bma successfully incorporates model uncertainty in linear regression analysis by minimizing the mean squared error and by generating predictive distributions with optimal predictive performance once model uncertainty is addressed as part of the empirical strategy we find strong evidence of trade creation trade diversion and open bloc effects our results are robust to a range of alternative empirical specifications proposed by the recent pta literature copyright 2010 john wiley sons ltd

a note on the possibility of an international equilibrium with low levels of activity abstract this note studies the interaction through international trade of decision making in two countries where the decision makers have preferences regarding the level of economic activity and the balance of trade non cooperative and cooperative equilibria in the sense of game theory are studied it is demonstrated that non cooperative equilibria can easily be sub optimal for a complete characterization it is necessary to take into account the capacity constraints in both countries this leads to the possibility of many different types of equilibrium situations as well as to the possibility that no non cooperative equilibrium in pure strategies will exist this fact may point to an inherent difficulty in decision making concerning demand management in an international system

country size income level and intra industry trade this study investigates three testable hypotheses of intra industry trade it begins by developing a theoretical two country model the model explicitly includes two goods differentiated products and homogeneous goods then three empirical hypotheses are derived as follows the share of intra industry trade will be large a if the two economies are of similar size b if the capital labour endowment ratio of both countries is similar and c if the total size of the two economies is large from the cross sectional analysis using 1970 1994 data results are obtained that support the model furthermore the results are confirmed using panel analysis on the pooled data

capabilities as real options strategy research consists of a balance between positive and normative theory normative theories suggest particular heuristics or cognitive representations to find appropriate solutions heuristics permit faster solutions to real time problems they also suffer from the potential of negative transfer to inappropriate applications the theory of real options provides the appropriate heuristic framing of competencies and exploratory search a real options approach marries the theory of financial options to foundational ideas in strategy organizational theory and complex systems we join these approaches to identify three pairs of concepts scarce factor and the underlying asset in option theory inertia and irreversibility and the ruggedness of landscape and option values strategic theories of resources largely define a core competence as unique and nonimmutable in doing so this definition has wrongly forgotten barney s initial insight into scarce factor markets as determining the valuation of a competitive asset financial theory of real options derives its heuristics of investing in exploratory search by inferring future value of today s investments from market prices we apply the three conceptual pairs to the evaluation of capabilities as real options through a formal descriptive model the valuation of core capabilities is derived from observing the price dynamics of correlated strategic factors in the market because of inertia managers cannot easily adjust the wrong set of organizational capabilities to the emergence of market opportunities however firms that have made investments in capabilities appropriate to these opportunities are able to respond from this description we define core competence as the choice of capabilities that permits the firm to make the best response to market opportunities the heuristic framing of capabilities as real options guides the normative evaluation of the balance between exploitation and exploration

how big is the tax advantage to debt this paper uses an option valuation model of the firm to answer the question what magnitude tax advantage to debt is consistent with the range of observed corporate debt ratios we incorporate into the model differential personal tax rates on capital gains and ordinary income we conclude that variations in the magnitude of bankruptcy costs across firms can not by itself account for the simultaneous existence of levered and unlevered firms when it is possible for the value of the underlying assets to jump discretely to zero differences across firms in the probability of this jump can account for the simultaneous existence of levered and unlevered firms moreover if the tax advantage to debt is small the annual rate of return advantage offered by optimal leverage may be so small as to make the firm indifferent about debt policy over a wide range of debt to firm value ratios the observed range of debt to firm value ratios in the u s economy is roughly speaking from zero to 60 percent traditional explanatory models of capital structure have focused on the tradeoff between the tax shield and bankruptcy costs arising from the use of debt finance 2 9 10 18 19 other

valuation of path dependent contingent claims with multiple exercise decisions over time the case of take or pay hull and white 1993 introduced a method to extend lattice based contingent claim val uation techniques to problems with path dependent payoffs this paper builds upon their method in the process of valuing two types of commodity purchase contracts that ex hibit a form of timing flexibility not previously analyzed in the literature the techniques demonstrated take advantage of characteristics of claims that simplify incorporation of path dependencies possible uses for the methods demonstrated include the valuation of port folios of mortgages capital projects where intensity of use affects productivity ofthe asset and capital projects with storage characteristics

revisiting corporate growth options in the presence of state dependent cashflow risk abstract given a non trivial market price of risk we study the impact of state dependent cashflow risk on the optimal investment policy and on the ensuing value of an unlevered firm that holds the option of scaling up cashflows from its assets in place upon incurring an irreversible cost the firm s investment decision and value are studied as a function of the market price of risk and of the degree of state dependence in cashflow risk

investment and market power abstract this paper argues that the degree of market power within an industry is an important determinant of interindustry differences in investment behavior a neoclassical investment model is analyzed to show that market power is positively associated with capital stock flexibility the intuition for the result is that firms adjust their stocks and investment plans quickly in response to new conditions so as to capture the rents asssociated with their market power

option pricing when the underlying asset earns a below equilibrium rate of return a note in their classic paper black and scholes 2 present two derivations of the european call option pricing formula the first which we will refer to as the replication derivation relies on the fact that the returns from the option can be replicated by holding a continuously revised position in the underlying asset and bonds this implies that if an option is not priced according to the blackscholes formula there is a sure profit to be made by some combination of either short or long sales of the option and underlying asset this argument is seemingly independent of considerations relating to capital market equilibrium the second derivation which we will call the equilibrium derivation evolves from the requirement that the option earn an expected rate of return commensurate with the risk involved in holding the option as an asset this note considers the pricing of a call option on an asset which earns an expected rate of return lower than that necessary to induce investors to hold it we show in this case that even if the replication strategy is feasible it is inefficient a consequence of this is that the correct option pricing formula is different than the black scholes formula unlike the black scholes formula our formula requires as an input the difference between the expected rate of return on the underlying asset and that expected rate of return which would be required to induce holding of the asset other papers have made a similar point constantinides 3 and cox et al 4 have argued that in equilibrium the prices of traded contingent claims must satisfy a partial differential equation which is identical to the black scholes partial differential equation only when the underlying asset pays no dividends and earns a rate of return sufficient to induce holding of the asset more recently ingersoll 5 has noted that commodities often pay a nonpecuniary service yield the value of which must be taken into account in deriving the option price none of these authors however explain why the black scholes formula is sometimes inappropriate the purpose of this note is to demonstrate why the black scholes formula needs modification even if replication is feasible we provide an intuitive derivation of the correct formula and discuss why divergences of the equilibrium price from the black scholes formula do not result in arbitrage opportunities

a test of trade theories when expenditure is home biased we develop a criterion to distinguish two dominant paradigms of international trade theory constant returns perfectly competitive models and increasing returns monopolistically competitive models our analysis makes use of the pervasive presence of home biased expenditure it predicts that countries relative output and their relative home biases are positively correlated in increasing returns sectors the home bias effect while no such relationship exists in constant returns sectors this discriminating criterion turns out to be robust to a number of generalisations of the baseline model our empirical results suggest that the increasing returns model fits particularly well for the mechanical and electrical engineering industries which account for close to half of manufacturing output

the learning curve and optimal production under uncertainty this article examines the implications of the learning curve in a world of uncertainty we consider a competitive firm whose costs decline with cumulative output because the price of the firm s output evolves stochastically future production and cumulative output are unknown and are contingent on future prices and costs we derive an optimal decision rule that maximizes the firm s market value produce when the price exceeds a critical level which is a declining function of cumulative output we show how the shadow value of cumulative production the total value of the firm and the decision to produce depend on the volatility of the price and other parameters uncertainty increases the critical price required for the firm to produce but also increases the value of thefirm thus during periods of high volatility firms facing a learning curve ought to be producing less but are worth more

intra industry trade with multinational firms recent developments including the analysis of firm level adjustment to falling trade costs have contributed to a revival of interest in intra industry trade iit most empirical work still relies on the standard grubel lloyd measure this however refers only to international trade disregarding income flows stimulated by repatriated profits of multinational firms given the overwhelming importance of the latter this is a major shortcoming this paper provides a guide to measurement and estimation of the determinants of bilateral iit shares from the perspective of new trade theory with multinational firms we develop an analytically solvable general equilibrium model to investigate the impact of investment costs multinational activities and income flows from repatriated profits we also discuss and quantify the bias of the grubel lloyd index associated with repatriated profit flows of multinationals using bias corrected versions of the grubel lloyd index as the dependent variable we demonstrate that the determinants motivated by our theoretical analysis offer important insights into variations in iit shares

valuation and management of fishing resources under price uncertainty the traditional expected net present value methods cannot properly capture the management flexibility and strategic value aspects of a fishery and may understate its value instead this paper develops a real options model to conceptualize and evaluate fishery exploitation flexibility specifically general models to value the opportunity to either exploit or invest in a fishery are presented they suffice to determine not only these values but also the optimal policy for opening closing delaying and setting its harvest rate the sustainable case in which the harvest rate equals the natural net growth function is also considered concerning the exploitation decision it is found that as could be expected the higher the resource price the higher the value of this opportunity in both models general and sustainable however the resource stock affects both models differently as to the investment opportunity its value is always lower than the exploitation opportunity because of investment costs finally numerical simulations are run in order to illustrate the nature of the solution sensitivity analysis concerning the influence of the tax rate convenience yield risk free interest rate and price volatility on the value of the fishery is also reported

the sub trigger crisis an economic analysis of flexible stock policies abstract this paper investigates the value of international cooperation during an oil supply disruption the international energy agency provides the aegis for energy cooperation among the industrialized countries but only an enormous disruption would trigger the agency s emergency mechanism smaller sub trigger disruptions have occurred three times in the past decade and twice in 1973 1974 and again in 1979 the result was havoc in the international oil markets and substantial economic damage general consensus credits oil inventory accumulation with exacerbating these shocks and decumulation with averting similar problems during the 1980 disruption the paper employs a small short run econometric model of the oil market to examine inventory behaviour and to test coordinated government stockpile drawdowns termed flexible stock policies which have been proposed to address these issues impacts on gnp are obtained by solving the oil market model simultaneously with an econometric model of the us macro economy

monopolistic competition and international trade reconsidering the evidence we test some propositions about international trade flows that are derived from models of monopolistic competition developed by elhanan helpman and paul krugman we investigate whether the volume of trade between oecd countries is consistent with the predictions of a model in which all trade is intraindustry trade in differentiated products we then repeat the test with non oecd countries we also investigate whether the share of intraindustry trade is consistent with a more general theoretical model in which some but not all trade is intraindustry trade our results lead us to question the apparent empirical success of these models

an empirical assessment of the welfare effects of reciprocal dumping abstract can two way trade in similar products lead to lower welfare than if such trade was banned theory answers yes to empirically investigate this proposition we examine swedish imports of bottled water assuming one shot bertrand and cournot competition we can use the estimates from a structural model of demand to uncover marginal costs we simulate the effect on consumer and producer surplus of banning imports we do not find convincing evidence that banning imports would increase overall welfare given our choice of market this suggests we should not be overly concerned with the welfare effects of two way trade in consumer goods that are close to homogenous

does aid cause trade evidence from an asymmetric gravity model anderson and vanwincoop developed what has become the standard framework for framing and interpreting empirical work using the gravity model their framework relies heavily on an assumption of symmetry among countries for issues related to north south trade this assumption is problematic in this paper we develop an asymmetric extension of the anderson vanwincoop framework appropriate to the analysis of north south trade where northern countries produce differentiated goods and southern countries homogenous ones in addition we use an appropriately extended version of baier and bergtrand and taylor linear expansion thus permitting its estimation using good old ols the result is an empirical model that i is better suited to the analysis of north south trade ii is easy to estimate and compute comparative statics not requiring a customised nls routine and given the way the south is included iii provides a simple explanation of zero trade flows between some country pairs a fact still not fully explained in the literature as an illustration of its use we examine the empirical link between foreign aid and trade

inventory optimization in the u s petroleum industry empirical analysis and implications for energy emergency policy much of the rapid increases in the price of crude oil during two of the last three supply shocks has been attributed to increased private inventory demand stimulated by the expectation of speculative profits government intervention in any future disruption is likely to take the form of releases from the strategic petroleum reserve spr given that the spr accounts for but a small fraction of u s oil inventories the reaction of the private sector is critical in evaluating its impact we incorporate inventory behavior in a model of the world oil market which is then linked to a short run macroeconometric model of the u s economy our model simulations support the view that substantial inventory accumulation accompanies a supply disruption in the debate over whether the spr is potentially a potent or impotent resource in an emergency we lean toward potency our model suggests that public releases will not be absorbed in private stockpiles indeed their dampening price effects will serve albeit slig

composition of trade flows and the effectiveness of fiscal devaluation we empirically explore whether the magnitude of the effects of fiscal devaluation which consists of reducing the employers social security contribution rate and increasing the value added tax rate depends on the composition of trade flows our sample comprises data on bilateral balances of trade between 28 european union eu member states and their main eu trade partners over the 2000 14 period we use robust ordinary least squares regressions controlling for the country pair and time fixed effects to test whether there are differences in the sizes of relationships between these taxation forms and bilateral trade balances for different types of goods by distinguishing between i consumer intermediate and capital goods and ii labour and capital intensive goods our results show that the overall effectiveness of fiscal devaluation depends on the composition of trade flows value added tax is more strongly positively associated with bilateral balances of trade in consumer goods compared to balances of trade in capital and intermediate goods the employers contribution rate in contrast is more tightly negatively related to balances of trade in capital goods the latter finding also holds true for trade balances of labour intensive goods compared to balances of capital intensive goods

the impact of assets in place on corporate financing and investment decisions abstract in a dynamic setting with asymmetric information we consider firms debt equity choice and investment timing we extend recent research by adding an abandonment option and assets in place and we show that these extensions make debt more attractive this implies e g that mature firms with larger assets in place mainly use debt financing whereas young high growth firms without assets in place frequently use equity financing and signal their type by early investment simulation analyses confirm this and our model is thus able to explain empirical patterns which contradict the static pecking order theory

a generalized design for bilateral trade flow models abstract this paper suggests a full interaction effects design to analyze bilateral trade flows this is illustrated with an unbalanced panel of bilateral trade between the triad eu15 usa and japan economies and their 57 most important trading partners over the period 1986 1997 our full interaction model finds empirical support for the new trade theory and linder s hypothesis we show that the omission of one or more interaction effects can result in biased estimates and misleading inference

exchange rate uncertainty and us bilateral fresh fruit and fresh vegetable trade an application of the gravity model in order to analyse the effect of exchange rate uncertainty we apply an empirical gravity equation to two sets of us bilateral trade data fresh fruit over the period 1976 1999 for a panel of 26 countries and fresh vegetables over the period 1976 2006 for a panel of nine countries based on panel estimation methods and using both a moving sd measure and the peree and steinherr 1989 measure of exchange rate uncertainty the results show that us bilateral fresh fruit trade has been negatively affected by exchange rate uncertainty we also find some evidence that the exchange rate between the us dollar and the currencies of latin american trading partners accounts for most of the negative impact of exchange rate uncertainty on bilateral trade flows in fresh fruit in contrast when using panel estimation methods and both measures of exchange rate uncertainty we find no statistically significant evidence for any negative effect of exchange rate uncertainty on us bilateral fresh vegetable trade however

does the quality of political institutions affect intra industry trade within trade blocs the asean perspective there has been a renewed resolve for deeper integration and cooperation within asean intra industry trade iit is often viewed as a way of achieving economic as well as political integration thi

intra industry trade and industry distribution of productivity a cournot ricardo approach this paper constructs a cournot ricardo model of trade by incorporating cournot competition in a ricardian trade model in this model the share of intra industry trade in bilateral trade volume decreases as trading partners become more different in terms of the industry distribution of labor productivity we show that this relationship is a special case of a more general relationship the share of intraindustry is decreasing in a specialization index this specialization index turns out to be equal to the difference in the industry distribution of productivity in the case of our cournot ricardo model while it is given by the difference in capital labor in the well known case of monopolistic competition as both technologies and factor endowments would be important in shaping specialization patterns in the real world we conjecture that the share of intra industry trade is decreasing in two measures of specialization the difference in the industry distribution of productivity and the difference in capital ratio our ols estimations strongly support this conjecture in fixed effects regressions both measures lose significance in the entire sample but the industry distribution of productivity is significant in explaining trade between high income countries

the odd notion of reversible investment abstract irreversible investment and the attendant concept of real option value have been well discussed complete reversibility has been frequently invoked but less studied especially for the case of lumpy investment typically considered in capital budgeting we examine a simple lumpy investment problem for the full range from complete irreversibility to completely reversibility with a focus on the latter the optimal stopping rules under complete reversibility are to invest when the project generates enough net cash flow to cover jorgenson s opportunity cost of investment and to disinvest when it does not given the static nature of these rules net present value as a timing criterion under reversibility is not pertinent investments that are partially reversible have much in common with completely irreversible investments but nothing in common with completely reversible investments the case of reversible investment provides a foil for understanding that the distinguishing feature of investment as treated in corporate finance is that it entails at least some irreversibility

intra industry trade and strategic interaction theory and evidence abstract we conduct a theory based empirical study of intraindustry trade in homogeneous products we derive an oligopolistic model of intra industry trade which is an extension of the segmented market model of trade initially proposed by brander j a 1981 intra industry trade in identical commodities journal of international economics 11 1 14 the empirical implementations of the model are investigated in the context of the petrochemical industry our analysis employs a unique data set containing detailed product and location specific data on the petrochemical industries in germany and the united states allowing for different empirical specifications we find that cross product variations in bilateral intra industry trade of petrochemicals are well explained by the variables suggested by the theoretical model

factor proportions and the growth of world trade abstract most of the expansion of global trade since 1980 has been of the north south kind between capital abundant developed and labour abundant developing countries based on this observation i argue that the recent growth of world trade is best understood from a factor proportions perspective using data on trade barriers and estimates of capital labour ratios for a group of 45 economies between 1980 and 2008 i find that a calibrated factor proportions model can generate significant trade growth during this period amounting to 90 of the observed rise in north south trade the opening up of china alone accounts for three quarters of the predicted increase in line with the model i present evidence that china s liberalisation has raised the exports and imports of capital abundant countries relative to more labour abundant economies overall my findings suggest that factor proportions theory may be useful for interpreting several quantitative and qualitative aspects of growing world trade in a period during which the group of large open economies has become significantly less homogenous

monopolistic competition and trade revisited testing the model without testing for gravity abstract in this paper i show that the increasing similarity in gdps among oecd country pairs leads to higher bilateral trade to gdp ratios this finding provides some support for the prediction of helpman j jpn int econ 1 1987 62 whose model explains intra industry trade that is prevalent among developed countries i also show that helpman s prediction is rejected for non oecd countries among which intra industry trade is not critical this result contrasts with the findings of hummels levinsohn q j econ 110 1995 799 which play an important role in the debate about whether or not new trade theory explains international trade patterns at the country level

quotas as options valuation and equilibrium implications abstract this paper presents formulae for the values of quota licenses in stochastic environments that are based on observable parameters and examines the impact of parameter changes on domestic equilibrium we show that the option pricing methodology currently used widely in the finance literature may be applied to the valuation of licenses in a potentially wide range of market environments

petroleum taxation under uncertainty contingent claims analysis with an application to norway abstract contingent claims analysis provides a useful tool for analysing the value of tax claims and of companies after tax values under uncertainty the method is presented and applied to the analysis of how norwegian petroleum taxes affect company behaviour few results can be derived analytically a numerical approach is suggested with a stylized description of production possibilities the norwegian taxes are found to have strong distortionary effects the relation to other methods and problems connected with the application are discussed

regional integration and trade controlling for varying degrees of heterogeneity in the gravity model using a panel dataset of bilateral export flows from 12 eu countries to 20 oecd trading partners over the 1992 2003 period this paper examines whether the effect on trade of european regional integration denoted by an eu dummy holds across a representative number of specifications for two gravity models one based on the traditional trade determinants the other based on newer trade theories ntt for both gravity model specifications the coefficient of the eu dummy declines in magnitude and becomes insignificant as an increasing degree of country heterogeneity is admitted into the model this suggests the fundamental importance of the econometric specification when evaluating trade policy effects

the impact of iso 9000 diffusion on trade and fdi a new institutional analysis the effects of iso 9000 diffusion on trade and foreign direct investment fdi have gone understudied we employ panel data reported by oecd nations over the 1995 2002 period to estimate the impact of iso adoptions on country pair economic relations we find iso diffusion to have no effect in developed nations but to positively pull fdi i e enhancing inward fdi and positively push trade i e enhancing exports in developing nations

assessing the trade impact of the european neighbourhood policy on the eu med free trade area the european neighbourhood policy enp set an additional objective for the southern mediterranean countries smcs the prospect of a stake in the internal market the launch of this new policy has been the occasion for a revival of empirical studies aimed at assessing the impact of the eu med partnership on bilateral trade the novelty of this work is twofold i to present nonparametric matching estimators besides gravity estimates ii to assume as a counterfactual of the treatment the ex post long run average treatment effects of the europe agreements by controlling for likely selection bias and country and time heterogeneity using both qualitative and quantitative measures of the policy variable we assess ex post the trade enhancing impact of the eu preferential agreements towards smcs and ex ante the actual efficacy of the enp

the equilibrium valuation of risky discrete cash flows in continuous time this paper values a contingent claim to discrete stochastic cash flows generated by a poisson arrival process with a randomly varying intensity parameter in the most general case both the size and the arrival intensity of cash flows may correlate wih state variables in a continuous time economy assuming the conditions of an intertemporal capital aset pricing model solutions for the value of the contingent claim can be found using various techniques the paper suggests immediate applications to the valuation of insurance contracts the decision to build a firm with unknown future investment opportunities and the pricing of mortgage backed securities

debt policy and the rate of return premium to leverage equilibrium in the market for real assets requires that the price of those assets be bid up to reflect the tax shields they can offer to levered firms thus there must be an equality between the market values of real assets and the values of optimally levered firms the standard measure of the advantage to leverage compares the values of levered and unlevered assets and can be misleading and difficult to interpret we show that a meaningful measure of the advantage to debt is the extra rate of return net of a market premium for bankruptcy risk earned by a levered firm relative to an otherwise identical unlevered firm we construct an option valuation model to calculate such a measure and present extensive simulation results we use this model to compute optimal debt maturities show how this approach can be used for capital budgeting and discuss its implications for the comparison of bankruptcy costs versus tax shields

intra tourism trade income distribution and tourism endowment an econometric investigation empirical investigation nowak et al 2012 points out that vertical intra industry trade viit in europe is the dominant type of intra industry trade iit in the tourism sector this article is the first in tourism literature to test separately the determinants of vertically and horizontally differentiated services using the most recent models in the theory of iit we examine bilateral trade among all trading partners of the sample of european countries covering the period from 2000 to 2008 we show that differences in gross domestic product per capita and the income distribution overlap as well as cultural proximity are the most significant driving forces behind viit for european countries geographic distance has a negative effect whereas specific tourism endowments and relative size of the economies are less conclusive these results confirm theory predictions and most of the empirical findings related to the pattern of viit for the manufacturing sector as expected we find that determinants

investment decisions in hog finishing an application of the real options approach in this paper option pricing theory is applied to an investment problem in hog production a stochastic simulation model capable of pricing american type options is developed this is achieved by recursive calculation of the exercise frontier the model is used to determine the investment trigger and the disinvestment trigger for a pig fattening barn under german market conditions it turns out that the investment trigger taking into account the value of waiting in an uncertain environment can be considerably higher compared to classical investment criteria such as the net present value this offers an explanation as to why farmers are indeed reluctant to invest in hog production another finding is the sensitivity of the option prices with respect to the stochastic process that is assumed for revenues and variable costs of the production activity

determinants of official opec crude prices the hypothesis of this paper is that crude oil like any other unfinished commodity is valued for the products derived from it the purpose is to offer an empirical explanation for changes in the crude price charged by the members of opec the model results show that the market clearing prices reported to prevail for petroleum products on the principal petroleum spot market at rotterdam are the primary determinants of changes in official crude prices a systematic relationship between offical and spot prices is argued to have prevailed since 1974 an appendix clarifies five types of data required for the model 13 references 4 tables

environmental regulation and the export dynamics of energy technologies abstract the pollution haven hypothesis affirms that an open market regime will encourage the flow of low technology polluting industries toward developing countries because of potential comparative advantages related to low environmental standards in contrast the hypothesis suggested by porter and van der linde claims that innovating firms operate in a dynamic competitive situation which allows global diffusion of environmental friendly technologies environmental regulation may represent a relevant mechanism through which technological change is induced in this way countries that are subject to more stringent environmental regulations may become net exporters of environmental technologies this paper provides new evidence on the evolution of export flows of environmental technologies across different countries for the energy sector advanced economies particularly the european union have increasingly focused on the role of energy policies as tools for sustaining the development path the kyoto protocol commitments together with growing import dependence on energy products have brought attention to the analysis of innovation processes in this specific sector the analysis uses a gravity model in order to test the determinants and the transmission channels through which environmental technologies for renewable energies and energy efficiency are exported to advanced and developing countries our results are consistent with the porter and van der linde hypothesis where environmental regulation represents a significant source of comparative advantages what strongly emerges is that the stringency of environmental regulation supplemented by the strength of the national innovation system is a crucial driver of export performance in the field of energy technologies

product differentiation competition and international trade in this paper the two workhorse theories of international trade under imper fect competition krugman s taste for variety model and brander s strategic intra industry trade model are integrated into a single analytical framework a quadratic utility function allows for a nesting of these two theories by postulating a consumer taste for variety over differentiated products where the extent of product differentiation is linked to the intensity of strategic interaction among firms the model yields intuitive predictions on the effects of the degree of product differentiation on the volume of trade and on the composition of the gains from trade under imperfect competition jel classifi cation f12

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

a new approach to the allocation of aid among developing countries is the usa different from the rest summary this paper attempts to explain the factors that determine the geographical allocation of foreign aid its novelty is that it develops a rigorous theoretical model and conducts the corresponding empirical investigations based on a large panel dataset we run regressions for different major donors united states canada france italy japan united kingdom and multilateral organizations with the explicit objective of establishing whether the united states in light of its geopolitical hegemony behaves differently from others we find that all the donors respond to recipient need in their allocation of aid but that the united states puts less emphasis on this than the other donors with the exception of japan we also find that the united states puts more emphasis on donor recipient linkages than do the other donors suggesting that the united states attaches greater importance to issues of donor interest for example geopolitical commercial and other links with specific recipients

on the impact of transportation costs on trade in a multilateral world this article proposes to account for the differences in the importance of transport costs depending on characteristics of trading partners in a multiregion model of trade in differentiated goods we expect a smaller impact of transport costs on a country s exports as a share of importer gross domestic product gdp the more less relatively capital abundant the exporter importer is and the lower higher production costs are as captured by gdp at given factor endowments and diversity all else equal empirically this requires four interaction terms in addition to the direct impact of transport costs when estimating log linear gravity models one with the exporter gdp per capita or capital labor ratio a second one with the importer gdp per capita or capital labor ratio and a third and fourth with exporter and importer gdp respectively the hypotheses are strongly supported by the evidence from a large panel of bilateral trade between 1970 and 2000

inventories and sticky prices more on the microfoundations of macroeconomics the role of inventories in making prices sticky is studied by analyzing a dynamic linear quadratic model of a monopoly firm facing stochastic demand but able to store its finished goods in inventory it is shown that in contrast to the usual presumption firms that exhibit the smallest output responses to demand fluctuations may also exhibit the smallest price fluctuations specifically firms which have very flexible inventory storage facilities or are subjected to very transitory demand shocks will rely on inventories as buffers and will change neither production nor price very much on the other hand firms which have very inflexible storage facilities or whose demand shocks are quite permanent will display large swings in both price and output the standard assumption about inventory carrying costs that has been used in the literature that they are linear is shown to imply that production is impervious to fluctuations in demand it is also established that prices may respond more strongly to positive demand shocks than to negative ones if it is impossible to hold negative inventories i e to have unfilled orders the model offers an explanation for stickiness in relative prices however under certain circumstances it may help explain the persistence of inflation this abstract was borrowed from another version of this item

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item

international standards and international trade empirical evidence from iso 9000 diffusion abstract empirical scholarship on the standards trade relationship has been held up due to methodological challenges measurement varied effects and endogeneity considering the trade effects of one particular standard iso 9000 we surmount methodological challenges by measuring standardization via national penetration of iso 9000 allowing standardization to manifest via multiple quality signaling information compliance cost and common language channels and using instrumental variable multilateral resistance and panel data techniques to overcome endogeneity we find evidence of common language and quality signaling augmenting country pair trade yet iso rich nations benefit the most from standardization while iso poor nations find iso 9000 to represent a trade barrier due to compliance cost effects

the long run decline in the share of agricultural and food products in international trade a gravity equation approach to its causes the objective of this study is to determine the causes of the loss of share of agricultural products and food in international trade the article compares using a gravity model the impact of various factors upon bilateral trade in agricultural products in manufactures and in total trade between 1963 and 2000 for a representative sample of 40 countries the results clearly demonstrate how the low demand elasticity for agricultural products and food the high degree of protectionism to which they were subjected and their meagre share in intra industrial trade are the principal causes of their relatively slow growth