on the causal links between fdi and growth in developing countries we analyse the granger causal relationships between foreign direct investment fdi and gdp in a sample of 31 developing countries covering 31 years using estimators for heterogeneous panel data we find bi directional causality between the fdi to gdp ratio and the level of gdp fdi has a lasting impact on gdp while gdp has no longrun impact on the fdi to gdp ratio in that sense fdi causes growth furthermore in a model for gdp and fdi as a fraction of gross capital formation gcf we also find long run effects from fdi to gdp this finding may be interpreted as evidence in favour of the hypotheses that fdi has an impact on gdp via knowledge transfers and adoption of new technology

the gains from trade for a monetary economy once again the authors examine the effects of free trade on a small open economy within a dynamic generalized cash in advance model they provide a complete characterization for the possibility of harmful trade and suggest alternative economic policies that can convert the loss associated with free trade into a gain they authors also find contrary to standard results that there exists an optimal tariff for a small open economy and they use calibration methods to assess its value

foreign direct investment and inflation author affiliation selin sayek department of economics bilkent university bilkent ankara 06800 turkey e mail sayek bilkent edu tr acknowledgment i am very grateful to my advisor kent kimbrough for his support and help without which this research wouldn t have been possible i would also like to thank robert conrad enrique mendoza ed tower and dennis yang for their guidance and helpful comments i have also received valuable comments from duke university macroeconomics workshop participants and royal economic society 2001 conference participants as well as the two referees all errors remain mine 1 introductionin recent years interest in understanding the determinants of foreign direct investment fdi has intensified hand in hand with an increasing volume of fdi flows from 1990 to 2005 the total worldwide fdi inflows increased from 203 billion to 974 billion almost all developing countries are competing to attract a major share of these inflows in fact the share of net fdi inflows in the gross domestic product gdp of middle income countries has risen from 0 74 in the 1970s to 1 08 between 1985 and 1994 and to 2 85 between 1995 and 2005 1 the intensified competition to attract more fdi has led to changes in the regulatory frameworks provided by almost all countries according to the recent world investment report unctad 2003 during the period 1991 2002 around 95 of the changes in worldwide laws governing fdi have been favorable to multinational firm activity establishment of investment promotion agencies as well as provision of fiscal incentives have accompanied these improvements in local regulatory environments given the objectives of host countries to attract high quality investments and to ensure benefits from such foreign activity it is important to fully understand the factors influencing the fdi flows this article primarily studies the role of inflation among the factors that drive fdi inflation rates have increased from around 5 to 10 on average in developing countries during the 1970s followed by an increase of 49 on average among developing countries between 1985 and 1994 this trend of increasing inflation rates has been reversed in the late 1990s the inflation rates in developing countries have on average declined to 9 2 during 1995 2004 a period during which the net fdi inflows as a share of gdp have more than doubled in the middle income countries given the focus among developing countries to attract more fdi it is interesting to analyze whether the increasing inflation rates in the 1970s and 1980s might have been a deterrent for fdi inflows and whether their reversal in the 1990s might have contributed to the increase in fdi inflows to these economies despite not providing conclusive evidence the coincidences of high inflation and low fdi versus the low inflation and high fdi inflows into these developing countries motivates investigation of the possible links between the two variables therefore the broad objective of this framework is to study the effects of inflation on the investment decision of multinational enterprises mnes changes in inflation rates of the domestic or foreign country are anticipated to alter the net returns and optimal investment decisions of the mne in studying the explicit role of inflation in determining the investment pattern of mnes across domestic and foreign locations i use a model that is in fact discussing an investment smoothing behavior of the mne that faces domestic and foreign nominal shocks in this framework the act of investment smoothing captures a shift of investments across locations and not across time my argument is in line with aizenman 1992 who notes that the goal of diversifying exposure to country specific shocks induces producers to become multinationals this investment smoothing behavior can further be thought of as a production flexibility approach where the mne can shift production and trade decisions depending on the relative favorability of conditions in the two countries as discussed in sung and lapan 2000

labor market policy evaluation with ace abstract i develop an agent based computational economics ace model with which i evaluate the aggregate impact of labor market policies the findings are that government financed training measures increase the outflow rate from unemployment to employment although the overall effect is positive this effect is achieved by reducing the outflow rate for those who do not receive subsidies furthermore the outflow rate would have been downward biased had one supposed a matching function that is exogenous to policies

whose greed whose grievance and whose opportunity effects of foreign direct investments fdi on internal conflict abstract this paper investigates the influence of foreign direct investments on the probability of civil conflict onset contributing to the debate on globalization and civil conflict i relax the common assumption that all forms of globalization are equivalent in their effects on civil conflict i also incorporate the cross sectoral heterogeneity of investments in existing arguments about the socioeconomic externalities of foreign direct investments as determinants of conflict with long time horizons and managerial control of their foreign affiliates foreign direct investors are strategic players aiming to maximize profits and uniquely able to alter their environment through socio political channels this distinguishes fdi from trade and foreign portfolio investments through a combination of political agency and socio economic influences on grievance and greed among domestic groups some types of fdi are likely to alleviate the risk of civil conflict service sector fdi while others exacerbate it primary sector fdi analyses using a new data set of sector specific fdi stock 1980 2013 lend empirical support to the argument showing that economic globalization can have simultaneous positive and negative externalities these findings are informative for the current dialogue on the role of global markets in sustainable development

the effects of import quotas on national welfare does money matter recent evidence shows that there is an increasing use of non tariff barriers to trade ntbs and especially of quantitative restrictions such as import quotas in the world economy to protect import competing industries see table i 1 international trade theory however has traditionally focused on the welfare effects of tariffs as well as on the equivalence between tariffs and quotas with little attention paid to the welfare implications of quotas the latter have basically been restricted within the traditional heckscher ohlin trade model where for the case of a small open economy import quotas always reduce welfare a few recent studies have attempted to fill in this gap in the literature for instance young 19 compares optimal tariffs and quotas for a large country in a stochastic environment neary 14 on the other hand investigates the welfare implications of tariffs quotas and voluntary export restraints under different assumptions on capital mobility finally chao hwang and yu 3 4 examine the welfare effects of import quotas under variable returns to scale although the existing literature has generated important policy implications most of the analysis has been conducted within a barter exchange framework it is well known however that the introduction of money can alter results obtained within a non monetary environment 2 accordingly this paper attempts to re examine the welfare effects of import quotas for a small monetary economy we develop a two sector trade model in which money enters the economy

information and prices with capacity constraints since george j stigler s 1961 seminal work the literature on consumer search has attempted to understand the relationship between the prices that are set by sell ers and the extent to which consumers can observe and compare these prices before purchasing a good in the theoretical branch of this literature one conclusion is almost universal as buyers become better informed about prices ex ante sellers will set lower prices in equilibrium 1 in fact this relationship is so engrained in the theory of consumer search that it is often accepted as manifest and applied to various markets and situations with little or no hesitation 2 in this paper i examine a completely standard consumer search model with one small yet often relevant additional restriction i assume that sellers possess a limited number of goods or can only serve a limited number of customers at once so that a given seller may be unable to meet realized demand in such an environment i show that the conven tional wisdom regarding information and prices does not necessarily hold having more informed consumers can lead to either an increase or decrease in equilibrium prices or have no effect at all i characterize the regions of the parameter space where each is likely to occur the assumption that a seller s capacity may be fixed and that this constraint may be binding is a fairly important feature of many markets in some markets time is the constraint doctors and barbers and contractors can only serve a limited number of clients at once in other markets space is an issue private schools have a lim ited number of spots in each classroom while restaurants have a limited number of tables perhaps most common is markets in which sellers inventory is occasionally a limiting factor landlords have a limited number of apartments for rent and ticket agents have a limited number of concert tickets available in markets such as these consumers regularly trade off price and availability they are willing to pay more for

the optimum quantity of money rule in the theory of public finance this paper examines optimal tax policy in a monetary economy in which money serves as an intermediate good that helps facilitate the conversion of scarce resources into tinal consumption goods by enabling consumers to economize on the costs of transacting it is shown that in such an environment even though distorting taxes must be levied for revenue purposes the optimal tax structure calls for abstaining from inflationary finance and adopting the optimum quantity of money rule

the effect of import quotas on national welfare comment the authors consider an economy with differential cash in advance constraints fiat money and no interest payments on cash they argue that the first best policy in such an economy is differential consumption taxes and if the exportable is cash intensive a second best policy is an import quota in this comment we argue that paying interest on cash or equivalently deflating the economy is better than differential taxation because it is administratively simpler and cheaper for variants of the model it is welfare superior and less susceptible to manipulation by rent seekers this issue is most relevant for high inflation economies for they have the highest interest rates and hence the highest opportunity costs of holding money such economies are typically developing

economic reforms fdi and economic growth in india a sector level analysis summary booming foreign direct investment fdi in post reform india is widely believed to promote economic growth we assess this proposition by subjecting industry specific fdi and output data to granger causality tests within a panel cointegration framework it turns out that the growth effects of fdi vary widely across sectors fdi stocks and output are mutually reinforcing in the manufacturing sector whereas any causal relationship is absent in the primary sector most strikingly we find only transitory effects of fdi on output in the services sector however fdi in the services sector appears to have promoted growth in the manufacturing sector through cross sector spillovers

persistent wage dispersion and involuntary unemployment it is costly for firms offers to workers to be turned down both because firms must make additional offers and making offers is costly and because capital is underused or unused provided that workers apply to at least two firms for jobs there will be wage dispersion in equilibrium and some workers will randomly fail to receive any wage offers firms in the same industry with access to the same technology may nevertheless choose different levels of capital intensity firms using capital intensive technologies will pay higher wages

equilibrium wage dispersion and interindustry wage differentials this paper develops a search theoretic explanation of interindustry wage differentials given coordination problems in the labor market the probability of filling a vacancy is an increasing function of the wage offered in equilibrium firms that find vacancies more costly will offer higher wages the model thus explains the persistence of interindustry wage differentials and their correlation with industry average capital labor ratio and profitability additionally the model predicts that high wage firms will receive more applications per job opening and that wages in the labor market will behave as strategic complements

unintended consequence of trade on regional dietary patterns in rural india abstract this paper investigates how trade liberalisation has contributed to a dietary shift from one dominated by traditional staples to one high in animal products a trend that is associated with both improved intake in micronutrients and higher rates of obesity and other diet related diseases in developing countries in the context of india s trade liberalisation in 1991 we examine whether the difference in consumption of cereals and animal products across rural regions before and after the reforms can be attributed to their differential degree of exposure to tariff reductions the estimates reveal that trade reforms have a negative impact on cereal consumption through reducing edible oil prices and a positive effect on the consumption of animal products through enhancing consumer tastes towards these foods these findings provide evidence for the role of trade in supporting dietary diversity and highlight the need for complementary policies to enhance the coherence between trade policy and nutrition actions

the liberalization of retail services in india summary despite the recent controversy about opening up the distribution sector to foreign retailers there is political will that remains in favor of pushing through reforms in india in this paper we quantify the economic impact of the removal of barriers to foreign investment in multi brand retailing on different stakeholders using a newly developed general equilibrium model the model accounts explicitly for both foreign direct investment and the activities of foreign affiliates using heterogeneous production technologies we find that the unilateral reduction of barriers to fdi in distribution services in india benefits the economy as a whole consumers and foreign producers but hurts domestic distributors nevertheless when we consider the associated productivity improvements documented in the literature to downstream and upstream industries we find that domestic producers are expected to benefit from the liberalization of the distribution sector as well

frictional assignment i efficiency abstract this paper examines the two sided matching problem where the agents on each side of the market are heterogeneous and the matching process is time consuming this is cast in a labor market setting where workers of different skills match with different machine qualities i characterize the efficient allocation and then show that it can be decentralized by a market mechanism the efficient assignment is not always positively assortative despite the fact that machine qualities and skills are complementary in production to decentralize the efficient allocation the market mechanism requires the firms to post wages and commit each machine quality to a particular skill implications on wage inequality are briefly examined journal of economic literature classification numbers j31 e24 j64

coordination matching and wages we analyse the coordination problem in the labour market by endogenizing the matching function and the wage share each firm posts a wage to maximize the expected profit anticipating how the wage affects the expected number of applicants in equilibrium workers apply to firms with mixed strategies which generate coordination failure and persistent unemployment we show how the wage share unemployment and the welfare loss from the coordination failure depend on the market tightness and the market size the welfare loss from the coordination failure is as high as 7 5 per cent of potential output jel classification c78 j64 les auteurs analysent le probleme de la coordination dans le marche du travail en endogeneisant la fonction arrimage et la part des revenus qui va aux salaires chaque entreprise definit le niveau de salaire qui maximise ses profits anticipes en tenant compte de l effet de ce niveau de salaire sur le nombre des applications qu elle peut anticiper de meme les travailleurs font application aupres d une entreprise a un salaire donne en tenant compte d une certaine relation d equivalence entre niveau de salaire et probabilite d obtenir l emploi voila qui engendre incoordination et chomage persistant on montre que la part des revenus qui revient aux salaires le niveau de chomage et les pertes de bien etre attribuables au manque de coordination dependent de la taille du marche et du degre de rarete de la main d oeuvre les pertes de bien etre attribuables au manque de coordination correspondent a quelques 7 5 pour cent de la production potentielle

private foreign investment in india pain or panacea private foreign capital whose presence in indian industry was long regarded with concern and suspicion is now presented as a panacea for india s poor industrial and export performance this paper examines available evidence to compare the behaviour and performance of domestic and foreign controlled firms in india over the last five decades it discusses the contribution of foreign capital to aggregate investment balance of payments and economic growth we assess the effects of government policy towards foreign investment review recent changes and outline implications for the future

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

foreign direct investment and growth in india a cointegration approach the two way link between foreign direct investment and growth for india is explored using a structural cointegration model with vector error correction mechanism the existence of two cointegrating vectors between gdp fdi the unit labour cost and the share of import duty in tax revenue is found which captures the long run relationship between fdi and gdp a parsimonious vector error correction model vecm is then estimated to find the short run dynamics of fdi and growth our vecm model reveals three important features a gdp in india is not granger caused by fdi the causality runs more from gdp to fdi b trade liberalization policy of the indian government had some positive short run impact on the fdi flow and c fdi tends to lower the unit labour cost suggesting that fdi in india is labour displacing

liberalization fdi and growth in developing countries a panel cointegration approach using a panel cointegration framework the article explores the two way link between fdi and growth for a panel of 23 developing countries in addition it investigates the impact of liberalization on the dynamics of the fdi and gdp relationship a long run cointegrating relationship is found between fdi and gdp after allowing for heterogeneous country effects the cointegrating vectors reveal a bidirectional causality between gdp and fdi for more open economies for relatively closed economies long run causality appears unidirectional and runs from gdp to fdi implying that growth and fdi are not mutually reinforcing under restrictive trade and investment regimes

directed search on the job and the wage ladder we model a labor market where employed workers search on the job and firms direct workers search using wage offers and employment probabilities applicants observe all offers and face a trade off between wage and employment probability there is wage dispersion among workers even though all workers and jobs are homogeneous equilibrium wages form a ladder as workers optimally choose to climb the ladder one rung at a time this is because low wage applicants are relatively more sensitive to employment probability than to wage and thus forgo the opportunity to apply for a high wage with a lower chance of success

holdups and efficiency with search frictions a natural holdup problem arises in a market with search frictions firms have to make a range of investments before finding their employees and larger investments translate into higher wages in particular when wages are determined by ex post bargaining the equilibrium is always inefficient recognizing that capital intensive production relations have to pay higher wages firms reduce their investments this can only be prevented by removing all the bargaining power from the workers but this in turn depresses wages below their social product and creates excessive entry of firms in contrast to this benchmark we show that efficiency is achieved when firms post wages and workers can direct their search toward more attractive offers this efficiency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage offers we show that the underlying reason for efficiency is not wage posting per se but the ability of workers to direct their search toward more capital intensive jobs

ex ante price offers in matching games non steady states a matching problem is considered in which sellers can publicly commit to a trading price that differs from the price at which buyers expect to trade elsewhere in the market when demand and supply are nearly equal the equilibrium ex ante price offer lies below the price associated with the nash bargaining split this relationship reverses when the level of excess demand is large sellers always have an incentive to make ex ante offers when prices elsewhere are determined by nash bargaining this can be interpreted to mean that nash bargaining is an unstable pricing institution copyright 1991 by the econometric society

welfare implications of growth under quotas abstract using the standard trade model it is shown that growth under quotas always improves welfare this result is contrary to johnson s 1967 result on the possibilities of immeserizing growth in the presence of tariffs

bilateral investment treaties and fdi does the sector matter summary developing and transition countries have increasingly engaged in the signing of bilateral investment treaties bits in order to attract fdi based on the widely shared view that fdi can contribute significantly to economic development and poverty reduction however the degree to which foreign investments can be expected to generate employment offer access to international technology and know how and ultimately create growth varies considerably depending on the type of investment it is therefore important to determine what type of fdi is attracted by bits by providing a legal commitment to the fair and equitable treatment of foreign investors bits aim to decrease investment risk and to attract foreign investors we argue that bits can be expected to be most effective in those sectors of the economy with a larger risk of expropriation i e sectors characterized by large sunk costs relatively low levels of firm specific know how and in sectors that are politically sensitive to foreign ownership this paper represents the first attempt to empirically study the heterogeneous effect that bits may have across different sectors of investments we analyze investments made in 13 countries in the former soviet union and central and eastern europe disaggregated over seven sectors we indeed find the effect of bits to differ considerably across sectors of investment using capital intensity as a proxy we confirm that fdi in those sectors with higher sunk costs responds more strongly to the signing of bits given the considerable differences in the development impact that can be expected from fdi in different sectors it remains to be shown whether bits are an effective tool to attract those types of investments that are most beneficial for the development of the host economy

product market and the size wage differential using directed search to model the product market and the labor market i show that large plants can pay higher wages to homogeneous workers and earn higher expected profit per worker than small plants although plants are identical except size a large plant charges a higher price for its product and compensates buyers with a higher service probability to capture this sizerelated benefit large plants try to become larger by recruiting at high wages this size wage differential survives labor market competition because a high wage is harder to get than a low wage moreover the size wage differential increases with the product demand when demand is initially low and falls when demand is already high

the location choices of foreign investors a district level analysis in india this paper analyzes the determinants of the location choices made by foreign investors at the district level in india to gauge the relative importance of economic geography factors local business conditions and the presence of previous foreign investors we employ a discretechoice model and poisson regressions to control for the potential violation of the assumption of independence of irrelevant alternatives our sample includes about 19 500 foreign investment projects approved in 447 districts from 1991 2005 we find that foreign investors strongly prefer locations where other foreign investors are they are also attracted to industrially diverse locations and those with better infrastructure we conclude that the concentration of fdi in a few locations could fuel regional divergence in post reform india

ex post bidding and efficient coordination unemployment we study the implementation of constrained efficient allocations in labour markets where a basic coordination problem leads to an equilibrium matching friction we argue that these allocations can be achieved in a non cooperative equilibrium if wages are determined by ex post bidding this holds true even in finite sized markets where the equilibrium matching process has decreasing returns to scale where the hosios rule does not apply both with and without heterogeneity

aid and growth what does the cross country evidence really show abstract we examine the effects of aid on growth in cross sectional and panel data after correcting for the possible bias that poorer or stronger growth may draw aid contributions to recipient co

does foreign direct investment lead to productivity spillovers firm level evidence from indonesia this paper examines whether spillovers from foreign direct investment fdi make any contribution to productivity growth in the indonesian chemical and pharmaceutical firms using plant level panel data the spillover effects from fdi are analyzed using a stochastic frontier approach and productivity growth is decomposed using a generalized malmquist output oriented index the results show positive productivity spillovers from fdi higher competition is associated with larger spillovers and domestic firms with r d gain more spillover benefits compared to those without r d fdi spillovers are found to be positive and significant for technological progress and positive but not significant for technical and scale efficiency change

impact of foreign direct investment volatility on economic development in the indian subcontinent using annual data over forty years from 1975 to 2014 this study investigates the gross domestic product gdp growth and the conditional volatility of foreign direct investment fdi in the indian subcontinent the study reports the rising trends of both fdi and gdp and documents that the greater than expected fdi due to innovative shocks or policy innovations positively influences conditional volatility of fdi which in turn positively contributes to the economic growth development the conditional volatility used in the study is the variance derived from the diagnostically selected exponential garch egarch model the study also reports the causality of both the fdi and its volatility across borders more specifically it reports bidirectional causality of fdi between india and pakistan but unidirectional causality from bangladesh to both india and pakistan it further documents that this volatility is persistent in all the economies and that it spillovers from both india and pakistan to bangladesh the evidence attributes the economic development in the indian subcontinent to the economic or policy innovations in attracting fdi the findings of this study thus contribute to the literature by documenting the contrasting evidence that the volatility along with the trend of fdi contributes to the economic development and by reconciling the contrasting evidence

game theoretic models of wage bargaining this paper aims at being a tool to help apply game theoretic bargaining models to wage negotiations in this perspective we review a number of articles which explicitly deal with wage determination as well as purely game theoretical models which we believe can be fruitfully extended to account for specific features of labour markets we discuss some common shortcomings in the wage negotiation literature and suggest possible lines of research worth pursuing to deal with such weaknesses