war and natural resource exploitation abstract we build a theoretical framework that allows for endogenous conflict behaviour i e fighting efforts and for endogenous natural resource exploitation i e speed ownership and investments while depletion is spread in a balanced hotelling fashion during peace the presence of conflict creates incentives for rapacious extraction as this lowers the stakes of future contest this voracious extraction depresses total oil revenue especially if world oil demand is relatively elastic and the government s weapon advantage is weak some of these political distortions can be overcome by bribing rebels or by government investment in weapons the shadow of conflict can also make less efficient nationalized oil extraction more attractive than private extraction as insecure property rights create a holdup problem for the private firm and lead to a lower license fee furthermore the government fights less intensely than the rebels under private exploitation which leads to more government turnover without credible commitment to future fighting efforts private oil depletion is only lucrative if the government s non oil office rents are large and weaponry powerful which guarantees the government a stronger grip on office and makes the holdup problem less severe

the tragedy of the commons and economic growth why does capital flow from poor to rich countries we analyze a differential game in which all interest groups have access to a common capital stock we show that the introduction of a technology that has inferior productivity but enjoys private access may ameliorate the tragedy of the commons we use this model to analyze capital flight in many poor countries property rights are not well defined since safe bank accounts in rich countries the inferior technology are available to citizens of these countries they engage in capital flight we show that the occurrence of capital flight does not imply that opening the capital account reduces growth and welfare

does the quality of institutions limit the mena s integration in the world economy using a large sample of countries over the 1990s this paper examines the extent to which institutions functioning disables a greater participation of the middle east and north africa mena in the world economy it focuses on the impact on manufactured exports and fdi attractiveness and considers a broad index of political risk as well as indices targeted toward specific aspects of governance corruption government effectiveness and the rule of law the results are robust to different econometric approaches and lend strong support to the hypothesis that the functioning of institutions may disable the participation of mena countries in the world economy they suggest that the impact of an improvement in the quality of institutions may result in a sensitive increase of fdi inflows and manufactured exports that increase is comparable to the one resulting from liberalisation policies hence although institutional reforms can take time they deserve the necessary efforts given their outcomes as compared to other reforms

the institutional reforms debate and fdi flows to the mena region the best ensemble summary this paper empirically examines the theoretical debate on the adoption of a best approach to reforming institutions identified by rodrik 2008 in the context of property rights protection and fdi flows to eight mena countries the first best approach comprises strengthening domestic institutional functions only while the second best comprises in addition entering into force bilateral investment treaties and the interaction between functions and treaties empirically both approaches to reducing investment expropriation risk encourage fdi flows the positive effect of the second best approach depends on the success of the first best approach suggesting the two approaches are complementary

income distribution political instability and investment abstract this paper successfully tests on a sample of 71 countries for the period 1960 85 the following hypotheses income inequality by fuelling social discontent increases sociopolitical instability the latter by creating uncertainty in the politico economic environment reduces investment as a consequence income inequality and investment are inversely related since investment is a primary engine of growth this paper identifies a channel for an inverse relationship between income inequality and growth we measure socio political instability with indices which capture the occurrence of more or less violent phenomena of political unrest and we test our hypotheses by estimating a two equation model in which the endogenous variables are investment and an index of socio political instability our results are robust to sensitivity analysis on the specification of the model and the measure of political instability and are unchanged when the model is estimated using robust regression techniques

external debt capital flight and political risk abstract this paper explains the simultaneous occurence of large external debts private capital outflows and low domestic capital formation we consider a general equilibrium model in which two government types with conflicting distributional goals randomly alternate in office uncertainty over the fiscal policies of future governments generates capital flight and small domestic investment and induces the government to overaccumulate external debt the model also predicts that left wing governments are more inclined to restrict capital outflows than right wing governments finally we examine how political uncertainty affects the risk premium and how debt repudiation may occur after a regime change

place space and geographical exposure foreign subsidiary survival in conflict zones this study focuses on the role of geography in foreign subsidiary survival in host countries afflicted by political conflict we argue that survival is a function of exposure to conflicts and depends on the characteristics of place the conflict zone and space geographic concentration and dispersion of other home country firms the roles of place and space are explored using street level analysis of geographic information systems data for 670 japanese multinational enterprises mne subsidiaries in 25 conflict afflicted host countries over 1987 2006 through dynamic modeling of conflict zones as stretchable and shrinkable places relative to subsidiary locations we develop a means of characterizing a foreign subsidiary s exposure to multiple threats in its geographic domain our results show that greater exposure to geographically defined threats in both a static and a dynamic sense reduces the likelihood of mne survival the findings indicate moreover that both concentration and dispersion with other firms affect survival however the effects depend on where the firm is spatially located whether the firm is in a conflict zone and with whom home country peers or sister subsidiaries

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

economic effects of the syrian war and the spread of the islamic state on the levant this paper uses a global computable general equilibrium framework with new detail on six levant countries the arab republic of egypt iraq jordan lebanon the syrian arab republic and turkey to quantify the direct and indirect economic effects of the syrian war and the advance of the islamic state on the levant syria and iraq bear the brunt of the direct economic costs while the other levant countries lose in per capita but not in aggregate terms the fact that the islamic state s spread has undermined regional trade adds to varying degrees to the direct costs in all levant economies and in the case of syria and iraq doubles the welfare losses all these countries are foregoing opportunities to expand intra levant trade and the associated gains in economic efficiency and diversification the average welfare effects are not indicative of within country incidence which varies among workers landowners and capitalists

do natural resources attract nonresource fdi abstract a new and extensive panel of outward nonresource and resource fdi is used to investigate the effect of natural resources on the different components of fdi our main findings are as follows first for countries which were not a resource producer before a resource discovery causes nonresource fdi to fall 16 in the short run and by 68 in the long run second for countries that were already a resource producer a doubling of resource rents induces a 12 4 fall in nonresource fdi third on average the contraction in nonresource fdi outweighs the boom in resource fdi aggregate fdi falls by 4 if the resource bonanza is doubled finally these negative effects on nonresource fdi are amplified through the positive spatial lags in nonresource fdi we also find that resource fdi is vertical whereas nonresource fdi is of the export fragmentation variety our main findings are robust to different measures of resource reserves and the oil price and to allowing sample selection bias

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

on the investment uncertainty relationship in a real options model abstract it appears to be widely accepted in the real options literature that an increase in uncertainty should have an inhibiting effect on investment our article demonstrates that the notion of a negative uncertainty investment relationship is not always correct we show that in certain situations an increase in uncertainty can actually increase the probability of investing and thereby have a positive impact on investment

fdi waves waves of neglect of political risk studies of the impact of local political risk on foreign direct investment inflows overlook that worldwide fdi comes in waves using a simple model we show that the impact of political risk on fdi inflows is likely to be weaker the larger the worldwide amount of fdi which may question standard estimates and their policy implications using a large sample of developing and developed economies we estimate the sensitivity of the distribution of fdi inflows across countries to the local political risk we find that it is a decreasing function of the worldwide amount of fdi this finding has been upheld after many robustness checks

investment under alternative return assumptions comparing random walks and mean reversion abstract many recent theoretical papers have come under attack for modeling prices as geometric brownian motion this process can diverge over time implying that firms facing this price process can earn infinite profits we explore the significance of this attack and contrast investment under geometric brownian motion with investment assuming mean reversion while analytically more complex mean reversion in many cases is a more plausible assumption allowing for supply responses to increasing prices we show that cumulative investment is generally unaffected by the use of a mean reversion process rather than geometric brownian motion and provide an explanation for this result

the differential impact of uncertainty on investment in small and large businesses we study the impact of profit uncertainty on investment and whether or not this response is different in industries that are dominated by small firms versus those that are dominated by relatively larger firms our key findings are that the sign of the investment uncertainty relationship is negative and that the quantitative negative impact is substantially greater in industries dominated by small firms these results are robust to accounting for potential endogeneity of the uncertainty measure alternate procedures for measuring uncertainty and alternate ways of segmenting industries into small and large firm groups

seigniorage and political instability the importance of seigniorage relative to other sources of government revenue differs markedly across countries this paper tries to explain this regularity by studying a political model of tax reform the model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and thus will rely more heavily on seigniorage this prediction of the model is tested on cross sectional data for seventy countries the authors find that after controlling for other variables political instability is positively associated with seigniorage copyright 1992 by american economic association

development of a new energy efficiency rating system for existing residential buildings building energy efficiency rating systems have been established worldwide to systematically manage the energy consumption of existing buildings this study aimed to develop a new energy efficiency rating system for existing residential buildings from two perspectives i establishment of reasonable and fair criteria for the building energy efficiency rating system and ii establishment of comparative incentive and penalty programs to encourage the voluntary participation of all residents in the energy saving campaign based on the analysis of the conventional energy efficiency rating system for existing residential buildings this study was conducted in five steps i data collection and analysis ii correlation analysis between the household size and the co2 emission density i e co2 emission per unit area iii cluster formation based on results of the correlation analysis using a decision tree iv establishment of a new energy efficiency rating system for existing buildings and v establishment of incentive and penalty programs using advanced case based reasoning the proposed system can allow a policymaker to establish a reasonable and fair energy efficiency rating system for existing residential buildings and can encourage the voluntary participation of all residents in the energy saving campaign

investment uncertainty and pre emption this paper examines irreversible investment in a project with uncertain returns when there is an advantage to being the first to invest and externalities to investing when others also do so we show that the possibility of pre emption can have significant qualitative and quantitative effects on the relationship between uncertainty and investment in a single agent real options model the trigger threshold for investment increases without bound as uncertainty grows in contrast the investment trigger of a leader faced with pre emption is bounded above as uncertainty increases in fact we show that under certain parameter values greater uncertainty can lead the leader to invest earlier these findings reinforce the importance of extending real options analysis to include strategic interactions between players applications to industry situations are also discussed

explaining fiscal policies and inflation in developing countries abstract in this paper we investigate empirically the determinants of inflation seigniorage and fiscal deficits in developing countries we first test the optimal taxation theory of inflation for a group of 21 lcds we find that the implications of this theory are rejected for all these countries we then proceed to implement a number of tests based on the new political economy approach to macroeconomic policies we deal with some of the implications of a credibility and reputation model and of a strategic government behavior model we find that the data support the most important predictions of the political economy view of fiscal policy our measures of political instability and political polarization play an important role in explaining cross country differences in seigniorage inflation government borrowing and fiscal deficits we end by discussing directions for future research

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

investment in the shadow of conflict globalization capital control and state repression in conflict prone societies the fear of expropriation that accompanies a regime change reduces capital investment these reductions in investments in turn harm the economy amplifying the likelihood of regime change this article studies the implications of these feedback channels on the interactions between globalization capital control state repression and regime change i show that processes that facilitate capital movements e g globalization economic modernization and technologies that reduce transportation costs amplify the likelihood of regime change in conflict prone societies and strengthen the elite s demand for a strong coercive state in particular to limit their collective action problem and manage the political risk of regime change capitalists support a state that imposes capital control we identify two conflicting forces the boix effect and the marx effect which determine when capital control and state repression become complements nazi germany or substitutes latin american military regimes in right wing regimes

expected poverty under risk induced welfare variability two of the most widely accepted stylised facts about agriculture in south asia sub saharan africa and elsewhere are that income is highly uncertain from one year to another and that deep and widespread poverty exists and yet there has been very little analysis of the joint problems of poverty and risk this paper offers a methodological approach to the issue of how risk affects poverty and applies it to household level data for dry areas of rural india the following questions are addressed under what conditions can one expect an increase in the riskiness of an income or consumption stream to increase poverty how should one measure the contribution of risk to poverty and what long term benefits in terms of reduced poverty can be expected from policies aimed at stabilising incomes of the poor such policies have been widely discussed in the indian subcontinent of late and their effect on rural

aggregate investment and political instability an econometric investigation although in theory the long run effect of uncertainty on investment is ambiguous available econometric evidence widely supports a negative association between aggregate investment and political instability a shortcoming of this body of evidence is that it has failed to investigate the existence and direction of causality between these two variables this paper fills this gap by testing for such causal and negative long run relationship between political instability and investment we find there is a causal relation going from instability to investment but it is positive and particularly strong in low income countries this finding is robust to various sensitivity checks

risky business political instability and greenfield foreign direct investment in the arab world which foreign direct investments are most affected by political instability analysis of quarterly greenfield investment flows into countries in the middle east and north africa during the period from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non resource tradable sectors by contrast investments in natural resource sectors and non tradable activities appear insensitive to such shocks political instability is thus associated with increased reliance on non tradables and aggravated resource dependence

dodging bullets the heterogeneous effect of political violence on greenfield fdi the relationship between political violence and greenfield foreign direct investment is contingent on the type of violence characteristics of the investment receiving sector and extent to which the investing firm is geographically diversified this paper presents an analysis with a dynamic fixed effects model for a panel of 90 developing countries from 2003 to 2012 the analysis shows that nationwide political conflict is negatively associated with total and non resource related greenfield foreign direct investment but not with resource related greenfield foreign direct investment the insensitivity to political conflict of multinational firms in the resource sector is associated with the high profitability of natural resource extraction and the companies geographic constraints on location choice during the period of estimation in the non resource sector the less geographically diversified firms are most sensitive to the risk of conflict

democracy foreign direct investment and natural resources abstract empirical studies that examine the impact of democracy on foreign direct investment fdi assume that the relationship between democracy and fdi is the same for resource exporting and non resource exporting countries this paper examines whether natural resources in host countries alter this relationship we estimate a linear dynamic panel data model using data from 112 developing countries over the period 1982 2007 we find that democracy promotes fdi if and only if the value of the share of minerals and oil in total exports is less than some critical value we identify 90 countries where an expansion of democracy may enhance fdi and 22 countries where an increase in democratization may reduce fdi we also find that the effect of democracy on fdi depends on the size and not the type of natural resources

the political resource curse this paper studies the effect of additional government revenues on political corruption and on the quality of politicians both with theory and data the theory is based on a political agency model with career concerns and endogenous entry of candidates the data refer to brazil where federal transfers to municipal governments change exogenously at given population thresholds allowing us to implement a regression discontinuity design the empirical evidence shows that larger transfers increase observed corruption and reduce the average education of candidates for mayor these and other more specific empirical results are in line with the predictions of the theory jel d72 d73 h77 o17 o18

diamonds are forever wars are not is conflict bad for private firms this paper studies the relationship between civil war and the value of firms in a poor resource abundant country using microeconomic data for angola we focus on diamond mining firms and conduct an event study on the sudden end of the conflict marked by the death of the rebel movement leader in 2002 we find that the stock market perceived this event as bad news rather than good news for companies holding concessions in angola as their abnormal returns declined by 4 percentage points the event had no effect on a control portfolio of otherwise similar diamond mining companies this finding is corroborated by other events and by the adoption of alternative methodologies we interpret our findings in light of conflict generated entry barriers government bargaining power and transparency in the licensing process jel d74 g32 o13 o17 q34

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

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

what do we know about investment under uncertainty recent theoretical developments relating to investment under uncertainty have highlighted the importance of irreversibility for the timing of investment expenditures and their expected returns this has subsequently stimulated a growing empirical literature which examines uncertainty and threshold effects on investment behaviour this paper presents a review of this literature a variety of methods have been used to investigate the empirical implication of irreversibility in investment the majority focusing on the relationship between investment flows and proxy measures of uncertainty a general conclusion is that increased uncertainty at both aggregate and disaggregate levels leads to lower investment rates this suggests that there is an irreversibility effect under which greater uncertainty raises the value of the call option to delay a commitment to investment this effect appears to dominate any positive impact on investment arising from the fact that greater uncertability under certain circumstances increases the marginal profitability of capital the methods used raise a number of issues which call into question the reliability of the findings and these are addressed in the paper however if such irreversibility effects are present then their omission from traditional investment models casts doubt on the efficacy of such specifications jel classification d81 d92 e22

poverty dynamics in brazilian metropolitan areas an analysis based on hulme and shepherd s categorization 2002 2011 abstract ever more sophisticated studies on the methodological approach and the conceptual scope of poverty have led to a consensus among scholars on the dynamic characteristic of this phenomenon in other words the existence of an in and out of privation movement of individuals and families within this context hulme and shepherd 2003 defined five groups according to the location of the punctual and average indicators of poverty vis a vis the poverty line this paper s objective is to adapt this typology to brazil using pme monthly job survey micro data for the 2002 2011 timeframe and the six brazilian metropolitan regions covered by pme as well as by estimating a multinomial logit investigate which family characteristics relate to a greater or lesser chance of belonging to each of the chronic and transitory poverty categories categorization allows observation that despite a sweeping across the board decline in the percentage of families in all poverty categories in the past decade those families always or usually poor display demographic socioeconomic access to and insertion into the labor market categories which differ from families in transitory poverty or classified as never poor moreover northeastern metropolitan regions salvador and recife have higher percentages of chronic or transitory poverty multinomial logit estimates make it possible to verify that families whose members have completed secondary schooling or college or hold a higher qualified occupation stand lesser chances of entering into or remaining in poverty results call for differentiating among poor families as they enter into or leave poverty which is tantamount to saying that the dynamics of poverty must be taken into account as public policies are drawn up