Joint Ventures versus Fully Owned Subsidiaries: Multinational Strategies in Liberalizing Economies

As ceilings on foreign shareholdings are withdrawn during liberalization, multinationals enter through fully owned subsidiaries that compete with their own joint ventures, unless local partners permit them to raise their stakes. In a framework of quantity competition, this paper demonstrates that an entry threat is more credible when joint venture investment is reversible, the units are independently managed and the local stake is high. Further, profitability of horizontal merger between the units encourages a share reallocation, while its absence favours a new subsidiary. Under irreversible investment, the threat is less credible and both share reallocations or new subsidiaries are less likely.     

Re-examining the relationship between domestic investment and foreign aid: does political stability matter?

While past studies had conflicting conclusions regarding the impact of foreign aid on growth and development of a nation, recent studies have tried to delve deeper into the question, ‘what makes aid work?’ (see, Dutta, Leeson, and Williamson, 2013; Burnside and Dollar, 2000, 2004; Svensson, 1999). This paper tests how political stability (vis-à-vis political instability) affects the relationship between domestic investment and foreign aid. Applying dynamic panel estimators, our results show that political stability affects aid’s effectiveness on domestic capital formation. The paper considers alternative measures of political stability (vis-à-vis instability), focusing on the political characteristics of a system that have the potential to make a nation stable. Political stability affects policy selection by the government positively and, thus, public resources such as foreign aid are put to the desired use. The estimated marginal impacts show that foreign aid enhances domestic investment in the presence of a stable political climate, but there is a diminishing return to aid.     

Joint venture instability in developing countries under entry

We explain the rationale for share adjustment in an international joint venture (JV) and opening up of a wholly owned subsidiary by the foreign JV partner. If the cost difference between the JV and other firms is small, the foreign firm opens a wholly owned subsidiary and completely sells-out its shares in its previously formed JV. If the cost difference is intermediate (large), the foreign firm adjusts (increases) its shareholding in the JV and opens (does not open) a competing subsidiary. JV instability may be the outcome of a friendly separation. There may also be situations with no share adjustment.     

Technology transfer in duopoly The role of cost asymmetry

This article examines the possibility of a profitable technology transfer deal in a duopoly. We show that under a fixed fee contract, technology transfer will be always profitable if the products are sufficiently differentiated or the firms behave sufficiently cooperatively or both. Under a profit sharing contract, however, a profitable technology transfer deal always exists even in a market characterised by Cournot duopoly with homogeneous goods.     

Social Efficiency of Entry with Market Leaders

We offer a new perspective to the social efficiency of entry by considering an industry with a quantity‐setting leader and free entry of followers. We show that entry with homogeneous products can be socially insufficient instead of excessive. In a closed economy, entry is always socially insufficient in the absence of scale economies, and it is socially insufficient in the presence of scale economies if the marginal cost difference between the leader and the followers is large. In an open economy with the foreign leader, entry is always socially insufficient. Thus, we show that entry regulation may not be justified in oligopolistic industries with market leaders.     

A stochastic cellular automata model of innovation diffusion

A stochastic cellular automata model of new product diffusion is proposed. It is found that the growth for a given market potential can be determined by a parameter that quantifies chance preferences of individuals for the product and can be estimated from field surveys. It is also found that the “takeover time” in a given seed region is almost independent of the number of innovators. The results suggest possible strategies for the successful introduction of a new product.     

DYNAMIC RELATIONS BETWEEN MACROECONOMIC VARIABLES AND THE JAPANESE STOCK MARKET: AN APPLICATION OF A VECTOR ERROR CORRECTION MODEL

By employing the vector error correction model (VECM) in a system of seven equations, we find that the Japanese stock market is cointegrated with a group of six macroeconomic variables. The signs of the long-term elasticity coefficients of the macroeconomic variables on stock prices generally support the hypothesized equilibrium relations. Our findings are robust to different combinations of macroeconomic variables in six-dimension systems and two subperiods. Also, the VECM consistently outperforms the vector autoregressive model in forecasting ability.