Do Institutions Matter for Foreign Direct Investment?

Using a panel of 69 countries during 1981 and 2005, we investigate the role of institutions in determining foreign direct investment (FDI). We find that institutions are a robust predictor of FDI and that the most significant institutional aspects are linked to propriety rights. Using a novel data set, we also study the impact of institutions on FDI at the sectoral level. We find that institutions do not have a significant impact on FDI in the primary sector but that institutional quality matters for FDI in manufacturing, and particularly in services.     

Bad loans,soft budget constraints and the political economy of financial market reform in transition economies

Financial market imperfections and especially the bad debt problem are among the most important factors impeding economic restructuring in transition economies. This paper analyses the implications of non-performing loans for the lending policy of banks and for the ensuing allocation of credit. It is shown that a lending bias exists in favour of old debtors, which not only impedes structural change but may also counteract policies intended to harden budget constraints and to promote restructuring. The paper also discusses from a political economy perspective, why despite these negative implications financial market reforms were not pursued more forcefully in most countries.     

Das neue Energiewirtschaftsgesetz—Regelungen für einen erweiterten Zielkatalog

Mehr als ein Jahr nach dem EU-rechtlich vorgegebenen Endtermin wurde im Juli 2005 das neue Energiewirtschaftsgesetz verabschiedet. Von welchen Zielen geht dieses Gesetz aus? Wie lauten seine wichtigsten Neuregelungen? Und welche Auswirkungen sind von ihnen zu erwarten?     

Investment planning under uncertainty and flexibility: the case of a purchasable sales contract*

Investment decisions are not only characterised by irreversibility and uncertainty but also by flexibility with regard to the timing of the investment. This paper describes how stochastic simulation can be successfully integrated into a backward recursive programming approach in the context of flexible investment planning. We apply this hybrid approach to a marketing question from primary production which can be viewed as an investment problem: should grain farmers purchase sales contracts which guarantee fixed product prices over the next 10 years? The model results support the conclusion from dynamic investment theory that it is essential to take simultaneously account of uncertainty and flexibility.     

A Comment on Yin, Xiangkang and Yew-Kwang Ng: Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes: A Case with Product Differentiation

This comment points out a gap in the proof of Theorem 2 contained in the paper by Yin and Ng. It is shown that the price reaction functions in their modelling approach are not continuous for all capacity subgames, contradicting the claim of Lemma 1. Possible remedies are suggested.     

Improving the business impact of foresight

Achieving an impact on business decision-makers with foresight does not appear to be an easy task. Therefore, the Macro Trends team at Deutsche Bank Research has formulated some criteria to guide foresight projects. They should aim to produce plausibility, provide convenience and inspiration as well as an appropriate time perspective with regard to the content of foresight results. In addition, a structured way of producing and delivering foresight, a seamless inclusion in organisational procedures, a high level of interaction with decision-makers, ideational entrepreneurship, innovation regarding communication with business people, and persistence and synchronisation with the business organisation are the key criteria for achieving a higher impact from foresight projects. To live up to these criteria, the Macro Trends team has developed a 'trend map' which provides a conceptual aggregation of trends - to provide orientation for decision-makers and stakeholders.