How important is intra-industry trade in trade growth?

Empirical work on intra-industry trade (IIT) is almost 30 years old. Initial research sought to identify if IIT was a significant share of total trade (TT). The Grubel-Lloyd (GL) index was widely used for this purpose. Interest has since shifted to the changing importance of IITover time. Using movements in the GL index to infer the importance of IIT over time is not only vague, but can be misleading. In this article, we measure the contributions of growth in net trade (NT) and IIT to the growth in TT. To understand changes in IIT over time, we also derive the contributions of imports and exports to the growth in TT, NT, and IIT. All our formulas are illustrated with data for 205 Australian manufacturing industries.     

Narrowing the development divide in ASEAN: the role of policy

Association of Southeast Asian Nations (ASEAN) is divided. Most striking is the development divide that separates the newer members (the Cambodia, Lao People's Democratic Republic, Myanmar, and Vietnam countries) from the original ones (ASEAN‐6). More rapid growth in the CLV since the 1990s, driven by trade, investment, and other market reforms, has reduced these income differences. While the development divide has narrowed, huge gaps remain. Further narrowing of these gaps will require an increase in the speed and the breadth of policy reforms. A gaping hole in the policy landscape in ASEAN is the failure to address labour mobility adequately. Ongoing demographic transitions will result in greater labour outflow. The current policy void on labour migration not only limits the benefits from trade and investment liberalisation but also increases the cost of structural adjustment. Although rapid growth has resulted in convergence between countries, it has increased polarisation within countries. This can threaten social cohesion, as well as the sustainability of future growth. In order to make growth more inclusive, there is a need to invest more in education and health and to institute land reform. Apart from directly reducing social and asset inequities, such policies will produce a workforce more able to participate in the growth process and adapt to structural change.     

Do micro start-ups fuel job creation? Cross-country evidence from the DynEmp Express database

Exploiting a novel database recently built from national business registers by the OECD with the support of an international network of experts, this paper investigates the growth dynamics of micro-firms (employing less than ten workers) across 16 countries. Results show that only a small proportion of micro-firms manage to grow beyond ten employees, but those contribute disproportionately to overall job creation. Econometric analysis focusing in particular on the role of age confirms that young micro-firms—especially those below 3 years of age—are much more likely to grow above ten employees than older firms. These findings are remarkably stable over the three time periods considered (2001–2004, 2004–2007, and 2007–2010), i.e., also during the Great Recession.     

Elevating Repositioning Costs: Strategy Dynamics and Competitive Interactions

Research summary: This article proposes an approach for modeling competitive interactions that incorporates the costs to firms of changing strategy. The costs associated with strategy modifications, which we term “repositioning costs,” are particularly relevant to competitive interactions involving major changes to business strategies. Repositioning costs can critically affect competitive dynamics and, consequently, the implications of strategic interaction for strategic choice. While the literature broadly recognizes the importance of such costs, game‐theoretic treatments of major strategic change, with very limited exceptions, have not addressed them meaningfully. We advocate greater recognition of repositioning costs and illustrate with two simple models how repositioning costs may facilitate differentiation and affect the value of a firm's capability to reduce repositioning costs through investments in flexibility. Managerial summary: This article illustrates how the decision to make a strategic change is affected by both the cost to the firm of making the various strategy modifications, as well as the cost to its rivals of changing their strategies in response. These “repositioning costs” are important because they shape the responses each competitor would likely make to a move by the other competitor, and should be anticipated when considering an initial change to one's own strategy. The paper shows how repositioning costs can be used strategically to facilitate differentiation, and to assess the value of potential investments in flexibility. Copyright © 2017 John Wiley & Sons, Ltd.     

Developing with Foreign Investment: Malaysia

Abstract
Over the past two decades, there has been a decisive shift in trade and industry policy in developing countries (DCs) away from import substitution and towards export-orientation. As part of this policy shift, an increasing number of DCs have become more receptive to foreign direct investment (FDI). Despite its policy relevance, the literature on the role of FDI in the export expansion of manufactured exports from DCs is sparse. This article attempts to fill this gap through a case study of the role of export-oriented FDI in Malaysia's rapid industrialisation. The overall conclusion of the article is that export-oriented FDI has brought significant returns to Malaysia principally because the general economic climate has been favourable for the internationalisation of production for a considerable period of time.     

Trade Liberalisation, Closer Economic Relations and Intra-Industry Specialisation

Abstract
Much of the growth in trade among the industrialised countries, and more recently among countries in the Asia-Pacific region, has taken the form of intra-industry trade (HT). Australia has historically had one of the lowest shares of IIT among OECD countries. This article examines how Australia's IIT has changed in the 1980s in response to the process of trade liberalisation and completion of the Closer Economic Relations (CER) pact with New Zealand. HT indexes are estimated for Australia's multilateral and trans-Tasman trade for 1981 and 1991 for 132 industries using data at the 3 and 4-digit level of the Standard International Trade Classification (SITC). The results point to a sharp increase in the share of IIT for both multilateral and trans-Tasman trade. Industries that have undergone the largest reductions in protection levels have increased their shares of IIT quite considerably. Increased intra-industry specialisation suggests that the short-run adjustment costs associated with trade liberalisation are likely to be lower. If IIT continues to grow in response to the ongoing process of internationalisation of the Australian economy, then Australia's prospects for expanding its share of world trade are good.     

Learning,diversification and the nature of risk

In many economic settings, faster learning is achievable only through greater exposure to risk. We study this conflict in the context of project choice, where a risk-averse agent must choose whether to invest in two projects of the same type (focus) or of different types (diversification). Focus enables faster learning across periods, but is riskier due to common type-specific shocks. Optimal choice involves balancing these two considerations. We show that focus is preferred for intermediate learning speeds, and that higher prior uncertainty may encourage focus. Thus, what matters for the focus-diversification choice is not only the level of risk, but also whether the risk is permanent or can be “learned away.” We are grateful to two anonymous referees, Serkan Bahceci, Steve Cecchetti, Adam Jaffe, Bojan Jovanovic, Kala Krishna, Blake LeBaron, Rachel McCulloch, Yana Rodgers, participants at the 2004 AEA-CSWEP Meetings and the 2003 North East Universities Development Conference, and seminar participants at Brandeis University for comments and suggestions.     

Voluntary Disclosures When There Is an Option to Delay Disclosure

What incentives drive managers to disclose immediately when they have an option to delay disclosures? I examine this question in a two-period setting in which public news that is positively correlated with firm value arrives periodically. I show that, when the manager's likelihood of receiving information is independent of the public news, an informed manager is more likely to disclose immediately when the public news is good. This happens even as the disclosure threshold itself increases in the public news. My model provides a potential explanation for why managers have a higher propensity to provide earnings forecasts when current earnings are high. I also show that, even when disclosures are credible, the average price reaction to a voluntary disclosure is (i) decreasing in the magnitude of the public news and (ii) lower when the manager is more myopic. These results have potential implications for studies that use stock returns to measure the news contained in management disclosures.     

Some limit theorems in urn models with indistinguishable balls

Abstract

When n indistinguishable balls are distributed into m cells, there are two possible models (known as Bose-Einstein Statistics) depending on whether the cells are allowed to be empty or not. In these models, the possible limit laws of the number of cells containing k balls each are identified which are Normal, Poisson and degenerate. It is interesting to see that these are the only three limit laws of the occupancy variables studied here.