The choice and timing of foreign direct investment under uncertainty

This paper sheds new light on why timing and entry mode should be considered simultaneously in the international investment literature. We derive the profit levels at which it is optimal to switch from exporting to setting up a wholly owned subsidiary, creating a joint venture, or licensing production to a local firm. The preferred entry mode depends on uncertainty about future profits, tax differentials between the home and the foreign country, the cost advantages of local firms, institutional requirements, and the degree of cooperation between partners in a joint venture.     

WINDOW ON EASTERN EUROPE: Ethical Perceptions of Polish Business Students

An experienced educationalist comments on the views of top Polish business students on ethics in public life, government and business in modern Poland. The author is Wicklander Professor of Professional Ethics at DePaul University, Chicago, and also served recently as Visiting Fulbright Professor at the Adam Mickiewicz University in Poznan, Poland. He is currently President of the Society of Business Ethics in the USA.     

Evidence on corruption as an incentive for foreign direct investment

This paper assesses the relationship between corruption and inward foreign direct investment (FDI). Previous research has presumed that corruption directly enters the cost function of multinationals, suggesting a negative relationship between corruption and FDI. For a sample of 73 developed and less developed countries and the time period 1995–1999, we find a clear positive relationship between corruption and FDI. Corruption is thus a stimulus for FDI.     

Human Capital and Growth Cycles

This paper studies the dynamic interaction between human capital accumulation and economic growth. Capital market imperfections and an indivisibility in human capital investment prevent poor agents from accumulating skills, the acquisition of which positively affects technological progress. More productive technologies in turn require more sophisticated qualification and involve higher training costs. The equilibrium dynamics can be characterized by the joint evolution of productivity growth, the schooling costs, and the income distribution. Under our assumptions, individual incomes follow a non-linear Markov chain. This non-linearity generates endogenous fluctuations of schooling activities and the rate at which productivity improvements occur. We thank an anonymous referee for many helpful suggestions. Support from the German Research Foundation (DFG) under grant KA1519/2-2 is gratefully acknowledged.     

Multiplicity of Cournot Equilibria and Involuntary Unemployment

In an overlapping generations model with Cournot competition on the goods market it is shown that a continuum of stationary states and perfect foresight trajectories exists with unemployment at arbitrary low wages. Decisive for this is the influence that different forecast functions have on the objective demand curve, even though they are consistent with perfect foresight. With an example it is shown that simple adaptive and constant memory forecast rules generate such unemployment equilibria. The corresponding temporary equilibrium dynamics may display stable unemployment and unstable full employment equilibria.Journal of Economic LiteratureClassification Numbers: D43, D51, E24     

Bootstrap and Pretest J-Type Non-Nested Tests for Orthogonal Regression Models: Some Monte Carlo Evidence

This paper compares the size and power of two J-type tests for weakly correlated or nearly orthogonal non-nested regression models: a bootstrap and a pretest test. The latter seems to outperform the former in terms of its size characteristics, especially when the alternative model has more non-nested regressors and the orthogonality between the two sets of regressors is severe. The bootstrap test does better in terms of power.

     

The impact of endogenous tax treaties on foreign direct investment: theory and evidence

Abstract .  This paper investigates the effect of tax treaties on bilateral stocks of outward FDI. For this purpose we employ a numerically solvable general equilibrium model of trade and multinational firms to study the impact of tax treaties on both welfare and outward FDI. The model indicates under which factor endowment configurations countries gain in welfare when implementing a tax treaty. This motivates an empirical specification of the endogenous selection into implementing new tax treaties. Using data of bilateral OECD outward FDI between 1985 and 2000, we find a significant negative impact of newly implemented tax treaties on outward FDI stocks.