Reindustrialization: Conditions,goals, and stages

The article discusses the possible milestones for enhancing processes of reindustrialization as a major economic problem of the country. Issues of finding resources for their implementation and mechanisms for their use and the objective and subjective difficulties of solving this problem are analyzed.     

The assessment: knowledge, skills, and competitiveness

The autumn 1988 issue of the Oxford Review of Economic Policyconsidered the UK's deficiencies in vocational education andtraining (VET). It was there that Finegold and Soskice firstpopularized the notion of the 'low skills/low quality' equilibrium.This Assessment introduces a range of articles which discussdevelopments in the decade that has passed since then. It arguesthat, despite massive policy initiatives, there has been onlylimited improvement in the UK's relative VET performance. Considerableprogress has been made in analysis of market failures affectingthe supply of skills, and in analysis of the possible causesand consequences of low employer demand for skills (systemsfailure). The recent Competitiveness White Paper reflects thisimproved understanding. However, there is still an imperfectappreciation of the nature of skills and of their contributionto the development of a more competitive, higher value-addedeconomy. The article ends by suggesting how progress might bemade on this front.     

Black markets: Illegality, information, and rents

The analysis of black markets typically treats illegality only in reduced form as an additional cost per transaction. We argue that this misses the essential feature of black markets: that the risk of detection depends upon the dissemination of information. Because the cost of information is increased, traders will change marketing technology from advertising to sequential approaches to potential customers. The trader's decision problem is his offer price: as he raises it he must expect to make more approaches per sale and thereby increase detection risk. This behavior is important because of its implications at the market level. The optimal offer price will be set at a level at which excess demand persists: would-be consumers are not always able to bid themselves into supplies. Hence, black markets are not sufficient to eliminate the shortages which arise from price controls. In an earlier paper the authors established that peasant supply response to crop prices would be perverse in the presence of shortages: black markets therefore need not restore normal responses. The paper includes evidence from rural Tanzania.     

FDI,Trade, and Product Innovation: Theory and Evidence

This article investigates the relationship between foreign direct investment (FDI, including outward FDI and inward FDI), imports and exports, and product innovation. Our theoretical model predicts that inward FDI, outward FDI, imports, and exports have positive influences on firm innovative activities, which would evaluate the effects of the relative magnitude of different sources on innovation. The empirical results based on the 2003 First Taiwan Technological Innovation Survey confirm three of the proposed hypotheses for the entire sample. However, when focusing on the manufacturing sector, outward FDI, inward FDI, imports, and exports all exhibit strongly positive effects on the determination of conducting product innovation (i.e., the four hypotheses are verified). A consistent trend is that outward FDI has the largest effect on innovation, regardless of the measurement of product innovation and the division of the entire sample, which may imply that in Taiwan a positive effect of “deindustrialization” is to innovate more.     

Prostitutes,Pimps, and Brothels: Intermediaries,Information, and Market Structure in Prostitution Markets

Prostitution is a multi‐billion dollar, globally distributed, low‐concentration service industry that is receiving increasing attention in the economics literature. This article focuses on a widespread, but little studied, feature of this environment—the role of intermediaries (pimps or brothel owners) on market outcomes. Prostitution laws and markets are perhaps unique in that transactions between principals (prostitutes and johns) are legal in many countries, while intermediary activity (pimping) is illegal. After surveying the varying cross‐country legality of agents we develop a simple theoretical model to analyze how the presence or absence of intermediaries shifts the distribution of market surplus. We show that eliminating pimps and brothels may shift surplus in non‐obvious ways, depending on the precise function they perform and on whether equilibrium is pooling or separating across “high quality” and “low quality” market segments. The implications of alternative policy regimes (intermediaries legal or illegal) are considered.     

FDI,Education, and Economic Growth: Quality Matters

In this paper, we revisit the results from the influential study by Borensztein et al. (Journal of International Economics 45:115–135, 1998), which argues that inward foreign direct investment (FDI) promotes the economic growth in a less developed host country only when the host country obtains a threshold level of secondary schooling. Borensztein et al. (Journal of International Economics 45:115–135, 1998) only focus on the quantity of education. We take into consideration both the quantity and the quality of education. We adjust the original schooling data in Borensztein et al. (Journal of International Economics 45:115–135, 1998) by two quality of education indices and re-estimate their model. We find that the complementarity between inward FDI and schooling still exists, but the threshold level of schooling in our study is lower than the threshold calculated in Borensztein et al. (Journal of International Economics 45:115–135, 1998). Our results support the importance of education quality and suggest that with improved quality of education, it does not take as much quantity of schooling, as established in Borensztein et al. (Journal of International Economics 45:115–135, 1998), for inward FDI to have a positive impact on economic growth in the host country.     

The Assessment: European Networks--Competition, Interconnection, and Regulation

Recent events, such as the California energy crisis, the failuresof the UK's railways, and the consequences of the third-generation(3G) mobile licence auctions, have called into question theEuropean reliance on a strategy of network industry liberalization.Substantial concentration in energy and telecoms markets hasalso raised the issue of the consistency of competition policywith the creation of internal energy and communications markets.The paper considers the multiple market failures in these industries,and the problems raised by a series of national policy approacheswhich fail fully to reflect the economies of scale and scopeand the European-level public goods. Security of supply in energy,the roll-out of broadband, and the gains for an overarchingapproach to climate change require a more European focus. Thisin turn will require institutional reform at the European level.Failure to address this Europe-wide agenda will leave Europebehind the USA.     

Transfer Pricing: Strategies,Practices, and Tax Minimization

Using a survey of tax executives from multinational corporations, we document that some firms set their transfer pricing strategy to minimize tax payments, but more firms focus on tax compliance. We estimate that a firm focusing on minimizing taxes has a GAAP effective tax rate that is 6.6 percentage points lower and generates about $43 million more in tax savings, on average, than a firm focusing on tax compliance. Available COMPUSTAT data on sample firms confirm our survey‐based inferences. We also find that transfer pricing‐related tax savings are greater when higher foreign income, tax haven use, and R&D activities are combined with a tax minimization strategy. Finally, compliance‐focused firms report lower FIN 48 tax reserves than tax‐minimizing firms, consistent with the former group using less uncertain transfer pricing arrangements. Collectively, our study provides direct evidence that multinational firms have differing internal priorities for transfer pricing, and that these differences are strongly related to the taxes reported by these firms.     

Interest rates, risk, and imperfect markets: puzzles and policies

Traditional theory emphasizes the key role that monetary policycan play through the manipulation of interest rates. But thereare several puzzles that cannot be reconciled with standardmodels. These include: the apparent constancy in interest ratesover extended periods, and changes at other times which appearunrelated to changes in technology and demography; the cyclicalpattern of movements in real interest rates; the impact of nominalnot real interest-rate changes on real variables; and the cyclicalpattern of movements in interest-rate spreads. This paper reachesbeyond the standard competitive equilibrium, perfect information,model of credit markets towards imperfect information models,particularly those that focus on the determinants of bank behaviour.Of the standard models, the money demand model is most deficientin understanding these puzzles. The loanable funds theory anda generalized version of real productivity theory can be reconciledwith imperfect information, and markets and the consequent creditand equity rationing regimes help to explain the puzzles. Specifically,banks may be insensitive to changes in monetary stance owingto risk aversion. There are strong policy implications; it isargued, for instance, that in East Asia raising interest ratesexacerbated economic decline and, rather than contributing toexchange-rate stability, may have induced capital flight asdefault risk increased, lowering risk-adjusted expected returns.