The responsiveness of entrepreneurs to working time regulations

In this article, we analyse the impact of enforcement practices (proxied by judicial formalism) and the regulation of working time on entrepreneurial activity by opportunity. We find that higher enforcement formalism mitigates the negative impact exerted by rigid working time regulations on the number of entrepreneurs. While it is agreed that regulatory rigidities may increase labour transaction costs, we show that entrepreneurs are less sensitive to labour regulations the higher the level of enforcement formalism in which they operate. Higher formalism is associated with lower enforcing efficiency and lower probability of being punished for transgressing laws. A policy implication is that encouraging labour flexibility might not improve conditions for entrepreneurial activity in procedurally formalist countries. This is due to the fact that, in those countries, flexibility de facto characterises employment relations, no matter what the law says.      

The role of trade and offshoring in the determination of relative wages and child labour

Incorporating family decisions in a two-period model of the world economy, we predict that trade liberalization raises the skill premium and reduces child labour in developing countries where the adult labour force is sufficiently well educated to attract production activities from abroad that will increase the demand for skilled relative to unskilled labour. Elsewhere, liberalization will reduce the skill premium, but it will not necessarily raise child labour. Our prediction is not rejected by the data, and it explains why child labour is negatively associated with trade openness in those developing countries where the labour force was relatively well educated when the liberalization took place, but not elsewhere.     

Maintaining New Markets: Explaining Antitrust Enforcement in Central and Eastern Europe

While others have examined the implementation and/or the stringency of enforcement of antitrust laws in post-socialist economies, this paper is the first study that attempts to explain the patterns of antitrust enforcement activity across post-socialist countries using economic and political variables. Using a panel of ten European post-socialist countries over periods ranging from 4 to 11?years, we find a number of significant factors associated with enforcement in these countries. For example, our results suggest that countries characterized by more unionization and less corruption tend to engage in greater antitrust enforcement of all types. Countries more successful in privatizing have filed fewer cases, while more affluent or developed countries investigate fewer cases of all types, consistent with an income-shifting motivation for antitrust. In general, countries have tended to increase their enforcement efforts over time.     

Child Labour Use and Economic Growth: An Econometric Analysis

We present a simple dynamic theory of child labour, human capital formation, and economic growth that is consistent with some of the main features of child labour and economic development. The model supports a number of testable hypotheses, which we investigate econometrically in a systems approach. Using panel data from 64 countries in the period 1960–1980, the econometric results match the theory well. The incidence of child labour is negatively related to parental human capital and education quality, but is positively correlated with education cost. Further, countries with higher amounts of child labour tend to have lower stocks of human capital in the future. There is also a convergence phenomenon between the level and growth of human capital. The lower the current stock of human capital, the higher is current child‐labour use and the faster is the growth rate of human capital.     

EMU and Labour Market Reform: Needs,Incentives and Realisations

Despite improving labour market conditions in recent years, a number of EMU countries still suffer from high and persistent unemployment. It could therefore be expected that labour market reform would be given a prominent position on the political agenda. The new constraints associated with the common monetary policy only increase the pressure for reform. Relying on the introduction of the single currency as a trigger for labour market reform may be a risky strategy. EMU generates a complex set of re‐optimising strategies of the players on the labour market, which makes it difficult to get a clear idea what impact it will have on labour market reform. Evaluation of recent reform measures does not make one confident either. The empirical analysis confirms to some extent the idea that countries with higher unemployment rates have carried out more labour market reform. This finding holds, however, only for countries that do not belong to EMU. EMU countries have on average carried out no more reform than countries outside EMU and any link between the initial unemployment level and the labour market reform indicators seems to lack. It may become apparent that more reform is needed once the macroeconomic environment becomes more unfavourable.     

The composition of international capital flows: risk sharing through foreign direct investment

Evidence on international capital flows suggests that foreign direct investment (FDI) is less volatile than other financial flows. To explain this finding I model international capital flows under the assumptions of imperfect enforcement of financial contracts and inalienability of FDI. Imperfect enforcement of contracts leads to endogenous financing constraints and the pricing of default risk. Inalienability implies that it is not as advantageous to expropriate FDI relative to other flows. These features combine to give a risk sharing advantage to FDI over other capital flows. This risk sharing advantage of FDI translates into a lower default premium and lower sensitivity to changes in a country’s financing constraint.The model offers the new implication that financially constrained countries should borrow relatively more through FDI. This is because FDI is harder to expropriate and not because FDI is more productive or less volatile. Using several creditworthiness and country risk ratings to measure financing constraints, I present new evidence linking FDI and financing constraints. Moreover, numerical simulations of the model generate stronger serial correlation for FDI than for other flows into developing countries. This corroborates the view that non-FDI flows are more short-term and more likely to change direction.     

Environmental Regulations in Gravity Equations: Evidence from Europe

One implication of the pollution haven hypothesis is that countries export more by applying more lenient environmental regulations. Most studies that apply gravity‐type equations do not find robust support for environmental regulations to affect bilateral exports. In this paper, we show that one can obtain robust negative effects of stringency, as long as gravity equations are well specified with respect to theory. Our results, based on the European data, are both very consistent with US studies on environmental regulations and another line of very recent studies that infer non‐biased price or substitution elasticities from trade equations. We show that more stringent environmental regulations, when depicting a pure cost effect, are reducing exports. The coefficient is even larger in the case where exporting countries are Central and Eastern European countries, comparing to the EU15. Further, we show that there is no significant difference in the impact of regulations on trade in case of dirty and clean sectors. Finally, when using GMM estimation, our environmental stringency coefficient gets significantly reinforced.     

Clusters,Chains and Compliance: Corporate Social Responsibility and Governance in Football Manufacturing in South Asia

A recent concern in the debate on corporate social responsibility (CSR) in developing countries relates to the tension between demands for CSR compliance found in many global value chains (GVCs) and the search for locally appropriate responses to these pressures. In this context, an emerging and relatively understudied area of interest relates to small firm industrial clusters. Local clusters offer the potential for local joint action, and thus a basis for improving local compliance on CSR through collective monitoring and local governance. This article explores the interrelationship between global governance, exercised through GVC ties, and local governance, via cluster institutions, in ensuring compliance with CSR pressures. It undertakes a comparative analysis of two leading export-oriented football manufacturing clusters in South Asia that have both faced common challenges on child labour. The article shows that both forms vertical and horizontal governance have played a part in shaping the response of the two clusters on child labour. Moreover, these two distinct forms of governance have also led to quite differentiated outcomes in terms of forms of work organization and child labour monitoring. This raises broader questions on how global CSR demands can locally be better embedded and the conditions under which football stitchers labour in these new work forms.     

Portfolio Flows to Emerging Markets: Prospects,Pitfalls and Policy Implications

ABSTRACT

This paper examines the pattern of debt and equity portfolio flows (FPI) to the developing countries in recent years and discusses some policy and operational measures to facilitate greater FPI flows. Our analysis suggests that many countries need to adopt more aggressive measures to attract foreign portfolio investment. The major areas where improvements can facilitate FPI are identified as: political and legal environment, private sector development, improvement in macro-economic management, development of capital markets, strengthening of financial institutions, enforcement of market regulations, improvements in market operations, and effective dissemination of market information.     

Executive integrity,audit opinion,and fraud in Chinese listed firms

We examine the influence of auditors on mitigating corporate fraud in China, which is known to have weak legal enforcement, weak investor protection along with tight control of the media and labour unions. We find that firms with executives that have lower integrity, indicated by a greater degree of earnings manipulation, are associated with higher propensity of regulatory enforcement actions against corporate fraud in the subsequent year. We show that this effect is moderated by the issuance of a modified audit opinion report by the auditors. This finding implies that auditors can serve as external governance mechanism to discourage executives with lower integrity in committing fraud. Our results have policy implications for further strengthening auditor independence in emerging countries like China.     

International Migration and Child labour in Developing Countries

This paper investigates the labor market effect of international migration on child work in countries of origin. We use an original cross‐country survey dataset, which combines information on international migration with detailed  individual‐level data on child labour at age 5–14 in a wide range of developing countries. By exploiting both within and cross‐country variation and controlling for country fixed effects, we find strong and robust evidence on the role of international mobility of workers in reducing child labour in disadvantaged households through changes in the local labour market.     

Country size and trade in intermediate and final goods

This paper documents a negative relationship between country size and the share of final consumption goods in total exports. A model is developed, based on the division of labour and comparative advantage, to explain this relationship. Labour is used to produce traded intermediate inputs which are used in the production of traded final goods. Large countries gain relatively more from comparative advantage than from the division of labour, while the opposite is true for small countries. As in the data, large countries export a smaller share of final goods and a larger share of intermediate goods than small countries. It is shown that the model developed in the paper yields the same results as a model based on monopolistic competition.     

What Might Globalisation's Critics Believe?

Critics of globalisation object to many things, some of which can be easily understood within standard economic models, but others of which seem to reflect a view of the world that economists generally do not share. This paper attempts to identify several alternative frameworks for analysis within which some of their criticisms may be understood, with the ultimate aim of extracting testable implications that differ from standard models. Three such alternative models are suggested, all of which focus mainly on the behaviour of owners and managers of corporate capital: an anti‐labour model, in which capitalists are willing to sacrifice some of their own profits for the chance to make labour worse off; a labour‐monopsony model in which capitalists co‐operate globally to increase profits by depressing wages; and an international political economy model in which capitalists use their resources to influence the political process for more than just obtaining import protection. This third framework, which is not spelled out in any detail here, has capitalists seeking policies such as export subsidies and other means of promoting market access, and it also has them influencing the international negotiations that set the rules of international agreements and organisations, such as the NAFTA and WTO. Examples of the latter sort of influence are discussed.     

The Theory of Raising Rivals’ Costs and Evidence from the International Labour Organisation

The strategy of raising rivals’ costs may be adopted by firms in a market, a cartel or interest group or by political majorities in a federal state or international organisation. We provide a first survey and formal exposition of the theory and present examples for each of these applications. In an international cross‐section analysis using unpublished data for the period 1980–98, we explain roll‐call voting of government representatives in ILO committees drafting international labour standards. Using four different indices of regulation and country samples, we find that governments vote for tighter standards if labour regulation is high in their own country. Our evidence rejects the hypothesis of Brown, Deardorff and Stern that countries exporting low‐skill labour‐intensive products vote for ILO standards in order to restrict their own supply and increase their terms of trade. As expected, left‐party governments vote more in line with labour unions than other governments do. Domestic regulation has a considerably larger effect on voting if the convention in question would raise labour costs in ILO member states. This indicates that highly regulated countries try to raise others’ costs.     

The Production of Child Care Services in Sweden: Uneven Development and Local Solutions

This article deals with the production and regional development of child care services in Sweden. The production of social services outside the home is discussed in relation to labour market needs and equal opportunities. Staffing, organisation and extension of child care services, as well as restructuring trends are dealt with. The services studied are characterised by local solutions. Reasons for local variations are discussed with special references to labour market factors, political tradition and level of urbanisation. No single factor can explain the variations. Explanations have to be found in the specific local mix of factors.     

Rewarding customers who keep a product: How reinforcement affects customers' product return decision in online retailing

A lenient product return policy represents the status quo of current return management practice in online retailing because it increases customers' order tendency. However, at the same time, many customers tend to return products under this policy, which incurs considerable costs for retailers. The present research introduces a keep reward (i.e., providing incentives to keep a product) as a new promotion strategy to improve the conventional lenient policy. Drawing on operant conditioning, the authors propose and test the reinforcing effect of a keep reward on customers' keep decision, compared to the conventional lenient policy. Results of a qualitative pilot study suggest that a keep reward is generally feasible in online retailing practice, especially in the low‐ to mid‐price segment and with rewards that are linked to future purchases. Two experimental studies verify the positive effect of a keep reward. Study 1 shows that it substantially increases keep intention compared to a conventional lenient policy. Study 2 shows that the effect on keep intention is moderated by customers' online shopping frequency, and this moderating effect is mediated by repurchase intention. In particular, the keep reward is most effective among frequent shoppers because they are more inclined to repurchase and thus, benefit from the reward. In summary, both studies support the keep reward as a valuable add‐on to the conventional lenient policy because order intention remains comparably high, while keep intention is higher. Theoretical implications and recommendations for online retailers on how to implement a keep reward in different industries are discussed.     

Legal and Institutional Determinants of Factoring in SMEs: Empirical Analysis across 25 European Countries

Weak protection of the rights of financiers intensifies agency problems in SME financing, inhibiting the optimal provision of credit necessary to grow and innovate. We use a survey data set of 4,348 SMEs from 25 European countries to analyze whether the use of factoring as a form of SME financing is less dependent on low quality of laws and institutions. We do so analyzing whether the use of factoring by SMEs differs across countries due to differences in the legal protection of creditors. Our findings indicate that firms operating in countries with legal environments that weakly protect the rights of creditors, with political instability or high enforcement costs, are more likely to use factoring. Managers of riskier and opaque companies operating in such inefficient environments can use the results of this study to better understand that there are suitable options to complement bank financing. Managers who seek loans can use the results to diversify their financing structure through the use of factoring. Since factoring can be used as a complement to bank loans or as a substitute for bank financing, it is important that policy makers take our results into account when revising policies concerning access to external financing.     

Institutional Investors,Political Connections,and the Incidence of Regulatory Enforcement Against Corporate Fraud

We investigate two under-explored factors in mitigating the risk of corporate fraud and regulatory enforcement against fraud, namely institutional investors and political connections. The role of institutional investors in the effective monitoring of a firm’s management is well established in the literature. We further observe that firms that have a large proportion of their shares held by institutional investors have a lower incidence of enforcement actions against corporate fraud. The importance of political connections for enterprises, whether in a developed market such as the United States or an emerging market such as China, has been established by previous studies. However, we find evidence of another positive effect of political connections: they may reduce the incidence of enforcement action against corporate fraud. We also find that political connections play a more significant role in reducing regulatory enforcement incidents against non-state-owned enterprises and firms in weaker legal environments, whereas institutional ownership plays a more important role in reducing regulatory enforcement incidents against state-owned enterprises.     

Financial Integration in East Asia: An Empirical Investigation

The central objective of this paper is to empirically evaluate the degree of linkages among East Asian equity and bond markets. Using data from the IMF’s Coordinated Portfolio Investment Survey (CPIS), we find that intra‐East Asian financial asset holdings of four East Asian countries – Japan, Korea, Hong Kong and Singapore – are larger than the levels predicted by the financial gravity model. However, our analysis suggests that this result is likely to be driven by intra‐regional trade linkages and reflect those linkages. Therefore, the salient implication for regional policymakers is that they should continue to promote intra‐regional financial integration. This paper also aims to analyse the impact of three different types of country‐specific risks – political, economic and financial risks – on investment from the four countries. This analysis yields a clear positive relationship between destination‐country risk, in particular political risk, and capital inflows.     

An Explanation of the International Variation in the Prevalence of Child Labour

It is hypothesized that the institutional acceptability of child labor will be more prevalent when the other members of a society gain from its use. Therefore, the cross‐country variation in the prevalence of child labor depends on the degree to which child labor affects the welfare of the remaining members of a society. It is demonstrated theoretically that the non‐child‐labor factors gain from child labor when the economy is closed. As an economy becomes more open to international trade, those gains diminish and even turn negative as the size of the economy increases. Child labor will not exist in capital abundant countries since, in them, child labor makes the non‐child‐labor factors worse off. It is shown empirically that the cross‐country prevalence of child labor falls with increases in a nation's per capita income, its openness to trade, and its economic size. It is argued that trade sanctions, as a remedy for child labor, may be counter‐productive since an open economy reduces the benefits of child labor to the other members of a society, and thereby reduces the society's incentive to allow child labor. The model also demonstrates that the economic changes brought on by democracy undermine the practice of child labor.