Non‐linear geographics and the economics of transition and democratization1

The purpose of this study is to analyse the effects of geography on the transition process in authoritarian political regimes, and to investigate the nature of the links between political change, economic reforms and geographical location. A simple model of transition and democratization is presented wherein we show that the effectiveness of repression by the incumbent elite is a negative function of the distance to the ‘free world’. In consequence, geography has conflicting effects on shifts in political power. This article provides a rationale for the counterintuitive fact that the first authoritarian country to start a transition process towards democratization is not necessarily the one nearest to the free world.     

How does knowledge network affect a firm’s explorative innovation? The contingent role of R&D collaborations

Innovation is a process of knowledge recombination [Fleming, L. 2001. “Recombinant Uncertainty in Technological Search.” Management Science 47: 119 p]. Extant literature highlights the importance of a firm’s knowledge base for innovation, while little is known about the structure of a firm’s knowledge base and how it affects the firm’s explorative innovation. Based upon the perspective of network analysis, we portray a firm’s knowledge base as an intra-organisational knowledge network and examine the effects of two structural features of the network – density and centralisation – on the firms’ exploratory innovation. Using a manual collected dataset of 738 Chinese automobile manufacturers, we find that a firm explores fewer new knowledge elements when the firm holds a dense knowledge network or a centralised knowledge network. More importantly, with the increase of a firm’s R&D collaborations with external actors, the negative effect of density is mitigated while the negative effect of centralisation is reinforced. Both theoretical and practical implications are discussed.     

Using a distance measure to operationalise patent originality

We introduce a distance measure to operationalise Trajtenberg, Henderson, and Jaffe’s [1997. “University Versus Corporate Patents: A Window on the Basicness of Invention.” Economics of Innovation and New Technology 5: 19–50] originality construct (an ex-ante indicator of firms’ technological capabilities). Our measure captures (1) technological diversity, (2) technology distance from patent antecedents, and (3) degree of novelty per each patented innovation. The V-score measure uses the Derwent World Patent Index system to classify technologies hierarchically – making similarities and differences pronounced. Power is gained by using all of the technology-classification codes describing a focal patent’s claims when calculating whether its technology space was incrementally different or radical from those of its antecedent patents (and identifying whether its technology-class code combinations were commonplace at the time when the patent application was made). Our V-score’s prediction of firms’ performance is contrasted with Hall, Jaffe, and Trajtenberg’s [2001. Hall, B. H., A. B. Jaffe, and M. Trajtenberg. 2001. The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools. NBER Working Paper No. 8498] Herfindahl measure of the same originality construct. Results indicate that the distance measure of technological content produces differently signed results when evaluating patents’ performance effects or predicting a firm’s trajectory.     

Territory as a Psychosomatic Device: Gottmann’s Kinetic Political Geography

Without denying the importance of his contributions to regional, economic, historical and urban geography, a rediscovery of Jean Gottmann’s political geography and its current geopolitical relevance has been taking place in Europe since the 1990s. The relative absence of his name in most of the subfield historical accounts, in contrast to the international reputation of his book Megalopolis has inspired this article, which attempts a survey of Gottmann’s key contributions to political geography, with emphasis on those in French. A bio-bibliographical analysis, enhanced by original references to archival source, was necessary for reconstructing the genesis and development of his political geography. Specifically, Gottmann states that territory is a psychosomatic device because its political partitioning is produced by the psychological oscillation in pertinent communities between search for security and search for opportunities. In the conclusions, a few questions are raised about how his theories could be applied to improving our understanding of the contemporary geopolitical scenario.

The concept of territory, with its material and psychological components, is a psychosomatic expedient necessary to preserve freedom and the variety of separated communities in an interdependent and accessible space.

— Jean Gottmann, ‘The Evolution of the Concept of Territory’, Social Science Information 14/3–4 (1975) pp.29–47.

     

Responses: Geography as space and geography as place: The divide between political science and political geography continues

Steven Spiegel's article ‘Traditional Space vs. Cyberspace’ exemplifies the divide between political science and political geography. In trying to incorporate geographic factors into his consideration of post‐Cold War geopolitics, Spiegel equates his view with distance and less explicitly with territory. The attempt to position geography as central to international politics has failed once again because of the equation of spatial analysis with the field of geography. Ignorance and neglect of the place tradition, prominent in contemporary geography, is the most important factor in the continued failure of communication between Geography and International Relations.     

Low-cost innovation and technology-driven innovation in China’s machinery industry

ABSTRACT

The political concept of indigenous innovation in China sets out a guiding principle for the country’s major transformation towards becoming an innovation nation. However, firms’ innovation strategies and capabilities in middle-income countries are usually heterogeneous, making a uniform response to this concept at the company level highly unlikely. The paper’s empirical contribution is based on analysing survey data on technologically advanced machinery firms in China. It uses a multinomial model approach to establish which drivers of innovation go hand-in-hand with the different innovation strategies. This paper identifies different innovation strategies and forms of innovation that co-emerge as part of this transformation, leading to four firm groups: low-cost producers, technology-oriented producers, user-oriented innovators and technology-oriented innovators. It thus contributes to a more differentiated view of the effects of China’s innovation-focused transformation. We find that R&D investments, governmental R&D support and scientific collaborations are key factors to distinguish between the above-mentioned groups.     

Firm heterogeneity in TFP,sectoral innovation and location. Evidence from Italy

Sectoral and territorial specificities affect a firm’s capabilities of being productive. While there is a wide consensus on this, a quantitative measure of these effects has been lacking. To this end, we combine a data-set of Italian firms with some meso regional and sectoral variables and apply a cross-classified model that allows for a clear distinction between firm, region-specific and sector-specific effects. After observing a marked TFP heterogeneity across firms, the paper addresses the issue of understanding how much differences in firms’ productivity depend on regional localisation and sector specificities. Results refer to 2004–2006 and have three aspects. First, they confirm that the main source of firm variety is mostly due to differences revealed at individual level. Secondly, we find that the sector is more important than location in explaining firms’ TFP. Lastly, the results show that firm TFP increases when it belongs to more innovative sectors. Similarly, companies get benefits from belonging to sectors where there is a high proportion of firms using R&D public support and a high propensity to collaborate in innovative projects.     

Civilisations and Their Discontents: Political Geography and Geopolitics in the Huntington Thesis

This article considers the place of political geography and geopolitics in Samuel Huntington's celebrated work Clash of Civilizations. It is argued that Huntington's engagement with geography is fundamentally ambivalent. On the one hand, he frames his entire analysis as a form of what he calls political geography, and he invokes geographical factors in various ways throughout the entire text. At the same time, however, he explicitly discounts the significance of space or territory in the civilisational framework that he depicts. An analysis of Huntington's inconsistency in this regard contributes to a broader critique of his overall premises, logic, and conclusions. Beyond this, it provides insight into the uncertain position of geography more broadly in contemporary discourses of international relations and international security. Ultimately, I suggest that the ambivalences in the Clash of Civilizations are indicative of certain ‘fault lines’ — to borrow from Huntington's own lexicon — that have been characteristic for the American security imagination across much of the twentieth century.     

The Determinants of Location Choices of China's ODI: Institutions,Taxation and Resources

China has become the third largest source of outward direct investment (ODI). This paper studies how institutions in the host countries affect the location choices of China’s ODI. Based on a deal-level sample from 2002–2011, this paper empirically tests how political institutions, political stability, government effectiveness, regulatory quality, rule of law and contrd of corruption in the host countries affect the location choices of China’s ODI. On top of these institutional factors, we study the effects of tax evasion and natural resources in host countries, and their interactions with institutional factors. We find that political institutions in the host countries are not major concerns of the ODI, while government effectiveness, regulatory quality, and control of corruption have significant effects on the locations of ODI. In addition, China’s ODI tends to avoid countries with strict legal systems. Tax evasion and resources are also major motives of China’s ODI. General institutional quality and tax evasion are substitutes in China’s ODI location decisions.     

董事来源地特征、政治关联等级与公司价值*——基于“18号文”董事政策性辞职的经验证据

董事政治关联对于公司价值的影响一直是学者们关注的重要问题。中组部2013年10月30日发布了《关于进一步规范党政干部在企业兼职（任职）问题的意见》（以下简称“18号文”）,禁止现任及尚未办理离职手续的政府官员在企业兼职任职。基于此,本文以2013年10月30日-2014年10月30日期间我国股市所有辞职董事为样本,研究了董事政治关联等级与公司价值的关系,以及该关系受到的董事来源地特征的影响。本文发现：（1）董事政治关联等级越高,辞职引发的公司价值的下跌程度越显著;（2）考虑辞职董事来源地特征后发现,异地董事、京城董事或者异地且京城的董事辞职后,其政治关联等级对公司价值下跌的影响更显著。进一步分析表明,“18号文”公布时也有显著的市场反应,表现为聘有政治关联董事的公司价值下跌更明显。本文研究表明,聘任政治关联等级较高的董事,特别是异地或权力中心的董事,是公司建立政治联系、影响公司价值的重要途径。     

Separation of Regulatory Powers When Contracts Are Incomplete

The investment of a regulated firm affects the service/good provided on many dimensions. Should an integrated regulator take care of them all? Or is it better to have separate regulators responsible for them? We analyze the effect of the separation of regulatory powers on the regulated firm's ex ante incentive to invest in a “cooperative” innovation. The effects of the innovation are not verifiable and the cost of investing is sunk, hence, there is a problem of hold‐up. We find that when the innovation produces opposite effects the ex ante firm's incentive to invest is larger in the case of separation than in the case of integrated regulation. We also stress the risk of over‐investment that the separation of regulatory powers may induce. We maintain that along with classical incentive regulation—which mainly provides incentives for the firm to be efficient—the separation of regulatory powers may play a role in providing an incentive for cooperative innovations.     

Exporting to fragile states in Africa: Firm‐level evidence

This study analyses the effect of fragility in destination markets on firm export behavior and the role of firm size in mediating adverse outcomes. The analysis is conducted using firm transaction data on Kenyan exports to Africa over the period 2004–2013. The analysis reveals that fragility negatively affects a firm's decision to enter a given destination market, reducing Kenya's bilateral trade flows to African countries. Larger firms are more resilient to destination shocks in fragility and are less likely to exit. These results are robust to alternative measures of destination fragility, and the exclusion of bordering countries and the East African Community partner states. Our analysis reveals that the effect of business fragility (regulatory quality, government effectiveness, and control of corruption) dominates that of political fragility (voice and accountability, rule of law, and political stability), although both effects are negative and significant.     

Agglomeration,backward and forward linkages: evidence from South Korean investment in China

Abstract With a firm‐level data set, we study the location decision of South Korean multinationals across China's regions. Our conditional logit estimates confirm agglomeration effects along industry and along national lines. We add an upstream and downstream (backward and forward) linkage effect. We find that the presence of upstream and downstream South Korean affiliates significantly increases the likelihood that a South Korean multinational invests in a particular region. However, linkages that do not differentiate by nationality do not seem to matter much. As such, our analysis of investors' location choice brings together two perspectives: linkages and agglomeration along national lines.     

Does the stock market affect investment by Chinese firms? Some new evidence

During the 1990s, the Chinese government increasingly relied on the stock market as the major tool for state‐owned enterprise (SOE) reform and for the allocation of investment resources. This paper investigates the impact of stock market development in China on firm‐level capital investment by using a panel data set constructed by the author of all Chinese listed firms for the period 1992 to 1999. The results show that stock market valuation, as measured by Tobin’s q, has a highly independent, significant and positive influence on listed firms’ investment decisions, particularly during the stock market boom from 1996 to 1999. Given the sizable real effects of the stock market, deviations of stock prices from fundamentals can have substantially negative consequences. As a result, this study suggests that sensible regulation of the Chinese stock market is needed in order to enhance the efficiency of stock prices and facilitate an effective channeling of investment funds.     

Uncertainty and Investment: Evidence from Australian Firm Panel Data

This paper investigates the key drivers of fixed firm investment of listed non‐financial companies in Australia over the period from 1987 to 2009. A Tobin's q model of investment is augmented to account for the effect of economic uncertainty on the investment decision. The effects of Tobin's q, sales and cash flows on firm investment rate are also analysed and discussed. Consistent with existing literature, this research finds clear evidence of negative effects of both macroeconomic and firm idiosyncratic uncertainty on Australian firm investment. However, evidence also shows that firm‐specific uncertainty is more important in explaining firm investment than macroeconomic uncertainty.     

The Effects of Earnings Guidance on Investors’ Perceptions of Firm Credibility in a Two-Firm Setting

This study investigates how a peer firm's earnings guidance affects investors' credibility assessments of a target firm. Results suggest that when both a target firm and a peer firm provide earnings guidance, contrast effects occur such that the more accurate the earnings guidance of the target firm relative to the peer, the greater are investors' credibility assessments for the target. However, such contrast effect diminishes as the target firm's earnings guidance becomes more accurate. On the contrary, when a peer provides earnings guidance but the target firm does not, assimilation effects as opposed to contrast effects dominate investors' credibility judgments.     

Corporate tax avoidance and cost of equity capital: international evidence

ABSTRACT

This study examines the association between firm’s tax avoidance activities and cost of equity capital across 17 countries. Consistent with the prior study based on the U.S. evidence, within strong investor protection countries, the extent of firm’s tax avoidance is negatively associated with its cost of equity capital. This result indicates that strong investor protection induces investors to perceive firm’s tax avoidance activities as the results of efficient tax planning to reduce tax liabilities. To the contrary, we find that the extent of firm’s tax avoidance is positively associated with its cost of equity capital within weak investor protection countries. This result suggests that investors impose equity risk premium on firm’s tax avoidance activities in weak investor protection countries, where agency conflicts prevail more on firm’s tax avoidance activities. As the first international study on the association between firm’s tax avoidance activities and its cost of equity capital, this study contributes to the literature by suggesting that such an association may vary across countries depending on the strength of investor protection within each country of domicile.     

Political uncertainty and labour investment efficiency

ABSTRACT

We examine the impact of political uncertainty on the labour investment efficiency (LIE) of a firm. Using a sample of Chinese firms, we test the market discipline and managerial entrenchment hypotheses. Our findings suggest that political uncertainty adversely affects LIE. The results are consistent with the managerial entrenchment hypothesis. That is, firms hire more labour in a period of increased information asymmetry due to the political uncertainty, which deteriorates LIE. Our findings are robust to a battery of alternative measures of LIE and estimation methods. We conduct several additional analyses and document that the adverse impact of political uncertainty is stronger when the newly appointed government official is older, the firm is state-owned, the firm belongs to a politically sensitive industry or the firm operates in locations with stringent labour protection. By contrast, when the firm locates in a region with weak Chinese government intervention or after President Xi Jinping’s anti-corruption campaign, the adverse impact of political uncertainty on LIE is less pronounced. Last, we document that after hiring more labour, firms receive tangible and intangible benefits in terms of receiving more loans, collect more government subsidies, and able to re-establish some political connection but at the cost of lower performance.     

The Duality of Political Geography in China: Integration and Challenges

ABSTRACT

This paper reviews the genealogy of ‘Chinese’ political geography, which, to a certain extent, can be read as a national report of the status of political geography in Chinese scholarship. It begins by outlining the short duration of the development of political geography in China, compared to the longer history of western political geography. Looking at the extant studies related to political geography in China, this paper suggests an existence of a duality in this field. One strand of scholarship is termed ‘exogenous political geography’, which is largely influenced by western scholarship with a particular focus on theories and vocabularies from classical geopolitics and geo-economy. The other strand is termed as ‘endogenous political geography’, which covers rich topics, including, yet not limited to, political and geographical views of inter-state relationships, central-local relationships and emperor-people relationships. Such a duality is important for understanding the condition of current political geography in China. The dualised understanding, however, seems to have undermined the comprehensiveness of political geography in China. In this regard, this paper calls for a more complete, integrated and critical agenda for political geography in China.     

Strategic competition and optimal parallel import policy

Abstract In a two‐country Hotelling type duopoly model of price competition, we show that parallel import (PI) policy can act as an instrument of strategic trade policy. The home firm’s profit is higher when it cannot price discriminate internationally if and only if the foreign market is sufficiently bigger than the domestic one. The key mechanism in the model is that the home firm’s incentive to keep its domestic price close to the optimal monopoly price affects its behavior during price competition abroad. We also analyze the welfare implications of PI policies and show that our key insights extend to quantity competition.