Transportation Costs and US Manufacturing FDI

In empirical models of foreign direct investment (FDI), distance is most often used to proxy for transportation costs and other pure‐trade costs. Given that distance is time invariant but transportation costs are not, this approach is less than satisfactory when actual transportation costs rise and fall over time.The contribution of this work is to explicitly control for transportation costs and thereby better understand their impact on FDI. We explore the impact of shipping costs on total US FDI stocks abroad, manufacturing stocks and service stocks using measures of sea‐shipping and air‐shipping costs in a Hausman–Taylor model that controls for endogeneity and allows for time‐invariant variables such as distance. We find that transportation costs have a positive and statistically significant relationship with US total and manufacturing FDI, suggesting a substitute relationship between FDI and trade flows consistent with horizontal MNE activity. As one would expect, these costs are insignificant for service stocks.     

Environmental Abatement Costs and Establishment Size

The impact of environmental abatement costs on the size distribution of manufacturing establishments in pollution-intensive industries is analyzed. Utilizing both state- and industry-specific measures of environmental regulation, a new and important interaction is discovered: Establishment size increases with state environmental abatement costs, but only in industries during periods of relatively high (national) pollution abatement intensity. Increased state environmental stringency during times when similar industries located in other states are not undertaking sufficient abatement expenditures leads to a decrease in establishment size. (JEL L11 , L51 , R38 )     

The ‘New Federalism’ and Horizontal Equalization*

Under Stage I of Australia's ‘New Federalism’ policy a given share of Commonwealth tax revenue is to be distributed to the States. This paper examines the States (Personal Income Tax Sharing) Act 1976 and proposes a concrete fiscal equalization criterion consistent with the provisions for equalization in the Act. Distribution models proposed in Mathews (1979) and Commonwealth Grants Commission (1981) are examined and shown not to satisfy this criterion. An alternative is presented.     

Firm Size Distribution and Growth*

Abstract Empirical documentation of the sectoral distribution of firm size for a set of European countries reveals substantial differences. We study the relationship between productivity growth at the industry level and size structure. A positive and robust relation is found between average firm size and growth. We ask why size should matter for growth by considering the role of innovation to construct a test based on the differential effect of size on growth according to various indicators of R&D intensity. Our results indicate that larger size fosters productivity growth because it allows firms to take advantage of all the increasing returns associated with R&D. We argue that our test can be interpreted as a test of reverse causality, which lends support to the view that firm size has a causal impact on growth.     

Attracting the Rival’s Customers in a Model with Switching Costs

We consider the option of a firm’s honouring the rival’s coupons in a duopoly model in which products are differentiated by both characteristics and a switching cost. A firm may honour its rival’s coupons to increase its market share only if its previous market share is less than one‐half but not too low and, as a result, the market share is increased but only up to one‐half. JEL Classification Number: D13.     

Market Size and the Survival of Foreign‐owned Firms*

We develop a general equilibrium model with heterogeneous firms and foreign direct investment cost uncertainty and investigate the survival of foreign‐owned firms. The survival probabilities of foreign‐owned firms depend on firm‐level characteristics, such as productivity, and host country characteristics, such as market size. We show that a foreign‐owned firm will be less likely to be shut down when its parent firm's productivity is higher and its indigenous competitors are less productive. Although a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign‐owned firms if their parent firms are sufficiently productive.     

THE POST-KEYNESIAN ‘DEMAND FOR CREDIT’ MODEL*

The post-Keynesian ‘demand for credit’ model is a well-cited piece of empirical evidence to support the contention that the money supply is endogenously rather than exogenously determined. In this paper, the model is critically examined and found to be problematic in several ways. Cointegration techniques are used to estimate a similar model using Australian data.     

Estimating Labor Demand with Fixed Costs*

We consider a dynamic model in which firms decide whether or not to vary labor in the presence of fixed costs. By exploiting the first‐order condition for optimality, we derive a semireduced form in which firms' intertemporal employment is defined by a standard marginal productivity condition augmented by a forward‐looking term. We obtain a marginal productivity equilibrium relation that takes into account the future alternatives of adjustment or nonadjustment that firms face. We use the structural parameter from this condition to estimate the fixed cost within a discrete decision process. Fixed costs are about 15 months' labor cost.     

Risk Aversion and the Full Costs of Rent-Seeking*

Risk aversion is frequently postulated as one of the factors that lead to under-dissipation of rents. However, the formal analyses which have supported this contention and suggested that the effects can be large have focused solely on the expenditures of contestants, ignoring the associated costs of risk. The paper argues that this omission is wrong in principle, and that when corrected the presence of risk aversion in fact leads to substantial increases in the extent of rent dissipation, although an exception is when there is a very strong combination of risk aversion and asymmetry.     

Time is Money: Improved Valuation of Time and Transportation Costs

The proper valuation of time isimportant for estimating the demand for severaleconomic goods. This paper explores the propervaluation of time when estimating recreationaldemand, where time costs represent asubstantial portion of the ``purchase price'. Toestimate demand, this paper uses a travel costframework to analyze actual behavior (``revealedpreference data') and hypothetical behavior(``stated preference data'), which is induced byhypothetical increases in access fees, traveltime, and travel distance. By comparing theresponses to these three contingencies, theanalysis adjusts and improves the valuation oftime costs. As evidence of this improvement,this analysis demonstrates a great increase inthe consistency between the revealed and stateddata. Similarly, this paper improves thevaluation of transportation-related costs.     

The EPAC ‘Growth Papers’: An Assessment*

During 1986 the Economic Planning Advisory Council published a series of six papers examining the role of economic policy in fostering long-term growth. This article provides a review and critical assessment of the EPAC analysis. The fundamental issue at stake is whether long-term growth is a supply-driven or a demand-driven process. In particular, the crucial issue neglected by EPAC is the relationship between aggregate demand, the inducement to invest and the growth of productive capacity. The conclusion is that in order to promote sustained growth, policy must provide the structural and macroeconomic requirements for a sustainable growth of aggregate demand.     

Have Falling Tariffs and Transportation Costs Raised US Wage Inequality?

To gauge the effect of international trade on the rising US skill premium, the paper analyzes the sector bias of price changes induced by changes in US tariffs and transportation costs. It is found that, in both the 1970s and 1980s, cuts in tariffs and transportation cost levels were concentrated in unskilled‐intensive sectors. Despite this suggestive evidence, the authors estimate that price changes induced by tariffs or transportation costs mandated a rise in inequality that was mostly statistically insignificant. Thus, they do not find strong evidence that falling tariffs and transport costs, working through price changes, mandated rises in inequality.     

CHILDCARE USE AND PARENTS’ LABOUR SUPPLY IN AUSTRALIA*

Based on data which are representative of the Australian population in 2002, this paper first analyses the demand for and cost of formal and informal childcare for couple and sole‐parent families, shedding light on factors which affect the demand for childcare. The predicted demand of formal childcare and the predicted costs of informal childcare arising from these models are then used to impute total childcare costs at different levels of labour supply. Finally, the predicted total costs are incorporated in the estimation procedure of structural labour supply models for couple and sole parent families. By making several extensions to the methodology adopted in Doiron and Kalb (2005a ), who estimated similar models based on 1996 Australian data and which this paper largely replicates in terms of methodology, it is found that the average elasticities of labour supply with regard to the cost of childcare are quite similar to the earlier estimates. The elasticities remain at the lower end of the range found in the international literature with the exception of the elasticities for sole parents with preschool children and/or on relatively low wages.     

FIRMS’ CHARACTERISTIC AND EQUILIBRIUM WITH TRADEABLE PERMITS MARKET*

We study, in a simple model, the partial equilibrium of an industry with n firms endowed by different Cobb‐Douglas technologies which have different pollution effects. The price of input (labour) and the demand curve to the industry are given. Pollution is restricted by a tradeable market of permits in the industry. Each firm is characterised by a parameter combining production efficiency and pollution effect, its e‐characteristic. The equilibrium depends mainly on these e‐characteristics which are linked to the performance of the technologies. In the long run performances are defined per unit of capital. Last, we analyse the consequences of permits’ allocations on the profitability of the firms.     

A Linear Expenditure System with Adjustment Costs*

This paper develops a new dynamic version of the linear expenditure system. The dynamics derive from the utility function specification which includes an adjustment cost term. As a result, the consumer is less likely to fine-tune his consumption pattern—the substitution effects of small price changes are zero. The issue of the discrimination between this model of habit persistence and the Pollak and Wales habit formation model is discussed in some detail. Some preliminary estimates of the model are reported; these estimates were obtained using a quarterly Australian data base in which six commodities are individually distinguished.