The effect of the euro on foreign direct investment

In this paper the recent effect of the European Monetary Union on inward FDI-flows is examined using a difference-in-differences approach. The estimated results show that the introduction of the euro raised inward FDI flows by approximately 16% within the euro area, by approximately 11% to non-members and weakly by around 8% from non-member countries into the euro area. Moreover, the geographical effects of the euro are explored. The results show partial agglomeration tendencies for the euro area. There are also some indications of increased importance of vertical specialization in the sample.     

The effect of environmental enforcement on labor: environmental workers and production workers

Journal of Regulatory Economics - This study examines the effects of environmental enforcement on labor employed by regulated facilities. The empirical analysis uses panel data from an original...     

The effect of health investment on growth: A causality analysis

The aim of this paper is to analyze the effect of health investment on productivity as an important variable associated with human capital accumulation. The authors also study the possible existence of endogeneity by using instrumental variables estimation. The results that are obtained may be interpreted as evidence of the positive impact of health expenditure on income growth. Furthermore, the authors looked at the bounded gains of health status and divided the sample according to the median of total health expenditure and found that the countries with lower levels of health spending obtain larger benefits when the other determinants of growth are held constant.     

The impact of bilateral investment treaties on foreign direct investment

This paper uses a large panel of OECD data on stocks of outward foreign direct investment (FDI) to evaluate the impact of bilateral investment treaties. For several variants of the knowledge capital model of multinationals, we demonstrate that investment treaties exert a significant positive effect on outward FDI, if they actually are implemented. Moreover, even signing a treaty has a positive, although lower and in most specifications insignificant, effect on FDI. Journal of Comparative Economics 32 (4) (2004) 788–804.     

On the effect of high energy prices on investment

Empirical analyses of firm behaviour typically assume that there is a stable relationship between investment on the one hand and changes in the relative prices of inputs, output demand and other determinants on the other hand. However, because of the lumpy nature and irreversibility of investments and the presence of uncertainty about future economic developments, a specific percentage change in relative prices and output demand may not always lead to the same percentage change in capital stocks. That means that different regimes may exist in investment behaviour. We test whether such regimes exist using high-quality data on eight manufacturing industries in the Netherlands. Three different regimes can be identified that are characterized by differences in the relative input price levels and we find that if relative prices take on extreme values, the propensity to adjust the scale of production to changes in demand is very low.     

The effect of uncertainty on UK investment authorisation: Homogenous vs. heterogeneous estimators

This paper compares pooled and non-pooled models of UK capital investment using the Confederation of British Industrys (CBI) Industrial Trends Survey, focusing on the impact of uncertainty. The uncertainty measure is based on the cross sectional dispersion of optimism about the future business conditions in the industry in which the firm operates. The panel data estimation shows that uncertainty has quantitatively important negative effects on investment. However, if we look at the estimation results at the industry level, we find a great diversity in both estimated elasticities and t-statistics, providing valuable information not available from the pooled model. Finally, we compare the forecast performances of the above models; this analysis confirms that pooled estimators are generally better than non-pooled estimators in terms of out-of-sample forecast performance, but the difference between the two is not very large.     

Individual preferences and the effect of uncertainty on irreversible investment

This paper considers a relationship between investment behavior and an agent’s preferences in a stochastic one-sector growth model with irreversible investment. Further, it explores the effect of uncertainty in investment policies by using a non-expected utility function. Since uncertainty has an impact on investment policies not only through an option value but also through a risk-adjusted time preference rate in a general equilibrium framework, it is significant to distinguish the two preference parameters of the agent. While the previous partial equilibrium models with irreversible investment have exhibited a negative relationship between the desired capital stock and uncertainty, this paper implies that it is possible to generate a positive relationship for the appropriate parameters. This shows that the results of Hartman and Abel have been robust even in a general equilibrium model.     

The effect of cash flow on investment: an empirical test of the balance sheet theory

Using a large data set on investments and accounting information for private firms, we put the balance sheet theory to test. We find that firm cash flow has a positive impact on investment and that the effect is enhanced for firms which are more likely to be financially constrained. We also find that the investment-cash flow sensitivity is significantly larger and more persistent during the first half of our sample period, which includes a severe banking crisis and recession. Our results suggest that financial constraints matter more in periods characterized by adverse economic conditions.     

The effect of infrastructure on invention : Innovative capacity and the dynamics of public construction investment

The association between public infrastructural investment and invention is explored in this study, analyzing expenditure and patenting trends and cycles over much of the 20th century. First, innovative capacity, an endogenous indicator of US innovation potential based on invention patent output, is conceptualized and discussed. A major shift in invention modes is shown to have occured over seven decades (1920–1989) as corporate, rather than individual, invention became the most important national source of innovative capacity. The support of public infrastructure for invention is then analyzed, considering its most important characteristics and supportive functions, and its expenditure patterns over seven decades. The analysis of the infrastructural investment and the innovative capacity age cycle dynamics reveals a remarkable association between educational infrastructure construction and both aggregate and corporate innovative capacity. Time-series statistical analyses provide further insights on the effects of infrastructural investment on invention, showing that corporate patenting tends to benefit more from public infrastructural construction and that educational infrastructure expenditures provide a stronger association with both aggregate and corporate inventive performance.     

The Desirability of forgiveness in regulatory enforcement

I present a model that explains two common features of regulatory enforcement: selective forgiveness of noncompliance, and the collection of information on a firm’s compliance activities and not just its compliance status. I show that forgiving noncompliance is optimal if the information on a firm’s compliance activities constitutes sufficiently strong evidence of the firm having exerted a high level of compliance effort. The key benefit of forgiving noncompliance is a reduction in the probability with which the firm needs to be monitored.     

The ECFA and its expected effect on cross-strait trade and investment: a Taiwanese perspective

To come to terms with the realization of ASEAN+1, Taiwan had concluded with mainland China a special free trade agreement (FTA), the Economic Cooperation Framework Agreement (ECFA) in June 2010. This framework agreement provides an early harvest agreement of near-term tariff elimination, including detailed product schedules for goods and services from each side, with the final shape of fuller trade liberalization in goods and services taking years to negotiate and realize. The conclusion of the ECFA has been considered as a major breakthrough in cross-strait talks and economic relationships, even though it is by no means free from controversies inside Taiwan. The authors are therefore motivated by hot debates in Taiwan to reflect on the expected trade effect of the ECFA by taking into account the factor of cross-strait global production networks. In particular, we examine with a proposed model and statistical robustness, the trend of Taiwan-based firms' localization in mainland China, driven in part by constant movements in global production networks, which generates complicated and dynamic relationships between Taiwan's investment-induced trade and structural shift in Taiwan's exports to mainland China. Based on our empirical findings, we reflect on the conventional views on the trade effect of the free trade agreement. The results of our analyses tend to support a cautious view about the trade effect of the ECFA. Without denying the significance of the ECFA and deepening cross-strait economic relationships, we argue that the impact of the ECFA should be interpreted in a wider context than just the trade perspective, as the conventional wisdom and the existing evaluations suggested.     

提高政府投资效益的对策研究

二十多年经济的快速发展使我国逐渐成为世界上最大的项目市场，目前我国由政府投资的项目占全部项目总投资额的70％-80％。但是，根据近年来国家审计署公布的对有关部委和部分重点工程的审计报告来看，部分政府投资的重点工程存在着资金挪用、工期拖延、质量低劣、甚至腐败问题十分严重的情况。这些问题引发了人们对如何提高政府投资效益的思考。本文通过对我国现行的政府投资项目管理的现状的分析，提出了提高政府投资效益的一些对策。     

The effect of risk-sharing government subsidy on corporate R&D investment: Empirical evidence from Korea

Despite the wide belief that the high social rates of returns to R&D investment justify government subsidy policy in advanced countries, there are only limited studies about whether the R&D subsidy as a means of risk-sharing stimulates R&D investment of small and medium sized enterprises (SMEs) in developing countries. This paper empirically investigates the issue, using a unique data set on government subsidy for new technology development of Korean manufacturing firms, listed and non-listed, for the period from 2000 to 2007. The paper employs the DID estimation procedure and controls for simultaneity of the subsidy for new technology development using 2SLS and two step Tobit procedure. Our empirical results show that there is no solid evidence for crowding-out effects of the government subsidy. These results suggest that government subsidies could help SMEs to overcome the barriers to risky R&D projects through sharing R&D failure risk with government and by reducing capital costs to undertake new technology development projects, and thus the subsidy policy for new technology development seems to be partly successful in promoting the R&D investment of the Korean SMEs.     

The effects of foreign direct investment on private domestic investment: evidence from developing countries

The main objective of this study is to make a contribution to the empirical literature of investment by examining the effects of FDI inflows on private investment in developing host countries. We employ panel data for 91 developing host countries over the period 1970–2000 and estimate our model by a means of system generalized method of moments. The results show that FDI stimulates private domestic investment which supports the “crowd-in-hypothesis”. Moreover, after grouping countries based on their level of income, we find that the positive effects of FDI on private investment in low-income countries depend on the availability of human capital.     

Managerial flexibility, uncertainty, and corporate investment: The real options effect

This paper examines how changes in uncertainty affect corporate investment and how managerial flexibility influences this effect. Consistent with existing evidence, this study shows that increased uncertainty reduces a firm's capital expenditures even after controlling for investment opportunities and fund availability. It further shows that the negative effect of increased uncertainty on corporate investment is more pronounced for firms with fewer financial constraints and larger size. Overall, the results suggest that managerial flexibility proxied by certain firm characteristics affects the negative relation between uncertainty and investment.     

The pre-marital investment game

Two sides of a finite marriage market engage in costly investment and are then matched assortatively. The purpose of the investment is solely to improve the quality of the match that the trader can attain in the second stage. The paper studies the limits of equilibrium of these finite matching games as the number of traders gets large. It is shown that mixed Nash equilibria in the finite games converge to degenerate pure strategy equilibria in the limit in which both sides of the market invest too much.     

The volatility of offshore investment

Offshore investment often bears the image of 'footloose' industry, with little to hinder movement to the most favorable environment. An effort to describe this particular segment of U.S. direct investment supports some elements of the colorful anecdotal portrait painted by critics in the Third World. Semiconductor assemblers are moderately sensitive to wage rates, and adjust quite rapidly in maintaining what they perceive as a diversified portfolio of 'risky' LDC production locations. On the other hand, this reaction is small enough to guarantee that modest increases in wages will not send all investment fleeing from an export platform. New methods of modelling direct foreign investment when risk diversification is important in explaining industrial location decisions are introduced in this paper.     

The impact of the judicial objective function on the enforcement of environmental standards

We investigate the influence of a judge’s objective function on the type of sanctions used for enforcing environmental standards. We focus on the difference between monetary and non-monetary penalties. We examine the extent to which judges take social costs of sanctions into account when making judgments in court in the context of environmental violations. We also conduct an empirical analysis to test the main findings of the theoretical model using court data from several Belgian jurisdictions. We find that besides minimizing environmental damages judges also take social costs of sanctions into account in their decision-making.     

Sources of investment inefficiency: The case of fixed-asset investment in China

This study attempts to measure the inefficiency associated with aggregate investment in a transitional economy. The inefficiency is decomposed into allocative and technical inefficiency based on standard production theory. Allocative inefficiency is measured by the deviation of actual investment from the theoretically desired investment demand. Institutional factors are then identified as part of the driving force of the deviation. The resulting model is applied to Chinese provincial panel data. The main findings are: Chinese investment demand is strongly receptive to expansionary fiscal policies and inter-provincial network effects; the tendency of over-investment remains, even with signs of increasing allocative efficiency and improving technical efficiency.