International Technology Diffusion: Effects of Trade and FDI

There has been little analysis of the effect of inward FDI on international R&D diffusion, especially in LDCs, although FDI has become the core of international production and LDCs have been receiving an increasing share of world FDI over the past few decades. Using data from 57 countries from 1988 to 2001, we find that both FDI and trade serve as important channels of international technology diffusion. However, there exist heterogeneous effects of FDI in DCs and LDCs. For inward FDI to promote technology diffusion in LDCs, a certain threshold of human capital has to be reached.     

SECTORAL ELASTICITY OF SUBSTITUTION AND RETURNS TO SCALE IN SOUTH AFRICA

Elasticity of substitution and returns to scale are estimated on a sectoral basis for South Africa using panel-based generalised least square procedure. Apart from sectoral differences in terms of elasticity of substitution, the study found that elasticity of substitution is below unity in all of the sectors. Most of the sectors studied are found to have increasing returns to scale in production. The study further explores the implications of elasticity of factor substitution and returns to scale on growth and employment creation. It is argued that a greater number of jobs can be created from growth of sectors with constant or decreasing returns to scale than from the same level of output growth generated by sectors with increasing returns to scale. This is the case when the employment-creating potential of the same amount of additional output is compared in all the sectors examined. By virtue of scale economies, a sector like finance, insurance, real estate and business services generates more output with less proportional increase in inputs, which means growth in this sector may not have the desired impact on job creation. However, given the sector's large share (20%) of the country's total output and employment, it may generate more jobs, even if sectors like utilities and construction experience the same level of output growth. Given its importance for growth and employment, the study recommends further investigation into the reasons why elasticity of substitution is lower in sectors like utilities, mining and trade, catering and accommodation services.     

FOREIGN DIRECT INVESTMENT IN ZIMBABWE: THE ROLE OF INSTITUTIONAL AND MACROECONOMIC FACTORS

The purpose of our research is to examine the impact of property rights on foreign direct investment (FDI) in Zimbabwe for the period 1964‐2005. While the macroeconomic determinants of FDI have been analysed to a considerable extent in past empirical work, the role of institutional factors such as the protection of property rights and the efficiency of the legal system has been underexplored. Using a multivariate cointegration framework, we use a newly constructed de jure property rights index for Zimbabwe to determine the impact of property rights on FDI. The empirical evidence shows that property rights are consistently an important explanatory variable of FDI in Zimbabwe, even after controlling for periods when there are no significant new foreign capital inflows. Other significant explanatory variables of FDI in Zimbabwe are the real gross domestic product (GDP), capital intensity, the external debt to GDP ratio, political instability as well as the educational levels.     

THE ARGENTINEAN CURRENCY CRISIS: A MARKOV‐SWITCHING MODEL ESTIMATION

In 2002, the Argentinean currency board came to a sudden and dramatic end. Although the country had been suffering from weak economic fundamentals for years, the timing and severity of the currency crisis surprised most observers. The present study analyzes the role of fundamentals and self‐fulfilling speculation in the Argentinean crisis. Arguing within a theoretical model of a fixed exchange rate system that allows for multiple equilibria, we show that the crisis, although associated with weak fundamentals, cannot be explained by these macroeconomic factors alone. Estimating a univariate Markov‐switching model, the current study shows that shifts in agents’ beliefs did indeed also play a crucial role.     

Productivity Spillovers from FDI in Malaysian Manufacturing: Evidence from Micro‐panel Data*

Using an establishment‐level panel dataset for the Malaysian manufacturing industries for 2000–2004, we argue that differences in the proxies and degrees of foreign shareholdings in measuring foreign presence lead to opposite signs and/or significance of spillover effects. The results show significant evidence of positive productivity spillovers to local establishments in the same industry, based on a broad measure of foreign presence. However, there is no evidence of positive spillover when employment share is used as a proxy for foreign presence. Furthermore, significant negative spillover effects are related to higher employment shares of wholly foreign‐owned establishments. Although there is no significant difference in labor productivity between wholly foreign‐owned and locally‐owned establishments, both majority and minority foreign‐owned establishments have significantly lower levels of labor productivity than locally‐owned establishments in Malaysia.     

How Does Country Risk Matter for Foreign Direct Investment?

Using the overall FDI inflows for 89 countries during the period from 1985 to 2007, we empirically investigate the effects on inward FDI of various components of political and financial risk. We examine the effects of not only the level of these risks but also their changes over time. One of the major findings is that among the political and financial risks, only the political risk is adversely associated with FDI inflows. Specifically, not only the initially low level of political risk, but also a decrease in the level of political risk helps to bring a greater amount of FDI inflows. On the other hand, lower financial risk does not attract FDI inflows, especially to developing countries. Among the various components of political risk, in the sample of developing countries only, it is found that internal conflict, corruption, military in politics, and bureaucracy quality are inversely related to inward FDI flows.     

FDI and the Export Performance of Chinese Indigenous Firms: a Regional Approach

The primary purpose of this paper is to examine the impact of Foreign Direct Investment (FDI) on the export performance of Chinese indigenous firms. A panel data analysis is employed using data across 29 provinces over the 1985–99 period. Owing to the exceptionally uneven distribution of FDI, the analysis compares the impact of FDI on all provincial exports and exports of indigenous firms over the three macro-regions of China. While the findings of the empirical analysis should be viewed with caution, they do show that FDI has less influence on the export performance of indigenous firms than on all firms (foreign and indigenous). The findings imply that linkages between the foreign and domestic sectors need to be improved if FDI is to be a vehicle for improving the competitiveness of domestic firms. Alternatively, policies may have to be directed towards the indigenous firms themselves to enhance their export performance.     

DOMESTIC AND INTERNATIONAL INNOVATION PARTNERSHIPS: DO THEY MATTER FOR INNOVATION OUTCOMES OF SOUTH AFRICAN FIRMS?

This paper studies the impact of the diversity of domestic and international innovation partnerships on the innovation outcomes of South African firms. A number of competing hypotheses are formulated and tested empirically using a sample of South African firms in manufacturing and services by applying Ordinary Least Squares regression analyses. Results show that having an innovation partnership, particularly an international partnership, is beneficial to innovation outcomes. However, it also emerges that too diverse a set of international partnerships is detrimental to innovation outcomes. The paper concludes with a discussion and a number of proposals for future research.     

INFRASTRUCTURE QUALITY AND MANUFACTURING EXPORTS IN AFRICA: A FIRM‐LEVEL ANALYSIS

Using bilateral trade flow models, a body of empirical work has documented how geography and infrastructure variables affect trade performance. However, in this paper, we apply censored regression models like the Tobit and Probit on firm‐level manufacturing data from 10 African countries, and results suggest that inadequate infrastructure in the form of customs, transport, electricity and water negatively affects export intensity and participation. Owning a generator and private water source also appear to have a significant impact on exports. This, therefore, means that firms can minimise the impact of power and water disruption on production, and hence trade by installing these alternative energy and water sources.     

Technological Capability and FDI in Asia: Firm‐level Relationships among Japanese Manufacturers*

The present paper reexamines the relationship between technological capabilities and FDI decisions at the firm level. The data cover 118 300 Japanese firms in all manufacturing industries. The R&D of Japanese firms has a noticeably weaker relationship with FDI in Asia than with FDI in industrial countries. This finding is confirmed to be robust even when alternative estimation techniques are used and when R&D expenditure data are replaced by patent data. The estimation results also reveal non‐negligible fixed entry costs for FDI, a finding consistent with the observation that only approximately 2 percent of the firms invest abroad.     

Spatial Spillovers from Foreign Direct Investment: Evidence from the Yangtze River Delta in China

This paper examines the spatial externality from foreign direct investment on domestic firms. Using Chinese firm‐level data for 2004, and after accounting for an endogeneity problem, we find that foreign firms generate a significantly positive spillover effect on the regional productivity of domestic firms in similar counties and industries. Estimating a spatial‐autoregressive model, we further show that such local spillovers could transmit to domestic firms in other counties and industries through interactions among domestic firms. However, these spatial multiplier effects decline with distance, thereby reducing the foreign direct investment spillover effects for domestic firms in distant locations.     

EMPLOYMENT,CAPITAL, AND PRODUCTIVITY DYNAMICS: EVIDENCE FROM THE MANUFACTURING SECTOR IN URUGUAY

Using a sample of Uruguayan manufacturing establishments we analyze employment, capital, and productivity dynamics over a period of currency appreciation; changes in trade policy; and changes in the institutional setting of wage negotiations. As the relative capital–labor price ratio fell, capital intensity increased. At the same time, there was an increase in labor and total factor productivity. Creation and destruction rates were relatively high and pervasive over time, sectors, establishment size, and establishment age, with exits explaining a sizeable part of destruction rates. Most of the excess reallocation was due to movements “within” rather than “between” sectors. Thus, high reallocation rates were linked to establishment‐level heterogeneity rather than aggregate shocks.     

TO PREY OR NOT TO PREY? WELFARE AND INDIVIDUAL LOSSES IN A CONFLICT MODEL1

We analyse a generalised form of the Hirshleifer‐Skaperdas predation model. In such a model agents have a choice between productive work and appropriation. We suggest that such a model can usefully be thought of as a continuous form of the Prisoners' Dilemma. We present closed form solutions for the interior equilibria and comparative statics for all Cournot equilibria and analyse the social welfare losses arising from predation. We show that predation is minimised under two quite different regimes, one in which claiming is very ineffective and another in which one of the players becomes marginalised. The worst outcomes seem to arise when claiming is effective, but inequality in power is significant but not extreme. This, arguably, is the situation in a number of transition societies.     

AN ECONOMY ILL-SUITED TO YOUNGER WORKERS: CHILD AND YOUTH WORKFORCE PARTICIPATION IN COLONIAL QUEENSLAND, 1886–1901

This article explores the extent and significance of child and youth work in late 19th century Australia. It demonstrates that, while demographic changes meant that almost half the population was aged 19 years or less, this age cohort never comprised more than 18 per cent of the recorded workforce. It is argued that this under-representation reflects the fact that children and youths were ill-suited to the work demands of most colonial occupations. They did not threaten the position of adult males in the key areas of the economy such as construction, heavy engineering, pastoral work, mining and transport.     

CIGARETTE DEMAND IN SOUTH AFRICA OVER 1996-2006: THE ROLE OF PRICE, INCOME AND HEALTH AWARENESS

The study seeks to re‐investigate the role of price, income and health awareness in the evolution of South African cigarette demand over the period 1996 to 2006. At first glance, rising cigarette prices appear to have played an important role in reducing cigarette consumption over the sample period, especially during the late 90s. But how dependent is the impact of price increases on general economic conditions and overall health awareness among smokers? Health awareness, in particular, has not received sufficient attention in the South African context, due to a lack of data. Previous estimates of price and income elasticities of cigarette demand are based on long annual time series data, which do not allow for changes in underlying tastes and preferences. The paper attempts to disentangle the forces of price, income, health awareness and policy intervention using a quarterly data set. In addition, the study also cautions against the upward bias in estimates derived from formal cigarette sales data – in the light of increasing illicit cigarette volumes in South Africa.     

THE ROLE OF PRIVATE CAPITAL INFLOWS AND THE EXCHANGE MARKET PRESSURE ON REAL EXCHANGE RATE APPRECIATION: THE CASE OF TURKEY

The aim of this paper is to investigate the role of different private capital inflows and the exchange market pressure (EMP) on the real effective exchange rate (REER) appreciation of the currency in Turkey. To that end, the paper first investigates the long‐run equilibrium relationship and then employs Granger causality analysis. Results of the bounds test for cointegration within the autoregressive distributed lag (ARDL) modelling approach of Pesaran et al. (2001 ) reveal level relationship between the diverse private capital inflows, EMP and REER. Granger causality analysis suggests that there is a unidirectional causality running from all the concerned private capital inflows and EMP to REER. The ARDL model shows first that the impact of bank liabilities and portfolio investment liabilities are almost equal, high and positive. Second, foreign direct investment and workers' remittances have a negative but statistically insignificant effect. Third, EMP mitigates REER appreciation of the currency in Turkey. The empirical results suggest that speculative portfolio investment liabilities but particularly bank liabilities with short maturities should be better managed; more flexibility should be introduced to the floating exchange rate regime to avoid loss of competitiveness related with capital inflows; whereas foreign direct investments and remittances should be encouraged.     

Impact of Outward Foreign Direct Investment on Domestic R&D Activity: Evidence from Taiwan's Multinational Enterprises in Low‐wage Countries

This paper theoretically and empirically investigates the home‐country effects of a firm's outward foreign direct investment (OFDI) activity, specifically OFDI motivated by lower labor costs in the host country. A two‐country imperfect competition model is developed, and the interaction between a firm's R&D spending and its OFDI is examined. It is found that the relationship between a firm's OFDI and its domestic R&D is indeterminate because there is a complementary effect as well as a substitution effect induced by OFDI activity. Panel data on Taiwanese manufacturing firms from 1992–2005 are applied to test the validity of the theoretical results. The propensity score matching method is used to construct a comparison group without selection bias. Our empirical evidence reveals that a Taiwanese firm's OFDI is positively related to its domestic R&D spending, particularly in R&D‐intensive industries.     

Quantifying Foreign Direct Investment Productivity Spillovers in China: A Computable General Equilibrium Model

For the purposes of this study, we will construct a static monopolistically‐competitive computable general equilibrium model to quantify the endogenous productivity spillovers from foreign and domestic firms, using the Chinese economy as a case study. Our simulation results indicate: (i) that the net spillover effects are positive in terms of national total output, GDP and welfare; (ii) that both state‐owned and privately‐owned firms benefit, but that private firms benefit more; (iii) that industries with large volumes of foreign direct investment (FDI) do not necessarily observe the largest spillover effects; and (iv) that the spillover effects become more prominent when the initial market structure is more concentrated.     

MIGRATION AND ECONOMIC GROWTH IN BRAZIL: EMPIRICAL APPLICATIONS BASED ON THE SOLOW‐SWAN MODEL

The paper addresses the question of whether migration plays a role in the determination of the per capita incomes in sub‐regions of Brazil. In order to discuss this relationship, we slightly modified the Solow‐Swan model with migration to better resemble the Brazilian context. Based on this model, we determined theoretically five different possibilities for the spatial dynamics regarding net migration, human capital differentials between migrants and nonmigrants, and capital stock per effective worker. We applied this framework to census data and the microregions in Brazil were empirically classified in one or other of these possibilities with the multivariate technique of cluster analysis. Finally, we used econometric models with instrumental variables applied to panel data and observed a tendency of increase in the variability of per capita income due to migration.     

EFFECTS OF IMPROVING INFRASTRUCTURE QUALITY ON BUSINESS COSTS: EVIDENCE FROM FIRM‐LEVEL DATA IN EASTERN EUROPE AND CENTRAL ASIA

Public infrastructure is one of the important determinants of economic growth. Not only access to but also quality of infrastructure affects firm productivity as well as people's livelihood. Frequent interruptions of the infrastructure‐service supply impose extra backup costs on enterprises, hinder their timely business activities, and result in large losses of sales opportunities. This paper focuses on the impacts of improving the quality of public utilities (electricity, water supply, and telecommunications), using firm‐level data from 26 transition economies in Eastern Europe and Central Asia. The results suggest that firm costs would significantly increase when electricity outages occur frequently and the outage duration becomes longer. Similarly, when more time is required to restore suspended water supply, firms' competitiveness would be weakened. Not surprisingly, the impacts tend to vary depending on industry. The construction, manufacturing, and hotel and restaurant sectors are found particularly vulnerable.