“Buy-back” in international trade: A rationale

Conclusion When a technology proprietor cannot exploit his advantage by means of ownership of a production facility abroad, a sales contract with “buy-back provisions” may, in fact, be a trade-enhancing resolution to a situation of information-asymmetry between buyer and seller. The important implication is that not all forms of countertrade can be summarily dismissed as inefficient. Just as foreign direct investment can be seen to be a response to environmental or market imperfections, “buy-back” may be a way to deal with institutional or regulatory obstacles such as the prohibition of foreign ownership.     

The failure of OCA analysis

Conclusion In this paper I have tried to show that OCA theory fails to advance the case for independent fiat currencies. It does so both because of its empirical irrelevance, and because of its internal inconsistencies. Therefore, from the perspective of international monetary economics, there is no theoretical justification for the present monetary organization. Rather other factors, more related to political interests than to sound economics, should be held responsible for it. It is perhaps interesting to consider the mainstream economists’ systematic reaction when they discover there is no scientific justification for a fluctuating fiat currency system. They simply throw away the whole analysis and return to “common sense” propositions. Some of them even go so far as to recognize the merits of a world currency, eventually pegged to gold, but then dishonestly dismiss the case on the basis of “beliefs,” or popular wisdom. All remaining errors are my own.     

Resource allocation: A hayekian paradigm for maritime conglomerates

Conclusion This article provides a new synthesis between the strategic management literature and Austrian capital theory. The resource allocation process plays out in the context of differing subunit preferences, potentially resulting in tension and periodic conflict that may lead to dysfunctional relationships over time. Absent clearly understood and effective operational rules, the potential for heightened dysfunctional internal relationships will lead a conglomerate organization to have a diminished resource base for achieving its future strategic goals. This article presents a set of resource-allocation rules based on the Hayekian theory of production. By developing an effective resource-allocation paradigm based on economic theory, the organization can gain market share resulting in increased profitability and continued success in the marketplace. The Hayekian triangle offers firms an objective measure reflecting environmental shifts by tracking interest-rate changes that affect consumer and production demand. Organizations can gain “first-mover advantages” essential to provide the competitive advantage vis-à-vis their rivals while maintaining harmonious relationships among subunits. Entrepreneurial innovation can also be exercised by “second movers” who imitate the “first movers,” perhaps taking advantage of lessons learned. This kind of innovative imitation may well provide the greatest scope for entrepreneurial activity. The authors remain responsible for any errors or omissions.     

“Following” or “attracting” the customer? Japanese Banking FDI in Europe

Using firm-level Japanese FDI data on investment into 18 European countries between 1970–2000 in all industries (banking, manufacturing, wholesale/retail distribution, and business services), this study examines if the “follow the customer” (FTC) hypothesis holds for firm-level data. The results suggest that banks do follow their customers into a foreign market, as part of a larger strategy that goes beyond the FTC theory. The firm level data show that the majority of FDI into a host country occurs after the foreign bank has established operations. Policy implications of this finding include the suggestion that host economies liberalize their financial sector early in an effort to attract banking FDI which then will attract non-banking FDI rather than the reverse.     

Internationale Wettbewerbsfähigkeit — Fragmente zu einer Theorie internationaler Unternehmenstätigkeit

Summary International competitiveness — fragments of a theory on international entrepreneurial activity. — Contrary to the orthodox market conception — where firms’ decisions involve merely efficiency-oriented adaptation to ensure general equilibrium — a more pragmatic approach must take account of the endogenous character of market structures: The driving forces behind innovations — and hence “progress” — are the creation and exploitation of market imperfections by firms. As companies use their core skills worldwide, international competitiveness is determined on the firm level, thereby disposing of the traditional trade theory with its focus on the nation-state and a given endowment with ressources. “Creative destruction” must be viewed as an institutional change on a global basis, enterprises being the center pivot of dynamics in the course of which the means of internationalizing and internalizing business functions will differentiate more and more.

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Résumé Capacité de concurrence internationale: fragments d’une théorie de l’activité d’entreprise internationale. — Contrairement à la conception orthodoxe de marché — oú les décisions des entreprises consistent seulement d’adaptions orientées à l’efficience pour assurer l’équilibre général — une approche plus pragmatique doit considérer le caractére endogéne des structures de marché: la force motrice derriére les innovations et avec cela ?le progrés? sont la création et l’exploitation d’imperfections par des entreprises. Comme ceux-ci appliquent leurs connaissances essentielles universellement, la capacité de concurrence internationale est déterminée sur le niveau d’entreprise, ainsi disposant la théorie de commerce traditionnelle avec sa concentration sur l’état-nation et la dotation donnée en ressources. ?Destruction créative? doit être considérée comme un changement institutionnel de mesure universel oú les entreprises sont le pivot central d’un processus dynamique à la suite duquel les mesures d’internationaliser et d’internaliser les fonctions commerciales différencieront de plus en plus.

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Resumen Competencia international: elementos de una teoria sobre la actividad empresarial international. — Al contrario de la opinión ortodoxa sobre el mercado, donde las decisiones de los empresas implican simplemente una adaptatión de cara a la eficiencia para asegurar equilibrio general, un enfoque mas pragmático debe tener en cuenta el carácter endógeno de las estructuras de mercado: El motor detras de los innovaciones y por tanto del ?progreso? es la creation y explotaci?n por las empresas de imperfecciones en el mercado. Considerando que los empresas utilizan sus abilidades basicas en un contexte global, la competencia international se dètermina a nivel de empresa lo que permite prescindir de la teoria traditional del comercio internacional con su èmfasis en los conceptos de estado national y riqueza de recursos. ?Destruction creativa? debe ser observada como cambio institucional a nivel global, con las companias constituyendo el centro del proceso dinámico en el curso del cual los medios de internacionalizar e internalizar funciones empresariales darám origen a diferencias cada vez más grandes.

     

Principles of a Pan-African economic ideology

Summary In this paper, an attempt has been made to integrate the politics of Pan-Africanism with its economic ideology. The basis and need for such an ideology has been explored. It has been argued here that the roots of underdevelopment in the Black World lie in the historical evolution of the world market economy; that continued participation in monopoly capitalism serves to reinforce the international inequality; and that the localization of economic activity by multinational firms within the Black World countries deepens internal inequality by suffocating the internal markets and impoverishing the indigenous class. It is argued further that the Absorption hypothesis, seeking wage employment in the “modern” sector for the army of unemployed being generated under international monopoly capitalism, is an hypothesis of the impossibility. The “modern” sector cannot expand fast enough nor adapt its techniques of production to absorb the unemployed.     

Comments on R. Cooper, M. Bordo and H. James: Exchange rate arrangements and disarrangements: prospects for a world currency

This note evaluates the prospects for a world currency, using as a departure point the papers by Bordo and James (2006) and Cooper (2006). The note argues that a world currency is unlikely in the foreseeable future and probably undesirable. Although more evidence is needed, there seem to be no strong forces towards the creation of new monetary unions among the countries with major currencies or between those countries and the periphery. Based on recent experience, the note also argues that one of the main benefits to establish a world currency, the elimination of exchange rate uncertainty, is likely less important than commonly believed. No matter how rigid a currency arrangement is, initiatives to dissolve it tend to appear as bad times arise. Still, the present equilibrium of no world currency leaves unresolved many difficult issues related to the functioning of the domestic and international monetary systems. Sergio L. Schmukler has prepared this note as a comment to the papers “Proposal for an OECD Currency” by Richard N. Cooper and “One World Money, Then and Now” by Michael Bordo and Harold James, presented at the conference “Regional and International Currency Arrangements,” February 24 and 25, 2006, Vienna, Austria, organized by the Bank of Greece and the Oesterreichische Nationalbank (Central Bank of Austria). I thank conference participants for useful comments. I am also grateful to Jose Azar and Francisco Ceballos for excellent research assistance. The views expressed in this paper are entirely those of the author and do not necessarily represent the opinion of the World Bank.     

Are “new” and “old” EU members becoming more financially integrated? A threshold cointegration analysis

We assess the degree of financial integration for a selected number of “new” EU member states with Germany. The analysis is performed using a threshold vector error-correction (TVECM) model with fixed rolling window. By employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various market imperfections. TVECM model is applied on interest rate data from different segments of financial markets covering the 1994–2006 period. The hypothesis we test is to what extent European integration tendencies resulted in a more efficient and integrated financial markets. Our findings support the gradual integration hypothesis.     

Big philanthropy and the funding of black organizations

Conclusion The general overview of foundation giving to promote black interests and the specific look at the Ford-MARC relationship support the notion that few foundation grants will go to “controversial” or “political” projects. The Peterson Commission estimated that only three percent of all private foundation grants are “innovative” and an even smaller percentage are “politically controversial.” Most often, these projects usually become controversial after the grant is made. A 1971 Urban League study revealed that grants for human services made by private foundations to black and Spanish-speaking communities were disproportionately low when measured in terms of the per capita needs of the minority population. Nevertheless, it is unrealistic to expect Ford, Rockefeller Brothers, Mott, or Carnegie to redistribute income or become the “cutting edge of social change”.     

Implications of revenue sharing for black political and economic goals

Conclusions Thus far urban development has been subject to the “regulation” of forces generated by the market economy. Such planning as has existed has been overwhelmed by the dynamics of market forces, perverted priorities, political fragmentation and economic differentiation. The joint goals of removing the “crisis” elements of urban growth and of expanding black political potential have provided the framework in which we have analyzed revenue sharing. We have analyzed the specific Nixon and Mills proposals as well as the general idea of revenue sharing, and compared revenue sharing proposals to present Federal aid to state and local governments.     

Foreign direct investment, intellectual property rights, and wage inequality in China

This article incorporates foreign direct investment (FDI) and product differentiation in a general equilibrium trade model. The analysis shows that freer trade and FDI will upgrade China's technology, improve its skills of labor, and increase the competitiveness of local firms in the international market. At the same time, the relative wage of skilled labor to unskilled labor will rise. The size of this rise will be affected by the degree of protection for intellectual property rights. These theoretical results are consistent with empirical evidence. The analysis provides insights in coordinating policies on FDI, labor market reform, and intellectual property rights protection.     

Public Procurement and Foreign Direct Investment Across France,Germany, Italy and the UK

Foreign direct investment (FDI) has become an important factor of economic development during the last decades. FDI contributes to the economic growth of the host economy through learning, diffusion of technology, positive externalities and capital inflows. Attracting FDI is currently an objective in its own right for many countries and this paper aims to identify policies affecting the multinational firm’s decision to establish a subsidiary. After accounting for labour productivity and trade openness, cross-section analysis, both industry-wise and country-wise, indicates that public procurement, especially “buy national” policies, and agglomeration economies are statistically significant determinants of FDI. Although our findings pertain to four large European economies, e.g. France, Germany, Italy and the UK, they constitute relevant policy guidelines for developing countries as well.      

Foreign direct investment and productivity spillovers: Evidence from the Spanish experience

Foreign Direct Investment and Productivity Spillovers: Evidence from the Spanish Experience. — The aim of this paper is to analyse the impact of foreign direct investment (FDI) on firms’ productivity using a panel of Spanish manufacturing firms for the period 1990–1998. Firstly, we show that for countries, like Spain, that are undergoing significant structural changes over the period in question it is important to control for both time-invariant as well as time-variant sectoral characteristics. Secondly, we confirm previous findings that one needs to take into account the “absorptive capacity” of firms when considering whether they are able to avail of externalities associated with FDI presence. For the Spanish case we find that only firms with sufficient levels of such capacity experience positive spillovers.     

Comments on S. Edwards: “Monetary unions, external shocks and economic performance: a Latin American perspective”

I discuss Sebastian Edwards’ most recent paper with great pleasure. As so much of the work of this distinguished economist, this paper provides new insights on a burning issue in international economics. Here Edwards provides empirical evidence on the resilience to external shocks of countries that lack a national currency (“monetary-union” or MU countries). The paper starts by reviewing the issues and literature relevant on exchange-rate regimes, dollarization, and MU in Latin America, with an emphasis on the question if countries in the region satisfy key optimal currency area criteria. Then the paper provides extensive new evidence on economic performance in MU countries, in comparison to countries with a national currency, using a large world panel sample. Performance tests are conducted for the comparative likelihood of MU countries of sudden stops in capital flows (SS) and large current (deficit) reversals (CAR), as well as their ability to absorb terms-of-trade shocks, SS, and CAR. The results are generally negative and significant for the comparative performance of MU countries. To set the stage, I start my comments by documenting first how country selection of exchange-rate and monetary regimes is quickly evolving in the world during the last decades, discussing subsequently how economists’ views follow suit (Section 1). Then I discuss some aspects of Edwards’ paper, focusing in particular on the data and model specification (Section 2). I end with brief implications for exchange-rate and monetary regime choice in Latin America.     

A critique of mises’s theory of monopoly prices

Conclusion Built on Rothbardian insights, our attempt to show the peculiarities of Misesian monopoly theory results in a few conclusions. First of all, in Mises’s theory of monopoly two of the three conditions for the emergence of monopoly prices belong to different realms of scientific inquiry. On the one hand, Mises points out the idea of a counterfactual comparison between competitive price and monopoly price; on the other hand, he stresses the importance of an empirical method to discover monopoly prices. The latter, even if it describes a true statement about market conditions, i.e., the entrepreneurs do not know (beforehand) the market demand curve, does not help us to identify the monopoly price on market. Second, Mises erroneously founds his welfare arguments on value theory. His utilitarian endeavor to show that “consumers’ sovereignty” is infringed by monopolistic restriction of production does not succeed. He based his arguments on nonscientific interpersonal and intertemporal comparisons of utility. Third, Mises is not consistent in the use of a standard of comparison for “monopoly prices”: on the one hand, the market prices are not distinguishable from “monopoly prices”; on the other hand, the transfer of the discussion to the equilibrium framework does not help us either, as we try to explain real market phenomena. Thus, Mises’s attempts to incorporate the neoclassical concept of monopoly price into the framework of the market process, as depicted by Austrians, do not succeed. Our inquiry supports the largely shared opinion among Austrian economists that monopoly price (at least in its present definition) does not exist on the free market; it appears only, and is logically identifiable, as a result of a privilege given by the State.     

The American economy in the 1980's

Conclusion There are many things that could distort or completely change the picture that has been sketched of the U.S. economy in the 1980's. War and major technological innovations are two that come immediately to mind. A quick and unexpected reversal of the trends that form the basis of the picture could also, although this seems very unlikely. Or new and unanticipated socio-psychological trends could be generated which would result in a different picture than the one presented. Perhaps it appears that I have stuck my neck out in this discussion. If you think that, you are wrong; I am in a can't-lose situation. If I am right, I can always point to my statements of 1978. Since the anticipations of this paper cannot be fully judged for at least a decade, I am safe even if I am wrong. In ten years nobody except me will remember what I said today, and even I may not. Presidential Address to the Sixth Annual Atlantic Economic Conference, October 11–14, 1978, Washington, D.C.     

What Happened to European Unemployment?

Summary  Many academic papers were still being written on mass unemployment in Europe. While, unemployment in the EU15 was falling dramatically. Not only academics, but also European workers at large did not seem to appreciate these labour market developments. I offer two explanations for this puzzling deterioration of workers perceptions of the labour market in spite of disappearing unemployment: (i) labour market risk increased, and (ii) employment growth occurred at the cost of stagnating labour productivity. This means that the new labour market offers a worse risk-return combination. Strategies to address these issues are discussed in the final section of the paper. This paper provides an extended version of the first Willem F. Duisenberg Lecture, held at the University of Amsterdam on February 28, 2008. I am particularly grateful to NIAS for this opportunity and to Petry Kievit for having greatly improved my English.     

The International Transmission of Monetary Policy in a Dollar Pricing Model

This paper analyses the international transmission of monetary policy in the case where all export prices are set in US dollars. “Dollar pricing” implies that the international effects of US monetary shocks are different from those of European shocks because of an asymmetric exchange rate pass-through to import prices. A dollar pricing model can explain the observed asymmetry in the transmission of monetary policy: US monetary policy affects US output more than European monetary policy affects European output. I also show that the current account is an important channel through which monetary policy affects welfare. The paper concludes that under dollar pricing a monetary expansion is a beggar-thy-neighbour policy.     

Cognitive skills, test scores, and social stratification: The role of family and school-level resources on racial/ethnic differences in scores on standardized tests (AFQT)

Conclusion  In this paper I ahve shown that scores on the AFQT are a function of family and school level material resources and investments on individual development. The AFQT is not a measure of “intelligence (IQ),” “ability,” or “cognitive skills.” The AFQT is in large part a measure of access to material resources, social investments, and exposure to the values, experiences, and networks of the white upper middle class.