Global uncertainty and capital flows: any difference between foreign direct investment and portfolio investment?

This note investigates how global uncertainty relates to extreme waves of capital flows, including foreign direct investment, portfolio investment, and other investment. We find the clear differences in the role of global uncertainty between advanced and developing economies. Global uncertainty increases the likelihood of sudden contraction of portfolio investment in both advanced and developing economies, while it increases that of foreign direct investment in only advanced economies.     

Adjustment,trade policy and investment slumps: evidence from east asia ∗

This paper presents a model of investment in five East Asian economies over the 1970s and 80s, paying particular attention to the impact of the policy reforms which have accompanied Structural Adjustment Programmes. A priori, the impact of trade reform on investment can be positive or negative; in practise, it is found to be negative.     

Economic policy as expectations management: Keynes’ and Friedman's complementary approaches1

We investigate how Keynes and Friedman, respectively, address the issue of the disequilibria at stake in a monetary economy through a shared concern for the formation of expectations. We show that Keynes was interested in the coordination of long-term expectations regarding non-monetary assets prospective yields, while Friedman focused on the adaptation of short-term nominal expectations. Regarding the remedies to these disequilibria, both economists called for devices that aim to stabilise market expectations. As a direct outcome, Keynes designed policies that aim to stabilise the long-term state of expectations while Friedman basically aimed at the acceleration of the competitive adjustment process.     

Do remittances and foreign aid augment the gross savings: Bangladesh,India and Philippines perspective?

Savings is considered to be a principal determinant to achieve long-run economic growth. Remittances and foreign aid are two important foreign capital inflows to meet the savings deficiency of developing nations. The objective of this study is to investigate the long-run impact of remittance to stimulate savings in remittance recipient countries. This paper contributes to the macroeconomic impact of remittance through a comparative study on Bangladesh, India and Philippines that positioned among the top ten largest remittance recipient countries from 2008 and onwards. The analysis makes use of an annual time series data over the period of 1980–2015. The Johansen cointegration test suggested long-run cointegrating relationship of remittance and foreign aid on gross savings. The test result suggests positive effect of remittances on gross savings for Bangladesh and Philippines although an insignificant negative effect for India. However, foreign aid has significant negative long-run impact in all the three cases. Government policy should focus on leveraging remittance flows to facilitate savings and investment for capital accumulation.     

The impact of foreign direct investment on UK manufacturing: is there a profit squeeze in domestic firms?

This paper examines the extent to which foreign direct investment (FDI) in selected UK manufacturing sectors has an impact on reported profits in domestic firms. Foreign manufacturing firms are characterized by relatively high labour productivity and low wage shares. Entry by foreign firms not only impacts on domestic market shares, but also on domestic cost conditions. As a result, profitability in the indigenous sector may be reduced. There are a number of policy implications of this analysis which are explored.     

Firms’ human capital, R&D and innovation: a study on French firms

This article investigates the effects of human capital and technological capital on innovation. While the role of technological capital as measured by research and development (R&D) expenditure has been intensively investigated, few studies have been made on the effect of employee training on innovation. This article explores the relationship between innovation and firm employee training. Our methodological approach contributes to the literature in three ways. We propose various indicators of firm employee training. We build a count data panel with a long time-data series to deal with the issue of firms?? heterogeneity. We propose a dynamic analysis. Using dynamic count data models on French industrial firms over the period 1986?C1992, we find positive and significant effects of R&D intensity and training on patenting activity. Whatever the indicators of training our results show that the firm employee training has a positive impact on technological innovation.     

Keynes’s liquidity preference and the usury doctrine: their connection and continuing policy relevance

The purpose of this paper is to support the spirit of the early medieval prohibition of payment for the use of money, with arguments based on the economics of Keynes. At the heart of the usury doctrine is the idea that a creditor cannot expect both the security of a claim on a fixed sum of money and to derive an income from it; security comes at a price, one way or another. The consequences of the unwillingness of modern society to accept this are illustrated by reference to two problems of the modern international financial and monetary system: bank bailouts and the lack of a supranational reserve currency.     

Large scale infrastructure investment and economic performance – a case study of Oresund

We analyse the effect of a large scale infrastructure investment, namely the construction of the Oresund bridge, on the local and supra-regional economy. We employ the synthetic control method to construct counterfactual regions that mimic the trajectory of Malmo and Southern Sweden without treatment. Our results point to a positive effect. However, placebo tests in space and time only reveal statistical significance at a larger regional level. The results suggest that spillover effects are eminent.     

Re-examining the relationship between domestic investment and foreign aid: does political stability matter?

While past studies had conflicting conclusions regarding the impact of foreign aid on growth and development of a nation, recent studies have tried to delve deeper into the question, ‘what makes aid work?’ (see, Dutta, Leeson, and Williamson, 2013; Burnside and Dollar, 2000, 2004; Svensson, 1999). This paper tests how political stability (vis-à-vis political instability) affects the relationship between domestic investment and foreign aid. Applying dynamic panel estimators, our results show that political stability affects aid’s effectiveness on domestic capital formation. The paper considers alternative measures of political stability (vis-à-vis instability), focusing on the political characteristics of a system that have the potential to make a nation stable. Political stability affects policy selection by the government positively and, thus, public resources such as foreign aid are put to the desired use. The estimated marginal impacts show that foreign aid enhances domestic investment in the presence of a stable political climate, but there is a diminishing return to aid.     

Home-country environment and firms’ outward foreign direct investment decision: Evidence from Chinese firms

This paper takes a holistic view and examines the environmental effect of the home country on firms’ outward foreign direct investment (OFDI) decisions. We construct an economic growth index to assess the overall economic environment of Chinese regions and find that the home country’s business environment is negatively associated with firms’ decisions to invest abroad, and that such a negative relationship can be intensified for firms with state ownership or without an export network. Moreover, unlike previous literature, we look at both the environmental effect on OFDI decisions and the consequential impact of OFDI on firm performance. We employ propensity score matching and difference-in-differences methods, as well as the Heckman two-step model, for our estimations. Our results show that OFDI does indeed improve Chinese firms’ productivity and sales. This paper, therefore, contributes to the literature by identifying a range of home country business environmental factors that have a combined effect on firms’ OFDI decisions, adding to a more comprehensive understanding of OFDI originating from emerging economies.     

Economic liberalization and urban–rural inequality in India: a quantile regression analysis

We examine India’s urban–rural inequality in welfare in 1993–1994 and 2004, a period which coincides with the country’s economic liberalization reforms and rapid economic growth. Using real monthly per capita household consumption expenditure as our measure of welfare, we estimate quantile regressions to analyze the urban–rural welfare gap across the entire welfare distribution. While the urban–rural welfare gap was fairly convex across the welfare distribution in 1993–1994, it became more concave in 2004, with the gap narrowing for the lowest and highest quintiles and widening for the middle three quintiles. The urban–rural gap in returns to all levels of education widened substantially for the bottom four quintiles but became increasingly negative for the top quintile. Applying the Machado and Mata (J Appl Econom 20:445–465, 2005) decomposition technique to decompose the urban–rural welfare gap at each percentile, we find that for the bottom 40% of the distribution, differences in the distribution of covariates became less important while differences in the distribution of returns to covariates became more important in explaining the gap. The opposite was true for the top 40% of the distribution. Our analysis suggests that while the rural poor appear to be catching up with their urban counterparts in terms of labor market characteristics, ten years of economic reforms have intensified the urban–rural gap in returns to these characteristics. On the other hand, the rural rich lag even further behind the urban rich with respect to their labor market characteristics even though the urban–rural gap in the returns to these characteristics has diminished during the reform period. Future efforts to generate urban–rural equality may require policies that seek to equalize returns to labor market characteristics between the two sectors at the lower half of the distribution and improve rural labor market characteristics at the top half of the distribution.     

China’s direct investment in the European Union: challenges and policy responses

The dramatic rise of Chinese direct investment into the European Union (EU) has sparked a debate about the control that China may be seeking to take over European economies. Quite naturally, these concerns have led to repeated calls that action be taken to slow down, if not to halt entirely, this growing trend. The objective of the article is to shed light on this debate. Following a thorough analysis of Chinese direct investment in the EU, this article suggests that the challenges posed by these inflows are widely overblown. Despite this, the article concludes that it is necessary to have a systematic approach to regulating inbound foreign investment (including from China) in the EU. Such an approach may help guard against the risk of a protectionist drift inside the EU, as well as the possibility that some investors may one day pose a threat to national security. This article concludes that although the current fragmented regulatory approach is unsatisfactory, because of the difficulties associated with a unified EU-wide review process, the most realistic option is to promote a more systematic and coordinated use of existing mechanisms such as competition policy. Also, pushing for the negotiation of a China–EU BIT is certainly a promising avenue to enhance the EU’s bargaining leverage based on the principle of positive reciprocity.     

Effects of exports on productivity and growth in India: an industry–based analysis

This study analyses the effects of exports on the level of output per capita using the panel estimates of an extended version of the Mankiw, Romer and Weil (The Quarterly Journal of Economics, CVII, 407-37, 1992) model, and on the total factor productivity using the time series estimators. The analysis is carried out for ten industries in the manufacturing sector in India. The results do not provide any evidence of convergence, and instead support the contrary evidence of divergence among industries. The exports do not induce convergence and instead seem to accentuate the process of divergence among industries. The study provides some evidence for the significant effects of exports on the level of output per capita and TFP in the manufacturing sector. The effects of exports on TFP are significant in half of the sample industries, while in the remaining half these are statistically insignificant.     

Keynes and the international monetary system: Time for a tabular standard?

This paper discusses proposals for tabular standards in the late nineteenth and early twentieth centuries. In particular, we focus on Keynes’ proposal for an international tabular standard (ITS) as the gold standard unravelled in the 1930s. The paper explains the origins of Keynes’ ITS proposal which pegged the value of an international reserve to a broad index of primary commodities, weighted in terms of their value in world production. We argue that the ITS should be viewed as an important and enduring component of Keynes’ ideal long-run vision for anchoring the international monetary system, even post-Bretton Woods.     

Does human capital constrain the impact of foreign direct investment and remittances on economic growth in Ghana?

This article empirically investigates whether human capital constrains the impact of Foreign Direct Investment (FDI) and remittances on economic growth in Ghana. An economic growth model for Ghana is specified and estimated using Fully Modified Ordinary Least Squares (FMOLS) estimator and employing annual data spanning the period 1965 to 2008. Empirical results indicate that FDI and remittances are key determinants of economic growth in Ghana. Results indicate that human capital enhances the impact of FDI and remittances on economic growth. Although both government expenditure and trade openness are growth-enhancing, government expenditure appears to crowd-out private investment. Empirical results also indicate that domestic inflationary pressures, unstable political environment and volatile global economy exert a negative impact on economic growth in Ghana.     

Macroeconomic policy and aggregate fluctuations in a semi-industrialized open economy: Greece 1951–1980

In this paper we model the effects of macroeconomic policy in a semi-industrialized open economy. Greece is our case, but the model could apply to other similar economies with tightly controlled financial markets and comprehensive foreign exchange restrictions, where both the exchange rate and interest rates are administered prices. The model consists of three equations which determine output, the price level and the trade balance. It is largely non-Keynesian, but, through the real exchange rate, it allows for anticipated monetary policy to affect real output. The model is estimated by FIML and its various restrictions cannot be rejected. A policy simulation suggests that even Friedman's x% money growth rule would ensure greater macroeconomic stability in the 1970s than the monetary policy that was actually followed.     

Impact of openness, economic policy reform and regional shocks on trade and growth of Thailand： An econometric study

Thailand has currently enhanced and promoted intensive trade and investment liberalization and implemented long-term growth policy according with current regional economic integration, WTO obligations and globalization. Nevertheless, several recent internal and external factors e.g. the massive SARS and avian flu outbreaks, the Indian Ocean tsunami devastation, the Asia financial crisis and domestic policy reforms （ICSEAD, 2006） have also impeded this policy. While the issues are important for Thailand and developing countries in Asia, only limited research has been undertaken to investigate them. The paper conducts a substantive quantitative study to contribute to these trade and development policy issues. A new econometric modelling policy method, namely the generalized gravity theory （Tran Van Hoa, 2004） is used to develop a simple flexible simultaneous-equation econometric model of Thailand＇s openness model with its seven major trade partners （ASEAN-4, Australia, the USA, the EU, China, Japan and India）. Using data from the ICSEAD, the World Development Indicators and the Bank of Thailand databases, the paper reveals efficient and reliable empirical findings on trade-growth causality, trade determination including the impact of shocks and policy reform on trade and growth between Thailand and its major trade partners over the past two decades. The paper also provides evidence on the linkages between trade in goods, FDI and services and regional economic integration for more credible policy implications.     

Saving,investment and capital mobility in EU member countries: a panel data analysis of the Feldstein–Horioka puzzle

ABSTRACT

In this paper, we reexamine the long-standing and puzzling correlation between national saving and investment in 14 European Union (EU) countries. We employ a panel data set for the period 1970–2015 and we apply recently developed maximum likelihood panel cointegration methodologies. We find that there exists a long-run relationship between savings and investment for this panel of EU member countries, with the savings retention coefficient being low in magnitude but statistically different than zero. Therefore, we argue that there is weak evidence in favour of the Feldstein–Horioka puzzle and that the long-run international solvency condition is maintained in most of these countries. This evidence implies a moderate degree of capital mobility which is consistent with the macroeconomic experience of these countries during the period under investigation.     

Macro-economic relativity: government spending,private investment and unemployment in the USA 1948–1998

This paper first explores how movements in Government spending and private capital investment can be related to changes in the unemployment rate of the USA between 1948 and 1988. The resulting model shows that there are very stable dynamic relationships between purely relative measures of these major macro-economic variables over this time; relationships that appear to continue into the post-1988 period and may help in understanding the differences in the investment–unemployment behaviour of the US economy before and after 1988.