Multidivisional firms, internal competition, and the merger paradox

Abstract.  Traditional modelling of mergers has the merged firms (insiders) cooperate and maximize joint profits. This approach has several unappealing results in quantity‐setting games, for example, mergers typically are not profitable for insiders, but are profitable for non‐merging firms (outsiders). We take a different approach and allow for a parent company that can play each insider off one another. In quantity‐setting games, with our approach mergers are profitable for insiders, unprofitable for outsiders, socially beneficial, and involve (in a non‐monopolizing merger) a small number of firms. Finally, we find that the optimal strategy depends on whether firms compete in quantity or prices. JEL classification: L000     

The Differential Returns Offered by Mutually Owned and Proprietary UK Depository Institutions: 1993–2000

The study quantifies the differences in the level of return from investing in deposit (savings) accounts provided by depository institutions, which are either 'mutual' or 'proprietary'. It is shown that for most types of deposit accounts offered in the UK, mutual building societies provide higher returns than proprietary firms. Surprisingly, it is also shown that returns from deposit accounts issued by converted or non‐mutual building societies are, generally, lower than either mutual building societies or proprietary firms. These findings are consistent for interest rate data adjusted for the effect of non‐price product characteristics and for unadjusted interest rate data.     

Mixed oligopoly, optimal privatization, and foreign penetration

This paper examines the impact of foreign penetration on privatization in a mixed oligopolistic market. In contrast to the simple framework of single domestic market with foreign entry by entry mode of foreign direct investment (FDI) or exports, our result shows that government should increase the degree of privatization along with increasing proportion of domestic ownership of multinational firms. Furthermore, we show that an increase in domestic ownership of multinational firms raises all domestic private firms' profit and social welfare, while it may either increase or decrease public firm's profit. With the aid of numerical example, intensive competition from private firms in general will enhance the degree of privatization gradually; in particular, the degree of privatization is lower in the presence of multinational firms.     

Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences

We develop a Ricardian model of trade with nonhomothetic preferences to analyze preferential trade agreements (PTAs) among countries of different stages of economic development. The richer a country is, the more likely will PTAs improve its terms of trade, also when it is a non‐member. Rich non‐member countries are also less likely to incur welfare losses from PTAs. PTA membership only guarantees welfare gains for countries that are too poor to import the goods rich countries produce. For all other countries, the welfare effects of joining PTAs depend on the world income distribution and on the strength of comparative advantages.     

Constitutional Design and Investment in Cooperatives and Investor‐Owned Enterprises

Abstract This paper studies the role of the corporate governance system in cooperatives and in investor‐owned enterprises. We abstract from all possible differences between the two systems except the type of majority needed to take decisions: this is one‐head‐one‐vote for cooperatives and proportional to capital invested in investor‐owned firms. We show that the institutional form chosen matters for the initial investment decision of the agents: in particular we find that members of a cooperative invest less than they would in an investor‐owned enterprise.     

Are migrants more skilled than non‐migrants? Repeat,return, and same‐employer migrants

Abstract.  I examine the determinants of inter‐state migration of adults within western Germany, using the German Socio‐Economic Panel from 1984–2000. Migrants who do not change employers represent one‐fifth of all migrants and have higher education and pre‐move wages than non‐migrants. Skilled workers thus have a low‐cost migration avenue that has not been considered in the previous literature. Other migrants are heterogeneous and not unambiguously more skilled than non‐migrants. I confirm that long‐distance migrants are more skilled than short‐distance migrants, as predicted by theory, and I show that return migrants are a mix of successes and failures. Most repeat migration is return migration. JEL classification: J6     

Infrastructure,Multinational Affiliate Production,and the Pattern of Trade

In a two-country general equilibrium model with endogenously determined domestic and multinational firms, it is shown that public infrastructure development can have diverging implications for horizontal multinational affiliate firm production and trade, depending on the type of infrastructure invested in. Infrastructure investments with strong productive or local transport effects (i.e. schools or local roads) lead to greater domestic firm production and exports, fewer imports, and more foreign multinational affiliate firm production in the country making the investment. On the other hand, infrastructure projects that lower international trade and transaction costs (i.e. shipping ports or airports) lead to more domestic firms in both countries, a greater volume of bilateral exports in both directions, and less multinational affiliate production. Further, the effect of different types of infrastructure investment on income and welfare of the open economies is explored.     

Property Right and Organizational Characteristics of Producer‐owned Firms and Organizational Trust

Abstract ** :  We examine how organizational characteristics of producer‐owned firms are correlated with the level of perceived trust among cooperative members, using survey data from a sample of U.S. agricultural cooperatives. Our results indicate trust is correlated with property right and organizational structures previously identified in the literature as significant for cooperative performance. We find that the norm of equality and the homogeneity of member interests are key correlates of organizational trust in producer‐owned firms. We also find that some property right structures that improve organizational trust are counterproductive for member investment incentives .     

Equity Control of Multinational Firms: Effects on Resource Allocation and National Welfare

In this paper, we re-examine the effects of equity control of multinational firms on resource allocation and national welfare in a model with rural–urban migration and urban unemployment. A large number of recipient (host) countries are developing countries with dual economies. We indicate, among other things, that a restriction on multinational investment may lower the unemployment rate and increase the total employment in the host country. Furthermore, we find that the restriction on multinational investment raises the national welfare in the host economy if the tariff imposed on imports is sufficiently large and the difference between domestic and foreign capital rental is sufficiently small.     

分割生产、垂直型投资与产业内贸易

文章在Dixit-Stiglitz垄断竞争的框架下,分析了在产品的生产环节可以任意分割的条件下,跨国公司在国内外配置生产环节的决定因素,并分析了为分割生产而进行的垂直型投资对贸易和消费者福利产生的动态影响.研究结果表明,与对垂直型投资的传统研究不同,为分割生产进行的垂直型投资和贸易的动态关系始终是替代关系,跨国公司出于自身利益考虑的分割生产行为正好使消费者福利水平达到最大.     

Money, capital, and real liquidity effects with habit formation

Abstract.  The money in utility model is reconsidered in the presence of endogenous labour and habits. With standard assumptions about preferences and a policy rule that sets the nominal interest rate by adjusting the growth rate of money, the model exhibits superneutrality in the steady state. Nevertheless, habits give rise to real liquidity effects in the short run. After an increase in the nominal interest rate, employment falls, resulting in a fall in capital accumulation and in the short‐ and long‐term real interest rates. The adjustment of the capital stock is non‐monotonic. Employment and the short‐ and long‐term real interest rates may also adjust non‐monotonically. JEL classification: E22, E52, E58     

Costly pollution abatement, competitiveness and plant location decisions

The NAFTA debate included assertions that were used as arguments against trade and investment liberalization. (1) Trade liberalization increases production sensitivity to environmental restrictions (‘environmental dumping’?). (2) Investment liberalization, leading to multinational firms, similarly increases the production and welfare response to costly environmental restrictions. I find that: (1) Trade liberalization increases production sensitivity to costly environmental restrictions, but arguments against liberal trade on welfare grounds do not follow. (2) Multinationals do not increase the production-reallocation effect caused by environmental restrictions or regulations. In addition, I find a great difference between restrictions that fall on fixed costs and restrictions that fall on marginal costs.     

Export orientation and domestic merger policy: theory and some empirical evidence

Abstract.  Recent 'open‐economy industrial organization' literature finds export orientation enhances the weight of post‐merger international competitive gains, favouring lenient domestic merger policy. However, mergers seldom generate the 'significant synergies' supportive of international competitive gains. Since a joint‐economies‐of‐production effect suggests domestic mergers tend to generate international competitive losses (not gains), export orientation favours strict (not lenient) domestic merger policy. We show how non‐synergistic domestic mergers in the presence of international sales might reduce national welfare and incur stringent merger reviews. A panel data set of U.S. merger policy by manufacturing sector, 1990–2001, empirically supports export orientation, leading to strict merger policy. JEL classification: L40, F10     

FOREIGN DIRECT INVESTMENT IN A TWO‐TIER OLIGOPOLY: COORDINATION,VERTICAL INTEGRATION,AND WELFARE*

We study foreign direct investment (FDI) by two independent investors/entrants into a two‐tiered oligopolistic industry. An FDI subsidy at a single stage of production can be sufficient to resolve the coordination problem facing investors thereby inducing entry at both stages. However, due to linkage offsetting, FDI at both stages may yield lower domestic welfare than FDI at a single stage. Vertical integration not only solves the coordination problem, it also eliminates double marginalization. But since the integrated multinational does not sell the intermediate to local firms, its entry generates no vertical linkages and can yield lower welfare than FDI by independent firms.     

Russian Railways Reform and the Problem of Non‐discriminatory Access to Infrastructure

Abstract Restructuring of the Russian railways system is well under way. Among the policies just now coming into practice are two that are standard in railways restructuring in other countries: the provision of access to the infrastructure by independent train operating companies, and assurances of non‐discriminatory access terms for such companies. However, 'discrimination'– in the traditional economic sense – is a standard and often welfare‐enhancing pricing strategy for the recovery of fixed costs in a sector, like railways, with declining average costs. If competition regulators are unable to distinguish between discrimination that harms competition and discrimination designed only to recover fixed costs, policy makers in Russia and elsewhere will face a choice between large government subsidies and large welfare losses. In these circumstances, other restructuring models should be considered.     

Identification, weak instruments, and statistical inference in econometrics

Abstract.  We discuss statistical inference problems associated with identification and testability in econometrics. We consider inference in non-parametric models and weakly identified structural models (weak instruments). We point out that many ill‐defined statistical problems, such as non‐testable hypotheses, occur in these areas and are typically associated with asymptotic approximations. In non‐parametric models, such problems include testing moments and inference under heteroscedasticity or serial dependence of unknown form. For weakly identified structural models, difficulties are typically associated with improper pivots, and we review recent developments aimed at proposing more reliable procedures, including alternative proposed statistics, bounds, projection, split‐sampling, conditioning, Monte Carlo tests. JEL classification: C1, C12, C14, C15, C3, C5     

On the welfare effects of competition for foreign direct investments

This paper investigates welfare effects of subsidy competition for the location of a multinational enterprise. One of the competing regions benefits more from the inward investment but, in the absence of incentives, the multinational's preferred location is the other, more advanced region. The paper shows that subsidies, by making the multinational switch location, may increase aggregate welfare. If the multinational exports in the absence of incentives, the welfare effects of subsidy competition may look very different. Allowing subsidies attracts the direct investment, which otherwise would not take place, in one of the two regions. Further, it intensifies competition in the market. The paper shows that the welfare increasing role of incentives may be amplified, but also that the competition effect, by hurting domestic firms, may cancel out any other positive role of incentives.     

Grant Assistance and Small Firm Development in Northern Ireland and the Republic of Ireland

Small business support is an important element of industrial development policy in both Northern Ireland and the Republic of Ireland. This paper examines the effect of grant support on small business performance from 1991–94. Around 50% of small businesses in Northern Ireland and 30% of small businesses in the Republic of Ireland received financial support over this period. In Northern Ireland, three clusters of assisted companies were identified who received support for marketing, training and capital investments. In the Republic of Ireland, two assisted clusters of firms were identified who received marketing and training grants. In each case, firms in the assisted clusters grew faster, tended to be more profitable, were more active in terms of sales and market development and adopted more ambitious strategic directions than those in the non‐assisted clusters. Selection models are used to explore whether these differences are due to differences in the characteristics of the assisted and non‐assisted groups or can be directly attributed to the effect of government financial support. In the Republic of Ireland there is no evidence of any effective targeting of assistance at better performing firms. In Northern Ireland, there is some evidence that assistance was targeted at firms with higher productivity growth. Grant aid had no effect on either the turnover growth or profitability of small businesses in either area. It did, however, boost employment growth. This is good‐news for job creation but has potentially worrying implications for firms' longer‐term competitive position through its negative effect on productivity.     

Exporting and performance: evidence from Chilean plants

Abstract.  Recent empirical evidence documents the superior characteristics of exporters relative to non‐exporters. Three explanations for this phenomenon have been proposed: self‐selection; learning‐by‐exporting; and conscious self‐selection. We test these three hypotheses using plant‐level data from Chile. We find that plants that enter international markets show superior initial performance compared with non‐exporters, consistent with self‐selection; we observe increases in productivity after plants begin to export, which is consistent with learning‐by‐exporting. We also find strong evidence supporting the idea that self‐selection is a conscious process by which plants increase productivity with the purpose of becoming exporters. JEL classification: F14; O54; D21