HIGH AND VOLATILE TREASURY YIELDS IN TANZANIA: THE ROLE OF STRATEGIC BIDDING AND AUCTION MICROSTRUCTURE

The observed increase in the level and volatility of Tanzania's Treasury yields in recent years against an otherwise benign macroeconomic backdrop presented a puzzle for policymakers, while raising concerns about the fiscal burden of rising debt interest payments and diversion of bank credit away from the private sector. Using evidence from bid-level data, and supported by a simple theorising of bidder incentives under unorthodox issuance practices, this paper traces the recent volatility in yields to the emergence of a sharp segmentation of the T-bill market between sophisticated financial market players (foreign-controlled banks) and a less-experienced group of investors (domestic pension funds and small banks). An important policy recommendation that emerges is that public debt managers should avoid micro-managing Treasury bill auctions by issuing amounts in excess of those offered or by dipping into oversubscribed segments of the yield curve, as such practices seriously disadvantage the less-sophisticated (but more competitive) investors vis-à-vis the more sophisticated players.     

Econometric Analysis of the India–Sri Lanka Free Trade Agreement*

This paper investigates whether the India–Sri Lanka Free Trade Agreement (ISLFTA) has had trade creation or trade diversion effects on the rest of the world. Using data on tariffs at the six‐digit level of the Harmonized System classification for the period 1996 to 2006, the methodology of the present paper follows a study on the North American Free Trade Agreement by Romalis (2005 ) We use the commodity and time variation in the tariff preferences allowed under ISLFTA to identify its effect on sourcing of different products from the ‘control country’ to the ISLFTA region. Using a fixed effects model, we find that the ISLFTA has had small trade creation effects in the control countries.     

Exchange rate pass-through and rivalry in the Swiss automobile market

Exchange Rate Pass-Through and Rivalry in the Swiss Automobile Market. —This paper investigates the pricing rivalry among foreign automobile producers in the Swiss market. The main results from the dynamic analysis of two categories of automobiles between 1977 and 1991 are: First, the degree of exchange rate pass-through differs among source-countries despite the absence of quantitative restrictions on imports and of domestic production facilities. However, for some countries, pricing strategies show remarkable consistency across product categories and time spans. Second, the degree of exchange rate pass-through is low, especially in the market for small-size automobiles. Third, this low degree of pass-through may be attributed to a low degree of competition among foreign sellers.     

STATIONARITY TESTS IN GEOGRAPHIC MARKETS: AN APPLICATION TO SOUTH AFRICAN MILK MARKETS

The paper focuses on the delineation of geographic markets in competition analysis, investigating the use of tests of price co‐movement in the market definition exercise. To this end, the first part is devoted to a conceptual framework for market definition (adopted from Haldrup (2003 )). Thereafter, a variety of price tests are explored that can be applied within the quantitative part of the framework. Similar to Forni (2004 ), the paper emphasizes the use of stationarity tests (that is, tests for the existence of unit roots) – illustrating their application to a recent competition investigation in South Africa.     

Export entry and exit by German firms

Export Entry and Exit by German Firms. — While exports have played an important role in German business cycles, little is known about the export supply response of German firms. This paper presents a dynamic model of the export decision by a profit-maximizing firm. Using a panel of German manufacturing plants, we test for the role of plant characteristics and sunk costs in the entry decision. We find evidence for substantial sunk costs: exporting today by a plant increases the probability by 50 percent that the plant will export tomorrow. This advantage depreciates quickly, falling by two-thirds in a year. The authors also find evidence that plant success, as measured by size and productivity, increases the likelihood of exporting.     

Free trade or protection? belgian textile and clothing firms’ trade preferences

Free Trade or Protection? Belgian Textile and Clothing Firms' Trade Preferences. -This paper examines the positions of Belgian textile and clothing firms on trade policies. Observations on positions are generated by a survey. Along the lines of the political economy of protection and anti-protection we test whether firm-specific characteristics influence textile and clothing firms' trade policy preferences. The results show that international competition and having foreign establishments significantly determine firms' positions, but that product differentiation does not. A Chow test indicates no significant difference between firms' sensitivities in the textile and clothing industries. This suggests that the two professional organizations should co-operate on trade issues.