Interethnic relations,informal trading networks,and social integration: imitation,habits, and social evolution

The ethnically homogeneous middleman groups (EHMGs), which are informal trading networks, are ubiquitous in less-developed economies where the legal infrastructure for contract enforcement is not well developed. This paper develops a formal model of social interaction among members of the EHMG as well as in more general situations in a multi-ethnic or multi-cultural society consisting of identifiable ethnic or linguistic groups. Behavioral patterns are transmitted between generations and altered via imitation in social contacts. The model demonstrates how different discriminatory behavioral patterns can evolve and persist over time. One result is that the trust between such groups can increase due to a higher frequency of inter-group contacts. In concluding the paper, we speculate about how the model can be expanded to include changes in legal structures, especially contract law. This could lead to an increase in the trust between the different groups.     

Outsourcing,Importing and Innovation: Evidence from Firm‐level Data for Emerging Economies

This paper investigates two sourcing strategies of firms, outsourcing and importing, and links these to innovation activities. The authors examine this empirically using firm‐level data for 28 emerging market economies and find robust evidence that outsourcing increases the likelihood to spend on R&D and via this channel raises innovation output, whereas importing increases innovation output, but not R&D. The results hold when implementing an instrumental variables approach. It is found that results crucially depend on the institutional environment in the economy, e.g. property rights and intellectual property rights protection. The results suggest that better institutions magnify the gains from importing, but not from outsourcing. EU countries also reap additional positive innovation effects from importing compared with non‐EU countries.