International Transmission of Government Spending,Monopolistic Competition and North-South Trade

This paper utilises a North–South general equilibrium model where South exports an intermediate good to North in exchange for differentiated goods. The model is used to examine international transmission of government spending and its welfare implications. It is shown that an increase in government spending in North (South) can increase (decrease) the number of differentiated goods produced, thereby decreasing (increasing) the degree of monopoly power in North. Furthermore an increase in government spending in South can decrease the welfare North, but the impact of an increase in government spending in North the welfare of South cannot be unambiguously determined. [F11, H41]     

Labour mobility and wage inequality in the presence of endogenous foreign investment

This paper examines the impact of labour mobility and increased competition on skilled–unskilled wage inequality and foreign investment. Unlike the existing literature this paper considers a model where foreign investment is endogenously determined. The paper shows that in the shortrun, inflow of either skilled or unskilled labour has no effect on wage inequality but increased competition increases wage inequality. Inflow of either type of labour increases foreign investment but the impact of increased competition on foreign investment cannot be unambiguously determined. Inflow of skilled labour increases wage inequality in the longrun and its effect on foreign investment is positive. Increased competition in the longrun increases wage inequality, foreign investment and welfare.     

A Ray of Hope Still Remains

Pakistan’s economy has been under considerable stresses and strains during the last year, and more especially so during its last quarter. The author, a former Economic Adviser to the Pakistan Government, reviews past economic problems and gives his personal outlook on the future development. We would like this article to serve as a basis of discussion.     

Estimation of the scale matrix of a multivariate t-model under entropy loss

This paper deals with the estimation of the scale matrix of a multivariatet-model with unknown location vector and scale matrix to improve upon the usual estimators based on the sample sum of product matrix. The well-known results of the estimation of the scale matrix of the multivariate normal model under the assumption of entropy loss function have been generalized to that of a multivariatet-model. The paper is based on the first author’s unpublished Ph.D. dissertation ‘Estimation of the Scale Matrix of a Multivariate T-model’, University of Western Ontario, Canada. Present address: School of Mathematics and Statistics, The University of Sydney, NSW 2006, Australia.     

Do Taxes Matter for Foreign Direct Investment?

The tax sensitivity of foreign direct investment (FDI) has importantpolicy implications. If FDI is not responsive to taxation, thenit may be an appropriate target for taxation by the host country.This question is examined for Mexico by estimating the responseof FDI from retained earnings and transfers from abroad to thetax regimes in Mexico and the home country, the credit statusof multinationals, country risk factors, and regulatory andtrade regimes in Mexico. FDI in Mexico is found to be sensitiveto the tax regimes in Mexico and the United States, the creditstatus of multinationals, country credit ratings, and the regulatoryenvironment. Thus Mexico's current policies to dismantle regulationsand employ a tax system competitive with the United States areexpected to have salutory effects on FDI in Mexico.     

The Political Economy of US Aid to Pakistan

Variations of bilateral aid flows are difficult to explain on the basis of official development objectives or recipient need. Based on the example of US aid to Pakistan, this paper suggests alternative political economic explanations, notably the relevance of ethnic lobbying and the relevance of US business interests. Time series regressions for the period from 1980 to 2002 and logistic regressions based on votes for the Pressler and the Brown Amendment confirm the significance of these political economic determinants. While in case of the Pressler Amendment, the direct influence of population groups of Indian and Pakistani origins seems to have played a predominant role, the role of ethnic business lobbies appears to have dominated in the context of the Brown Amendment. Time series analysis also provides some evidence for the impact of US business interests based on FDI and exports, but these effects appear to be comparatively small.