Determinants of FDI inflows to Arab economies

The paper studies location determinants of foreign direct investment (FDI) to 16 Arab economies over the period from 1984 to 2012, by employing Arellano–Bover/Blundell–Bond linear dynamic panel data estimation. We find that market size, trade openness, preferential trade agreements and financial development have significant positive impact on FDI inflows to Arab economies. FDI in Arab economies appears to be resource seeking since the total oil supply variable is positive and significant. The paper finds that better institutions and educated labour force may play a key role in attracting FDI inflows. We suggest that Arab economies should sequence their economic policy measures with the institutional ones, beginning with a focus on privatization and trade liberalization, and subsequently shift to improvement in economic growth.     

Environmental adversity and food policy in the Arab Gulf states

Since the oil embargo of 1973, the Gulf states have emerged as an overwhelming financial power. However, apart from Iraq, the spiral in oil revenue has had little effect in promoting the development of agriculture. Historically, interest in agricultural development has been invariably linked to agricultural potential. Thus, if potential was very limited, interest in development would be minimal. This article takes an opposite view, suggesting that agricultural development may be important even under harsh ecological conditions, and that the limiting factor is the lack of skilled manpower needed to cope with the management of complex enterprise systems.     

Revisiting the nexus between globalisation and the shadow economy: Untying the influences of de jure versus de facto globalisation

This paper examines the relationship between globalisation and the size of the shadow economy, focusing on the differential effects of de jure and de facto globalisation. Using panel data on over 120 countries from 1991 to 2017, the results suggest that globalisation reduces the prevalence of the shadow economy. Furthermore, after differentiating between de jure and de facto globalisation, we find that both de facto and de jure globalisation are effective in curbing the spread of the shadow economy, with de jure globalisation showing a marginally larger impact. However, once we disaggregate the sample into OECD and non-OECD countries, the results show that it is mainly the OECD countries driving this result while the influence of globalisation is statistically insignificant in non-OECD countries. These results withstand a series of robustness analyses and offer important policy implications.     

Mispricing and risk of R&D investment in European firms

We study whether R&D-intensive firms earn superior stock returns compared to matched size and book-to-market portfolios across several financial markets in Europe. Mispricing can arise if investors are not able to correctly estimate the long-term benefits of R&D investment or whether R&D firms are more risky than others. The results confirm that more innovative firms can earn future excess returns. Stocks listed on continental Europe markets and operating in high-tech sectors are more prone to undervaluation. This can be caused in the first case by information asymmetries that are more severe in bank-based countries. No evidence is found for a different risk pattern of R&D-intensive stocks.     

The First and Second Stage Pass‐through of Exchange Rates: A Developing Country Perspective

This paper investigates the validity of the conventional wisdom that, unlike in developed countries, exchange rate pass‐through (ERPT) should be ‘complete’ for developing economies. To test this hypothesis, we construct new variables as well as original data sets, which are not readily available in the literature, and employ an alternative error correction model technique for a typical small open developing economy—Bangladesh. The transmission of exchange rate movements to import prices is found to be ‘complete’; however, the ‘second stage pass‐through’ is ‘partial’ both in the short and long run. The response of traded goods prices to exchange rate shocks is found to be significant and larger in the long run compared with the short run. Trade liberalization is also a significant phenomenon for ERPT. The analysis has wider applicability to other small open economies.