Real exchange rate persistence and the excess return puzzle: The case of Switzerland versus the US

The PPP puzzle refers to the wide swings of nominal exchange rates around their long‐run equilibrium values whereas the excess return puzzle represents the persistent deviation of the domestic‐foreign interest rate differential from the expected change in the nominal exchange rate. Using the I(2) cointegrated VAR model, much of the excess return puzzle disappears when an uncertainty premium in the foreign exchange market, proxied by the persistent PPP gap, is introduced. Self‐reinforcing feedback mechanisms seem to cause the persistence in the Swiss‐US parity conditions. These results support imperfect knowledge based expectations rather than so‐called “rational expectations”.     

Breaking the letter vs. spirit of the law: How the interpretation of contract violations affects trust and the management of relationships

Contract violations are ubiquitous. There has been little attention, however, dedicated to understanding the mechanisms involved in making sense of and addressing such occurrences. Two experimental studies investigated how people interpret contract violations and how these interpretations affect trust and the management of relationships. By drawing on the distinction between violations of the letter versus spirit of the law, we show that letter violations are more difficult to overcome than spirit violations, due to higher perceived intentionality. These effects generalized across different populations, levels of contracting experience, types of contracting contexts, levels of ambiguity within the contract, and degrees of contract complexity. The results yield important implications for understanding contract violations, trust, and organizational responses as a relationship management capability. Copyright © 2014 John Wiley & Sons, Ltd.     

South Asia's Export Structure in a Comparative Perspective

World-wide cross-country regressions are used to examine South Asia's export structure through the lens of Heckscher‐Ohlin trade theory. By comparison with other regions, South Asia's exports are unusually concentrated on labour-intensive manufactures. This distinctive export structure is shown to be the result mainly of South Asia's distinctive combination of resources: by comparison with other regions, it has a low level of education and few natural resources, relative to its supply of labour. This basic economic fact must be recognized in the design of trade and development strategy for South Asia over the next few decades.     

Impact of Management Practices on Persistent and Residual Technical Efficiency – a Study of Swedish pig Farming

Managerial capacity builds over the years and the accumulated knowledge/practice affect the outcome of the period that follows, with long‐run/permanent effects on inefficiency. Therefore, predictions of the influence of managerial capacity on the time‐varying inefficiency, regularly estimated as overall efficiency, may be biased. This study analyzed the influence of farm management practices on both the persistent and residual efficiency, and evaluated how conclusions drawn about the effect of management practices are assessed if overall efficiency, instead of permanent and residual efficiency, is evaluated. Farm‐accounting data of Swedish pig producers and information from a survey related to managerial practices were used. Copyright © 2016 John Wiley & Sons, Ltd.     

Je t'aime, moi non plus: Bilateral opinions and international trade

This paper studies the relationship between bilateral trade patterns and opinions. It uses the Eurobarometer public opinion surveys published by the European Commission, which provide data on the share of the population in each EU15 member country in favour of each CEEC joining the EU. Our results first suggest that bilateral opinions have a statistically robust and relatively large effect on imports, even when standard and new covariates capturing proximity between countries are controlled for. We interpret this effect as reflecting a positive impact of “bilateral affinity” on trade patterns. We also show that it is possible to go some way towards explaining the variance in bilateral opinions among our sample. Last we provide some preliminary attempt to determine causality between bilateral opinions and imports.     

Political hazards and firms' geographic concentration

Research summary : We examine the relationship between the geographic concentration of a firm's sales and the firm's vulnerability to expropriation hazards. Although expanding outside the home location can initially increase a firm's exposure to government expropriation, we find that this effect reverses when a firm's sales outside its home location have reached a point at which it has sufficient resources to better influence government actions and to pose a credible threat to exit the market in which it is being targeted. We supplement this main result by identifying two moderating factors: the firm's level of political capital and the effectiveness of institutional constraints on government behavior. We find support for these hypotheses from survey data on privately owned enterprises in China. Managerial summary : This research advises firm managers that certain market activities might knock their firms' economic interests out of alignment with the government's political interests, and thus, influence the political hazards they face, particularly in emerging markets such as China, which has attracted strong interest of many firms with respect to entering the market. Here, all else being equal, the firms' geographic concentration exposes them to different levels of state expropriation—but not in a simple linear fashion as suggested by the conventional wisdom of local protectionism or that of the bargaining advantage generated by the threat of relocation: Those who are “stuck in the middle” ended up paying twice or even three times as much unauthorized levies as the purely local or the most expansive firms. Copyright © 2015 John Wiley & Sons, Ltd.     

Structure and Ownership of East German Enterprises

This paper investigates the process by which East German enterprises have been privatized and their resulting ownership and control structure. A corporate system with a very high level of concentration of ownership has been created. This is particularly closely associated with ownership and direct control by West German companies. The paper argues that this has allowed East German enterprises to gain access to finance, markets, and managerial skills which they might otherwise have been denied. The resulting "insider" system of corporate control will over time allow East German companies to participate in the control of their own and West German companies. The Treuhandanstalt has organized the privatization process to achieve certain industrial and social objectives. It has broken up the large multiplant enterprises to an extent that East German enterprises are now smaller than their West German counterparts. It has used informal liquidations rather than formal bankruptcies to be able to achieve its objectives. Privatizations have not involved the flotation of companies on the stock market. Instead, the Treuhand has arranged share and asset transfers on a scale which is in excess of merger activity commonly observed in the West. J. Japan. Int. Econ., Dec. 1995, 9(4), pp. 426–453. University College London, Wissenschaftszentrum Berlin, and CEPR; Oxford University and CEPR     

Protectionism, Intellectual Property, and Consumer Protection: Was the Uruguay Round Good for Consumers?

Critics of the Uruguay Round of the GATT have contended that its provisions threaten the ability of individual nations to enact and keep in place strong consumer protection measures. Agreements regarding non-discriminatory treatment and protection of intellectual property, critics believe, undermine important consumer policies designed to promote consumer health, safety, and information. This paper reviews the arguments and evidence regarding the potential of the Uruguay Round agreements to threaten consumer protection. Although the potential for such threats does exist, the record to date does not suggest any significant retreat from consumer protection due to free trade agreements.