Financial Stress Regimes and the Macroeconomy

Some financial stress events lead to macroeconomic downturns, while others appear to be isolated to financial markets. We identify financial stress regimes using a model that explicitly links financial variables to macro‐economic outcomes. The stress regimes are identified using an unbalanced panel of financial variables with an embedded method for variable selection. Our identified stress regimes are associated with corporate credit tightening and with NBER recessions. An exogenous deterioration in our financial conditions index has strong negative effects in economic activity, and negative amplification effects on inflation in the stress regime. These results are obtained with a novel factor‐augmented vector autoregressive model with smooth‐transition regimes (FASTVAR).     

New development: Unified scores of governance capacity using a Bayesian latent variable analysis

A plethora of governance measures has been developed to assess governance capacity in different countries. Choosing one indicator over another involves discretionary decision issues. This article presents a new unified measure of governance capacity for the administrative and political dimensions. The unified measure provides a more accurate understanding of governance than single indices.     

Structural Changes in China’s Import Market: A Comparison with Korea’s Exports to China

The article examines the structural changes of China’s import market for domestic demand and the corresponding structural changes of Korea’s exports to China for Chinese domestic demand. Using 8-digit HS code data covering the period 2006–2014 and analyzing the processing steps as well as by industry, this study reveals that while the share of ordinary trade in total China’s imports has increased rapidly, the share of processing trade has decreased continuously since the mid-2000s. The article also shows that Korea’s exports to China is still processing trade-oriented. The slowdown of Korea’s exports to China is because of the concentration on processing trade, intermediate goods, electronics and chemistry.     

N‐FIRM OLIGOPOLY WITH GENERAL ISO‐ELASTIC DEMAND

In this note oligopoly with iso‐elastic demand is analysed. Unlike previous studies we consider general iso‐elastic demand rather than the case of unit elasticity. An n‐firm Nash‐Cournot equilibrium for the case of heterogeneous constant marginal costs is derived. The main result is a closed‐form solution that shows the dependency of the equilibrium on the elasticity of demand and the share of industry costs. The result has applications to a wide range of areas in oligopoly theory by allowing comparisons across markets with different elasticities of demand.     

Do environmental regulations hamper small enterprises' market entry? Evidence from China

Due to the serious increase of environmental pollution in China, environmental regulations have become significantly stringent. Such regulations are playing an increasingly important role in the development of small enterprises (SEs) in China, especially in SEs' market entry. However, existing studies pay little attention to this issue. This paper investigates for the first time the effect of environmental regulations on SEs' market entry and the mechanism of environmental regulation effects in China. We consider two sets of panel data for the periods 2003–2010 and 2012–2015 in China. We also use the fixed effect model and the instrumental variable method to explore the role of environmental regulations in SEs' market entry. The results show that, overall, environmental regulations play a significantly positive and robust role in SEs' market entry. However, the mechanisms associated with the effect of environmental regulations on different innovative types of SEs differ. Environmental regulations promote the market entry of SEs with product innovation, but this impact is not significant for SEs with research and development (R&D) activities and R&D institutions. Our findings indicate that China's SEs prefer product innovation, which is a lower level innovative type, over R&D innovation, as a means to avoid the negative impact of stringent environmental regulations.     

ON THE PROFITABILITY OF RESALE PRICE MAINTENANCE WHEN DEMAND IS UNCERTAIN

A previous study finds that in a market where a manufacturer faces uncertain demand and sells to consumers through competitive retailers, the manufacture wishes to support adequate retail inventories by imposing resale price maintenance (RPM). I show that if retail inventories are allocated to consumers through first‐come‐first‐served rule rather than efficient rationing rule in the game with unconstrained retail competition, imposing RPM may not be profitable. It may not encourage more retail inventories either. RPM may also lower consumer surpluses and social welfare. This study casts some doubt on the demand uncertainty theory that supports RPM.     

Product price and performance level in one market or two separated markets under various cost structures and functions

Market characteristics, including intrinsic demand and customer sensitivity on price and product performance level, are distinct at different markets. Comparisons of various product development strategies in one market or two geographically separated markets are conducted for three classes of products: development intensive products (DIPs) with constant unit cost, marginal cost-intensive products (MIPs) with constant fixed cost, and marginal and development intensive products (MDIPs) with non-constant unit cost and fixed cost. Results show that larger demand size, less customer sensitivity on price and/or more sensitivity on performance level lead to more profit, a higher sale price and a not-lower product performance. The customer reservation or the saturation performance level should be generally adopted though the optimal performance level does exist occasionally. Unit cost and/or fixed cost must increase in performance at an increasing rate for the existence of one optimal performance level. Due to the impact of demand size, one high-end (low-end) MDIP or DIP could be introduced into one low-end (high-end) market at a different price if the demand size is significantly large in the low-end market. For DIPs, offering one niche high-end product is not worse than offering the low-end product into two markets. For MIPs with negligible fixed cost, the product line strategy is not worse than the standard product development strategy. Additionally, the product cost reduction approach adopted in one product line has significant effects on the best product development strategy and sequence.     

Sustainability Strategy and Eco‐Innovation: A Moderation Model

This study develops a moderation model to examine the role of a proactive environmental strategy on eco‐innovation. Drawing upon the perspectives of contingency theory, this study argues that the impacts of sustainability strategy on eco‐innovation depend on market demand, innovation intensity and government subsidy. The sample used to test the hypotheses is obtained from the Community Innovation Survey in Taiwan. A total of 2955 manufacturing firms are included in the final sample. A logit moderating regression is adopted to analyze the models. The results reveal that market demand and government subsidy positively moderate the relationship between environmental strategy and eco‐innovation. Specifically, firms are more likely to adopt a proactive environmental strategy to improve eco‐innovation under high levels of market demand and government subsidy. Furthermore, the results indicate that innovation intensity affects the effect of environmental strategy on eco‐innovation, but the direction of the influence varies with different categories of eco‐innovation. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment     

Modelling substitution between domestic and outbound tourism in Australia: A system-of-equations approach

This study uses a system-of-equations approach to model the substitution relationship between Australian domestic and outbound tourism demand. A new price variable based on relative ratios of purchasing power parity index is developed for the substitution analysis. Short-run demand elasticities are calculated based on the estimated error correction almost ideal demand systems. The empirical results reveal significant substitution relationships between Australian domestic tourism and outbound travel to Asia, the UK and the US. This study provides scientific support for necessary policy considerations to promote domestic tourism further.