Foreign direct investment, competition and industrial development in the host country

This paper analyses the impact of foreign direct investment (FDI) on the development of local firms. We focus on two likely effects of FDI: A competition effect which deters entry of domestic firms and positive market externalities which foster the development of local industry. Using a simple theoretical model to illustrate how these forces work we show that the number of domestic firms follows a u-shaped curve, where the competition effect first dominates but is gradually outweighed by positive externalities. Evidence for Ireland tends to support this result. Specifically, applying semi-parametric regression techniques on plant level panel data for the manufacturing sector we find that while the competition effect may have initially deterred local firms’ entry, this initial effect has been outpaced by positive externalities making the overall impact of FDI largely positive for the domestic industry.     

Top dominance and the possibility of strategy-proof stable solutions to matching problems

Summary This paper explores the possibility of designing strategy-proof mechanisms yielding satisfactory solutions to the marriage and to the college admissions problem. Our first result is negative. We prove that no strategy-proof mechanism can always choose marriages that are individually rational and Pareto efficient. This strengthens a result by Roth (1982) showing that strategy-proof mechanisms cannot always select stable marriages. The result also applies, a fortiori, to college admissions. Since finding difficulties with strategy-proofness is quite an expected result, we then address a second question which is classical within the incentives literature. Are there restrictions on the preferences of agents under which strategy-proof and stable mechanisms do exist? We identify a nontrivial restriction on the domain of preferences, to be called top dominance, under which there exist strategy-proof and stable mechanisms for both types of matching problems. The mechanisms turn out to be exactly those that derive from the most classical algorithms in the literature; namely, the women's optimal, the men's optimal and the student's optimal. Finally, top dominance is shown to be essentially necessary, as well as sufficient, for the existence of strategy-proof stable matching mechanisms.This work is partially supported by grant PB 89-0294, from the Directión General de Investigatión Ciencia y Tecnología of the Spanish Ministerio de Educación y Ciencia. Salvador Barberà is also grateful to the Instituto de Estudios Fiscales. This research was initiated while both authors were visting GREMAQ, Université des Sciencies Sociales, Toulouse, whose hospitality is gratefully acknowledged. The paper extends results that were circulated as GREMAQ W.P. 91.22.232. We are grateful to Matthew Jackson and Marilda Sotomayor for their comments.     

Pricing to market behaviour in European car markets

This paper investigates PTM behaviour in European car markets for a period of great interest (1993-98), taking into account the role of invoicing currency. The results indicate that local currency price stability is a strong and pervasive phenomenon across products independently of the invoicing currency. The paper offers robustness checks, tests and arguments that justify the interpretation of this finding, at least in part, as evidence of PTM. It implies the existence of market segmentation and price discrimination, despite the completion of the single market programme on 1 January 1993.     

Custom-built

Mass customization has rapidly moved from an abstract theory to a practical source of competitive advantage. Fabrizio Salvador has been studying the companies that have bolstered their business by tapping into the idiosyncratic needs of customers. Tom Brown reports on his latest thinking.     

The Effect of EMU on Tourism*

This paper estimates the effect of the euro on intra‐EMU tourist flows by using a panel dataset of 20 OECD countries over the period 1995–2002. The results reveal that the euro has increased tourism, with an effect of around 6.5%. This is a noticeable impact given the early stage of the EMU analyzed. The robustness checks show that the evidence of a positive impact is quite widespread across EMU destination countries.     

Purification of Bayesian–Nash equilibria in large games with compact type and action spaces

We present a purification result for incomplete information games with a large but finite number of players that allows compact metric spaces for both actions and types. We then compare our framework and findings to the early purification theorems of Rashid (1983. Equilibrium points of non-atomic games: asymptotic results. Economics Letters 12, 7–10), Cartwright and Wooders (2002 On equilibrium in pure strategies in games with many players. University of Warwick Working Paper 686 (revised 2005)), Kalai (2004. Large robust games. Econometrica 72, 1631–1665) and Wooders, Cartwright and Selten (2006. Behavioral conformity in games with many players. Games and Economic Behavior 57, 347–360). Our proofs are elementary and rely on the Shapley–Folkman theorem.     

Multivariate partial adjustment of financial ratios: a Bayesian hierarchical approach

In this paper we propose a multivariate extension of the partial adjustment model of financial ratios. To that end, we use a dynamic factor model which assumes that financial ratios measuring, essentially, the same economic–financial dimension of the firm evolve in a similar way, reflecting the evolution of the common factor. The proposed model is hierarchical with three levels. The first describes the relationship between each ratio and its common factor; the second describes the evolution of the common factors over time by means of Lev's ( 1969 ) partial adjustment model; and the third analyzes the similarity of firms' adjustment coefficients, taking into account their characteristics. The methodology is applied to the analysis of a set of financial ratios related to the business and financial structure of the firm. Copyright © 2008 John Wiley & Sons, Ltd.     

Diversity and business performance: 50 years of research

This study has carried out a review of the literature appearing on diversity in the last 50 years. Research findings from this period reveal it is impossible to assume there is a pure and simple relationship between diversity and performance without considering a series of variables that affect this relationship. In this study, emphasis has been placed on the analysis of results arrived at through empirical investigation on the relation between the most studied dimensions of diversity and performance. The results presented are part of a more extensive research.     

Do adhocracy and market cultures facilitate firm-wide integrated marketing communication (IMC)?

The conceptualization of integrated marketing communication (IMC) has evolved from the marketing communications-centered approach (in the early 1990s) to a broader, firm-wide organizational perspective. The latter is adopted in this research to define IMC as a multidimensional concept. This study was conducted to develop a measurement instrument to assess IMC and examine the role of organizational culture in IMC implementation. Data were gathered via an online survey conducted among CEOs and other senior managers. The findings provide evidence of the reliability and validity of the proposed IMC scale and demonstrate that the dominance of an adhocracy (vs. market) culture contributes to building a more IMC-friendly organizational environment.