http://repub.eur.nl/res/aut/21243/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/12980/ 2008-05-01T00:00:00Z Most FDI takes place between the developed countries, which suggests that the market-seeking motive is important for understanding FDI. However, given the stylized fact that trade barriers (e.g. transportation costs and financial barriers) have declined over the past 20 years, models that aim to explain market-seeking FDI tend to predict a decline in FDI. Neary (2008) offers two explanations for this puzzle: (1) the export platform motive (where firms gain access to an integrated market by investing in one of the “integrated” countries); (2) Neary’s (2007) GOLE model, which explains cross-border mergers and acquisitions (this model is of interest since most FDI comes in the form of M&As). By using a gravity framework, where we also deal with the “zero gravity problem”, we confirm the predictions of the GOLE model. http://repub.eur.nl/res/pub/32186/ 2008-04-01T00:00:00Z Most FDI takes place between the developed countries, which suggests that the market-seeking motive is important for understanding FDI. However, given the stylized fact that trade barriers (e.g. transportation costs and financial barriers) have declined over the past 20 years, models that aim to explain market-seeking FDI tend to predict a decline in FDI. Neary (2008) offers two explanations for this puzzle: (1) the export platform motive (where firms gain access to an integrated market by investing in one of the “integrated” countries); (2) Neary’s (2007) GOLE model, which explains cross-border mergers and acquisitions (this model is of interest since most FDI comes in the form of M&As). By using a gravity framework, where we also deal with the “zero gravity problem”, we confirm the predictions of the GOLE model. http://repub.eur.nl/res/pub/11079/ 2008-01-25T00:00:00Z By combining two large data sets (on international trade flows and cross-border mergers and acquisitions – M&As), we test two implications of Neary’s (2003, 2007) general oligopolistic equilibrium (GOLE) model (incorporating strategic interaction between firms in a general equilibrium setting). In terms of economic importance, the dominant merger wave variable is a positive global-all effect, indicating that M&A waves are an economy-wide, global phenomenon. Country-specific merger wave variables are of secundary importance. In accordance with the bilateral GOLE model as specified by Neary, we find strong evidence that acquiring firms operate in strong sectors. However, we also find (less pronounced) evidence that target firms are active in strong, not weak sectors, which we label the ‘target paradox’. We show how a multi-country extension of the GOLE model that allows for firm heterogeneity can explain this target paradox. http://repub.eur.nl/res/pub/12981/ 2008-01-01T00:00:00Z It is widely believed that globalization, through increased factor mobility, will exert a downward pressure on tax rates and hence on public expenditures. Recent advances in the new economic geography (NEG) literature have, however, shown that such a ‘race to the bottom’ is not inevitable. Even with perfect factor mobility, a positive tax differential between core and peripheral countries can persist as long as the agglomeration rent, that is associated with being located in the agglomeration, exceeds the tax gap. In these NEG models the relevance of government spending as a determinant of agglomeration is, however, unduly neglected. The focus is on tax rates only and on the stability of core-periphery equilibria. Using a NEG model where the provision of public goods is allowed to influence the location choices of economic agents and starting intially from a spreading instead of a core-periphery equilibrium, we show that governments can affect the spatial equilibrium through their provision of public goods. Our main finding is that the introduction of public goods fosters agglomeration in the sense that it makes the spreading equilibrium unstable. http://repub.eur.nl/res/pub/12983/ 2007-01-01T00:00:00Z Using a detailed and large data set on cross-border merger and acquisitions we discuss the relationship between theory and observed empirical characteristics: - most FDI is in the form of M&As, - firms engaged in M&As seem to be ‘market-seeking’, - M&As come in waves (the most recent wave is still unfolding), - economic integration (international deregulation) stimulated M&As, - the size of and inequality between M&As grows over time. Our contention in this chapter is that these stylized facts drive and should drive recent theoretical contributions in the field of international economics that try to understand crossborder mergers and acquisitions. Although some models (notably Neary, 2003) explain a number of the characteristics, a full-fledged model of cross-border M&As that, at least in principle, can deal with all the characteristics is still lacking. http://repub.eur.nl/res/pub/12985/ 2007-01-01T00:00:00Z A key issue in development economics is the explanation of core-periphery patterns around the world. Combining this issue with that of analyzing unilateral transfers (e.g. foreign aid) points in the direction of the use of New Economic Geography (NEG) models which, so far, has not been done explicitly. This paper tries to fill this gap in the literature by studying the (possibly ‘catastrophic’) effects of aid around the so-called break-points and sustain-points in a NEG model. We also analyze the effects of a “bystander”, that is a country which is not directly involved in the transfer. In the traditional transfer literature a bystander is known to potentially cause transfer paradoxes. Our findings in this NEG setting are as follows. First, direct transfer paradoxes are not possible in a symmetric setting even if a bystander is present. Second, the effects of foreign aid depend on the level of economic integration between donor and recipient. Third, if the equilibrium from which aid is given is stable, aid only has a temporary effect (even if there is a bystander present). Fourth, if the donor is relatively large, not only the recipient but also the bystander benefits from foreign aid. http://repub.eur.nl/res/pub/12990/ 2006-01-01T00:00:00Z Perhaps the most striking aspect of the current phase of globalization is the increased importance of foreign direct investment (FDI). This is not only true at the global level but also at the regional level. It is clear that the process of economic integration in the European Union has boosted FDI for the EU countries. In the field of international economics, the modeling of FDI has been high on the research agenda in recent years and clear progress has been made in understanding the determinants and effects of FDI (see for instance Barba-Navaretti and Venables (2004) for an overview). The new theoretical insights are, however, not always in line with the facts. One important puzzle in this respect is precisely the fact that economic integration or, in modeling terms, a fall in trade costs has been accompanied by an increase in FDI. From the data we know that so-called horizontal FDI, that is FDI undertaken for market size considerations, is the dominant form of FDI, but theory tells us that a fall in trade costs should go along with a decrease in horizontal FDI. Lower trade costs, ceteris paribus, make it more profitable for firms to serve foreign markets via exports instead of setting up their own production in these markets. http://repub.eur.nl/res/pub/12991/ 2006-01-01T00:00:00Z This accessible introduction to the world economy and to the theory and practice of globalization argues that key topics in international economics cannot be understood without knowledge of international business, and vice versa. It reviews and combines insights from both literatures and applies them to real-world issues, clearly explaining the main concepts of international economics and business in a uniquely integrated approach. This innovative textbook is aimed at students, consultants and managers who have a basic knowledge of economics. Key Features: tComprehensive coverage of the main issues, including: - international trade - capital mobility - comparative advantage - foreign direct investments - multinational behaviour - financial crises - economic growth tCarefully selected international examples and case studies tSpecial interest boxes clearly explain more difficult economic concepts tLively and accessible style tCompanion website includes additional case studies, exercises and answers to exercises, data, illustrations and links. http://repub.eur.nl/res/pub/12992/ 2006-01-01T00:00:00Z The interaction between the extent of location advantages and the intensity of firm competition relative to the size of the market jointly determines the location of industrial activity. Technology, factor endowments, geography, and scale economies are influential for determining location advantages, while agglomeration, variety, proximity, and market access are important for determining the intensity of firm competition relative to the size of the market. This implies, as illustrated below, that sometimes what appears to be a minor change in the balance of the forces determining industrial location, may turn out to have drastic consequences for the global distribution of manufacturing activity. After a brief overview of the strong industrial sectors for a selection of countries, we provide some information on the ongoing process of globalization. Next, we review some of the forces determining industrial location and give recent changes, which are the result of these forces. Finally, we discuss the importance of local interactions between producers, consumers, and firms for determining competitiveness and the location of industrial activity. http://repub.eur.nl/res/pub/13024/ 2002-01-01T00:00:00Z With the completion of EMU, tax competition and, more in general, locational competition is high on the EU policy agenda. In contrast to the standard neo-classical reasoning, recent advances in the theory of trade and location have shown that tax competition does not necessarily lead to a "race to the bottom". In these recent discussions the relevance of government spending as an instrument for locational competition is unduly neglected. We therefore introduce a more elaborate government sector in a geographical economics model by analyzing government spending and government production. By changing the relative size, direction or efficiency of the production of public goods, our simulation results show that governments can change the equilibrium between agglomerating and spreading forces. In addition, we show analytically that the introduction of public goods fosters agglomeration. Ultimately, our paper shows that by restricting attention to taxes, one ignores that government spending also determines the attractiveness of a country as a location for the mobile factors of production. http://repub.eur.nl/res/pub/13031/ 1999-01-01T00:00:00Z We offer a general-equilibrium economic approach to Zipf's Law or, more generally, the rank-size distribution—the striking empirical regularity concerning the size distribution of cities. We provide some further understanding of Zipf's Law by incorporating negative feedbacks (congestion) in a popular model of economic geography and international trade. This model allows the powers of agglomeration and spreading to be in long-run equilibrium, which enhances our understanding of the existence of a rank-size distribution of cities. http://repub.eur.nl/res/pub/13070/ 1996-01-01T00:00:00Z Incorporating regional asymmetry and negative feedbacks (congestion) in a model of economic geography and international trade shows that complete specialization of production at one location is unlikely. We identify an agglomerating force: the home market effect, and two spreading forces, competition for demand from immobile sectors of production and congestion. We demonstrate that negative feedbacks can explain the economic viability of small industrial regions observed in the real world. Simulations clarify the basic structure of the model.