http://repub.eur.nl/res/concept/jel-F1/ Recent publications classified by JEL Code F1 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/39842/ 2013-04-11T00:00:00Z We quantify the causal effect of foreign investment on total factor productivity (TFP) using a new global firm-level database. Our identification strategy relies on exploiting the difference in the amount of foreign investment by financial and industrial investors and simultaneously controlling for unobservable firm and country-sector-year factors. Using our well identified firm level estimates for the direct effect of foreign ownership on acquired firms and for the spillover effects on domestic firms, we calculate the aggregate impact of foreign investment on country-level productivity growth and find it to be very small. Fons-Rosen, C. Kalemli-Ozcan, S. Sorensen, B.E. Villegas-Sanchez, C. http://repub.eur.nl/res/pub/32952/ 2012-06-23T00:00:00Z With their legal personhood, permanent capital with transferable shares, separation of ownership and management, and limited liability for both shareholders and managers, the Dutch East India Company (VOC) and subsequently the English East India Company (EIC) are generally considered a major institutional breakthrough. Our analysis of the business operations and notably the financial policy of the VOC during the company’s first two decades in existence shows that its corporate form owed less to foresight than to constant piecemeal engineering to remedy original design flaws brought to light by prolonged exposure to the strains of the Asian trade. Moreover, the crucial feature of limited liability for managers was not, as previously thought, part and parcel of that design, but emerged only after a long period of experimenting with various, sometimes very ingenious, solutions to the company’s financial bottlenecks. Gelderblom, O. Jong, A. de Jonker, J. http://repub.eur.nl/res/pub/31777/ 2012-01-01T00:00:00Z The aim of this article is to examine the impact of increased trade on wage inequality in developing countries, and whether a higher human capital stock moderates this effect. We look at the skilled–unskilled wage differential. When better educated societies open up their economies, increased trade is likely to induce less inequality on impact because the supply of skills better matches demand. But greater international exposure also brings about technological diffusion, further raising skilled labour demand. This may raise wage inequality, in contrast to the initial egalitarian level effect of human capital. We attempt to measure these two opposing forces. We also employ a broad set of indicators to measure trade liberalization policies as well as general openness, which is an outcome, and not a policy variable. We further examine what type of education most reduces inequality. Our findings suggest that countries with a higher level of initial human capital do well on the inequality front, but human capital which accrues through the trade liberalization channel has inegalitarian effects. Our results also have implications for the speed at which trade policies are liberalized, the implication being that better educated nations should liberalize faster. Mamoon, D. Murshed, S.M. http://repub.eur.nl/res/pub/22338/ 2011-01-20T00:00:00Z Empirical evidence suggests that sectoral export growth decreases exporters' survival probability, whereas this is not true for non-exporters. Models with firm heterogeneity in total factor productivity (TFP) predict the opposite. To solve this puzzle, we develop a two{factor framework where firms differ in factor intensities. Thus, export growth increases competition for the factor used intensively by exporters, eliminating some of them, while non-exporters benefit. Interacting heterogeneity in factor shares with heterogeneity in TFP we show that factor market competition reduces the growth in average TFP brought about by trade liberalization... Emami Namini, J. Facchini, G. Lopez, R.A. http://repub.eur.nl/res/pub/20785/ 2010-09-28T00:00:00Z This paper examines the impact of the three main channels of international trade on domestic innovation, namely outward direct investment, inward direct investment (IDI) and exports. The number of Triadic patents serves as a proxy for innovation. The data set contains 37 countries that are considered to be highly competitive in the world market, covering the period 1994 to 2005. The empirical results show that increased exports and outward direct investment are able to stimulate an increase in patent output. In contrast, IDI exhibits a negative relationship with domestic patents. The paper shows that the impact of IDI on domestic innovation is characterized by two forces, and the positive effect of cross-border mergers and acquisitions by foreigners is less than the negative effect of the remaining IDI. Chang, C.L. Chen, S-P. McAleer, M.J. http://repub.eur.nl/res/pub/20109/ 2010-03-10T00:00:00Z Abstract We examine whether greater inter-state trade, democracy and reduced military spending lower belligerence between India and Pakistan, beginning with a theoretical model covering the opportunity costs of conflict in terms of trade losses and security spending, as well as the costs of making concessions to rivals. Conflict between the two nations is best understood in a multivariate framework where variables such as economic performance, integration with rest of the world, bilateral trade, military expenditure, democracy orientation and population are simultaneously considered. Our empirical investigation based on time series econometrics from 1950 to 2005 suggests that reduced bilateral trade, greater military expenditure, less development expenditure, lower levels of democracy, lower growth rates and less general trade openness are all conflict enhancing. Globalization, or a greater openness to international trade with the rest of the world, is the most significant driver of a liberal peace, rather than a common democratic orientation. Mamoon, D. Murshed, S.M. http://repub.eur.nl/res/pub/17667/ 2010-01-04T00:00:00Z European economic integration is commonly believed to be incomplete, and that further reforms are needed. In this context, the union of U.S. states is considered the benchmark of complete economic integration and is often the basis for comparison regarding the extent of E.U economic integration. Yet, with low trade barriers and with productive factors at least notionally mobile across E.U. countries, is the belief that U.S. states are more integrated than E.U. member states correct? To address this question, this paper first develops three theoretical predictions about the distribution of output and factors that would arise among members of a fully integrated economic area in which goods, capital and labor are freely mobile and policies are harmonized. These theoretical predictions are then empirically tested using data on the output and factor stocks of 14 E.U. member states and the 51 U.S. states (includes District of Columbia) for the period 1965 to 2000. The empirical results convincingly support each theoretical prediction. Hence, contrary to popular belief, the extent of E.U. economic integration is not statistically different from that among U.S. states. Bowen, H.P. Munandar, M.I.S.H. Viaene, J.M.A. http://repub.eur.nl/res/pub/17664/ 2010-01-03T00:00:00Z This paper examines international trade in tainted food and other low-quality products. We first find that for a large class of environments, free trade is the trading system that conveys the highest incentives to produce non-tainted high-quality goods by foreign exporters. However, free trade cannot prevent the export of tainted products, and the condition for tainting to arise becomes more easily satisfied, if the marginal cost of high-quality production increases or if errors of testing product quality matter. We also examine cases of imagebuilding investments and sabotage of rivals, and find that a tariff in either case reduces the foreign firm’s incentives to produce high quality, which in turn tends to increase import tainting. Viaene, J.M.A. Zhao, L. http://repub.eur.nl/res/pub/23952/ 2010-01-01T00:00:00Z This article examines the trade policy response of Latin American governments to the rapid growth of Chinese and Indian exports in world markets. To explain more protection in sectors where a large share of imports originates in China and India, the "protection for sale" model is extended to allow for region-specific degrees of substitutability between domestic and imported varieties of a good. The results suggest that more protection toward Chinese and Indian goods can be explained by the higher substitutability of Chinese and Indian goods with domestic varieties. The data support the model, which performs better than the original protection for sale framework in explaining Latin America's structure of protection. JEL classification numbers: F10, F11, F13 Facchini, G. Olarreaga, M Baptista, J.M.P. da Silva Willmann, G http://repub.eur.nl/res/pub/18715/ 2009-08-01T00:00:00Z This paper investigates the impact of economic and commercial diplomacy on the geography of international trade. We replicate a recent study by Rose (2007) extending the analysis to include the year 2006 and 63 importing and exporting countries. Using a gravity model we are able to demonstrate that diplomatic representation via embassies and consulates is not a relevant trade enhancing factor for trade within the OECD. In contrast diplomatic representation is significant in bilateral trade relationships of developing countries as it both facilitates imports and stimulates exports. We discuss some implications of our findings for developing countries especially in view of South–South trade. Yakop, M. Bergeijk, P.A.G. van http://repub.eur.nl/res/pub/18717/ 2009-08-01T00:00:00Z The paper puts the collapse of the world trade volume in 2009 into two historic perspectives. First, the paper analyses 18 major post-1980 / pre-2007 financial crises and uses these observations as a basis to critically evaluate presently available projections for world trade. Second, the paper takes into account the developments in the world's trade volume and openness since 1880. Next to the direct impact of the present financial crisis on trade, potential second order effects on economic growth and international political relations are identified. Bergeijk, P.A.G. van http://repub.eur.nl/res/pub/15143/ 2009-03-10T00:00:00Z We develop a simple test to assess whether horizontal spillover effects from multinational to domestic firms are endogenous to the market structure generated by the incremental entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 firms operating in Romania in the period 1995-2001. Controlling for the simultaneity bias in productivity estimates through semi-parametric techniques, we find that changes in domestic firms’ TFP are positively related to the first foreign investment in a specific industry and region, but get significantly weaker and become negative as the number of multinationals that enter in the considered industry/region crosses a specific threshold. These changing marginal effects can explain the lack of horizontal spillovers arising in traditional model designs. We also find these effects to vary between manufacturing and service, suggesting as a possible explanation a strategic change in technology transfer decisions by multinational firms as the market structure evolves. Altomonte, C. Pennings, H.P.G. http://repub.eur.nl/res/pub/14946/ 2009-02-26T00:00:00Z This paper presents a trade model with capital and labor as factors of production. The main contribution of this paper is that it considers a new type of firm heterogeneity, which is empirically relevant: firms in this paper differ with respect to their factor shares in production. Therefore, this paper addresses the following four empirical facts on globalization, firms’ factor shares and factor prices: (i) firms within narrowly defined industries exhibit a large degree of heterogeneity in factor shares in production; (ii) exporters are, on average, more capital intensive than non—exporters; (iii) globalization decreases labor’s share in national income; (iv) the larger the share of exporters in the industry, the larger the increase in the industry’s wages due to globalization. Emami Namini, J. http://repub.eur.nl/res/pub/14614/ 2009-01-30T00:00:00Z Conventional studies of bilateral trade patterns specify a log-normal gravity equation for empirical estimation. However, the log-normal gravity equation suffers from three problems: the bias created by the logarithmic transformation, the failure of the homoscedasticity assumption, and the way zero values are treated. These problems normally result in biased and inefficient estimates. Recently, the Poisson specification of the trade gravity model has received attention as an alternative to the log-normality assumption (Santos Silva and Tenreyro, 2006). However, the standard Poisson model is vulnerable for problems of overdispersion and excess zero flows. To overcome these problems, this paper considers modified Poisson fixed-effects estimations (negative binomial, zero-inflated). Extending the empirical model put forward by Santos Silva and Tenreyro (2006), we show how these techniques may provide viable alternatives to both the log-normal and standard Poisson specification of the gravity model of trade. Burger, M.J. Oort, F.G. van Linders, G.J.M. http://repub.eur.nl/res/pub/32452/ 2009-01-14T00:00:00Z ABSTRACT This paper focuses on two areas of security concern for the European Union: terrorism and international crime. I present a model of game-theoretic interaction between a European state and a domestic dissident group, who, on occasion, may resort to acts of terrorism. Here, identity is crucial to the putative terrorist, providing the microfoundations of dissident group behaviour by solving the collective action problem. I also sketch a macromodel of drugs production in a conflict-ridden developing country, where I argue that demand-side policies of regulation may be better than policies that are aimed at eradicating supply. As far as the policy implications are concerned, first excessive deterrence against potential terrorists may backfire. Secondly, space needs to be created so that Muslim migrants are able to merge their personal identities within their adopted European homelands. Thirdly, the economic discrimination against Muslims in Europe needs to be redressed. Finally, aid to fragile drug producing states should be broad-based and poverty reducing, not just benefiting warlords. Murshed, S.M. http://repub.eur.nl/res/pub/18287/ 2009-01-01T00:00:00Z The paper puts the collapse of the world trade volume in 2009 into two historic perspectives. First, the paper analyses 18 major post-1980/pre-2007 financial crises and uses these observations as a basis to critically evaluate presently available projections for world trade. Second, the paper takes into account the developments in the world's trade volume and openness since 1880. Next to the direct impact of the present financial crisis on trade, potential second order effects on economic growth and international political relations are identified. Bergeijk, P.A.G. van 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. Brakman, S. Garita, G.A. Garretsen, J.H. Marrewijk, J.G.M. van 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. Brakman, S. Garita, G.A. Garretsen, J.H. Marrewijk, J.G.M. van 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. Brakman, S. Garretsen, J.H. Marrewijk, J.G.M. van 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. Brakman, S. Garretsen, J.H. Marrewijk, J.G.M. van