Avik Chakrabarti

The Determinants of Foreign Direct Investments: Sensitivity Analyses of Cross‐Country Regressions

A vast empirical literature has used ad hoc linear cross-country regressions to search for the determinants of FDI. The literature is extensive and controversial. Can policy-makers use this body of research to learn anything that can help them stimulate FDI? In this paper I use Extreme Bound Analysis (EBA) to examine if any of the conclusions from the existing studies is robust to small changes in the conditioning information set. The EBA upholds the robustness of the correlation between FDI and market-size, as measured by per-capita GDP, but indicates that the relations between FDI and many of the controversial variables (namely, tax, wage, openness, exchange rate, tariff, growth, and trade balance) are highly sensitive to small alterations in the conditioning information set. I also study the distribution of the estimated coefficients of the controversial explanatory variables to rank them in order of the likelihood of their being correlated with FDI. Copyright 2001 by WWZ and Helbing & Lichtenhahn Verlag AG

A theory of the spatial distribution of foreign direct investment

Abstract The absence of a consensus on a theoretical framework to guide empirical work on foreign direct investment (FDI) is rather conspicuous. The contribution of this paper lies in developing a structural model to facilitate empirical analyses directed toward assessing the role of various potential determinants of the spatial distribution of FDI. The model presented in this paper combines elements of the trade literature on imperfect competition with the strategy literature on multinationals to derive an explicit solution for the distribution of FDI in terms of its potential determinants, allowing FDI to serve both the host-country market and the export market. It allows for product differentiation between final products by brand name as well as the country of origin and takes into account an environment that is subject to uncertainty in the appropriation of the potential revenue.

SKILLED-UNSKILLED WAGE INEQUALITY AND URBAN UNEMPLOYMENT

The impact of trade liberalization on the labor market in the North has drawn tremendous attention in the face of the growing skilled-unskilled wage gap but in the South it has been somewhat neglected. One of the key structural differences between the North and the South is that the South experiences a pronounced rural-urban migration in the presence of urban unemployment. We introduce this feature in the structure of a simple general equilibrium model to analyze the effects of trade liberalization and fragmentation on employment and the skilled-unskilled wage differential in the South. In particular, we show that while fragmentation necessarily improves the unskilled wage and the skilled wage, more lucrative global opportunities for the skilled final product, in the absence of fragmentation, can reduce the rural wage and increase urban unemployment. The effect of fragmentation, ceteris paribus, on the skilled-unskilled wage gap is sensitive to the degree of substitutability between land and unskilled labor. As such, fragmentation can magnify the increase in the skilled-unskilled wage gap resulting from an improvement in the terms of trade. It is also shown that a technological progress in the intermediate goods sector increases the skilled-unskilled wage gap and raises urban unemployment.

Asymmetric adjustment costs in simple general equilibrium models

Abstract This paper demonstrates that the introduction of asymmetric adjustment costs in a simple general equilibrium framework establishes a meaningful link between factor price determination and output determination, breaking the analytically convenient dichotomy of the Heckscher–Ohlin–Samuelson model. The possibility of trade between seemingly similar countries that differ in their adjustment technologies is visited.

Real exchange rates and real interest rates once again: a multivariate panel cointegration analysis

This paper employs multivariate panel cointegration techniques to re-examine the empirical relationship between bilateral real exchange rates and real interest rates. The results from a panel of 1470 quarterly observations on Canada, France, Germany, Italy, Japan, UK, and USA over the period 1977 to 1994 indicate the absence of any long-run relationship between the two variables.

Import competition, employment and wage in US manufacturing: new evidence from multivariate panel cointegration analysis

This paper examines whether employment and wages in the US manufacturing sector exhibit any long-run relationship with import competition. The results based on a multivariate panel cointegration analysis of observations on 12 two-digit SIC manufacturing industries over the period from the third quarter of 1982 to the fourth quarter of 1992 indicate that US manufacturing employment does not bear a long-run relationship with import competition but manufacturing wage does. While the long-run correlation between import price and manufacturing wage is found to be sector sensitive panel estimation reveals a highly significant negative correlation between import price and manufacturing wage.

Re-thinking the Concept of Surplus: Embracing Co-Creation Experiences in Economics

Economics has traditionally split consumers from producers by assigning them fixed roles. In the Internetworked economy as it is becoming, this is no longer true as value is increasingly jointly created among individuals, as a function of their co-creation experiences. We construct a framework that reconnects economics with value creation that goes beyond artifacts as the central unit of analysis, toward platforms of engagements of which artifacts themselves are only a part. Engagement platforms are now both the means and ends of value creation, and economic theory must take into account both the potential value generated to individuals through “production” experiences of co-creating artifacts (through co-production engagement platforms), as well as co-creating “consumption” experiences (through co-consumption engagement platforms). We show how starting with joint value creation re-shapes our thinking about the nature of “surplus,” expanding traditional economic thinking about supply and demand toward a more convergent space of markets shaped by co-creation experiences.

Privatization and Strategic Mergers across Borders

We present a theoretical model to capture the role of privatization in the incentives for and implications of cross‐border horizontal mergers. Absent any merger incentives in an autarkic equilibrium, we show that a decrease in the degree of privatization will lower the incentives for diversification of international production. The incentives for diversification for any given degree of privatization will fall when the private and public firms are allowed to move sequentially rather than simultaneously. The presence of the public firm also introduces a new source of asymmetry in the incentives for cross‐border mergers: a reduction in the degree of privatization at home will dampen the potential gains from a take‐over of a home firm by a foreign firm but magnify the potential gains from a take‐over of a foreign firm by a home firm.

Moving people or jobs? A new perspective on immigration and international outsourcing

We present a model that allows us to compare the effects that frictions involved in immigration and international outsourcing have on the skilled–unskilled wage inequality. We show that, for any given level of contractual friction in the production of intermediate goods, the wedge between the wages of the skilled and unskilled workers widens as the frictions in immigration wear out. The skilled–unskilled wage gap, for any given level of friction in immigration, is sensitive to variations in contractual frictions in intermediates that affect international outsourcing.

Cross-border mergers and market concentration in a vertically related industry: theory and evidence

ABSTRACT We present a tractable model of oligopoly to identify the linkages between local competition and cross-border mergers in a vertically related industry. We show that the incentives for cross-border mergers rise with vertical integration in an industry when the premerger concentration in that industry is sufficiently high relative to the concentration in the same industry in a foreign country. We also show that the incentives for a merger between a foreign firm and a vertically integrated home firm will be higher than that for a merger between a foreign firm and a disintegrated home firm, when the premerger concentration at home is low relative to the premerger concentration in the foreign country. We then analyze a firm-level panel of 90,614 M&A observations, between 1990 and 2012, from 86 countries. Logistic regressions confirm that market concentration is an important determinant of cross-border M&A. Our results support the conjectures of our theoretical model and are consistent with recent empirical findings and theoretical predictions.