Catia Montagna

Unionisation and Foreign Direct Investment: Challenging Conventional Wisdom?

This paper investigates the effects of different degrees of wage setting centralisation on the incentive of a MNE to locate in a host country, and on the host countrys welfare. Decentralised and centralised wage bargaining are considered. The nature of product market competition between the MNE and domestic firms proves crucial to results which cast doubt on some of the conventional wisdom on FDI. In particular, we show that: (i) it is not always welfare improving to attract inward FDI, and (ii) the MNE may prefer centralised to decentralised wage setting regimes.

Efficiency Gaps, Love of Variety and International Trade

We develop a general equilibrium monopolistic competition model of trade with technical heterogeneity among firms and countries. With free entry, technical asymmetries between firms result in the endogenous determination of the equilibrium average efficiency of the industry. We show that trade reduces (increases) the minimum efficiency required to survive in the more (less) efficient country. This has important welfare implications: (1) Contrary to the constant elasticity of substitution homogeneous-firms model, trade affects welfare even when there is no love of variety. (2) There are circumstances in which trade liberalization leads to a loss of consumer welfare. Copyright 2001 by The London School of Economics and Political Science

Modeling Aggregate Manufactured Exports for Some Asian Newly Industrialized Economies

A central question in studies of the Asian newly industrialised economies has been whether the extremely rapid export growth of these countries can be viewed as primarily a phenomenon of income-elastic export demand or of fast-expanding export supply in the face of highly price-elastic demand. This paper provides evidence to show that, while high income elasticities of export demand are detected using a conventional simultaneous model, this may conceal the presence of important product differentiation and product innovation effects on export demand. These are then captured using a measure of the total resource base. Copyright 1995 by MIT Press.

Intra-NIE competition in exports of manufactures

This paper provides empirical evidence on the extent to which the Asian Newly Industrialised Economies (NIEs) compete in world export markets. Our results support existing studies which emphasise the importance of allowing for intra-LDC competition in modelling an individual developing countrys exports. Whilst the Asian NIEs are regarded as a model for other developing countries to emulate, one has to consider whether such an expansion in export supply would be at the expense of OECD economies or whether it will lead to a deterioration in the terms of trade of the developing countries as a group.

Strategic Trade Policy with Heterogeneous Costs

The paper examines optimal strategic trade policy under a heterogeneous cost oligopoly. The first-best policy involves a structure of firm-specific export subsidies/taxes in which the government favours the most efficient firms only with a sufficiently low social cost of public funds. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

On the causal relationship between trade-openness and government-size: evidence from OECD countries

The compensation hypothesis predicts a positive causation from international economic openness to the size of the public sector, as governments step in to perform a risk mitigating role to counterbalance the increasing exposure to external risk and the economic dislocations caused by growing international openness. We use time series data from 22 OECD countries over the period 1955-2003 and examine the statistical significance of both long-run and short-run causality channels in each country separately. Our findings fail to provide an overwhelming support for this hypothesis, with only five countries showing some evidence in its favour.

Employment Protection and Globalisation in Dynamic Oligopoly

We construct a model in which oligopolistic firms decide where to locate. Firms choose to locate either in a country where employment protection implies costly output adjustments or in one without adjustment costs. Using a two-period three-stage game with uncertainty it is demonstrated that location is influenced by both flexibility and strategic concerns. We show that the strategic effects under Cournot work towards domestic anchorage in the country with adjustment costs while those under Bertrand do not. Strategic agglomeration can occur in the inflexible country under Cournot and even under Bertrand provided uncertainty and foreign direct investment costs are low.

Market structure, cost asymmetries, and fiscal policy effectiveness

Abstract Imperfectly competitive macroeconomic models typically assume a symmetric equilibrium with identical firms, despite the fact that most industries are characterised by substantial degrees of firm heterogeneity. We examine how inter-firm efficiency gaps affect fiscal policy effectiveness under monopolistic competition.

Unionization, international integration, and selection

We study how unionization affects competitive selection between heterogeneous firms when wage negotiations can occur at the firm or at the profit‐centre level. With productivity specific wages, an increase in union power has: (i) a selection‐softening; (ii) a counter‐competitive; (iii) a wage‐inequality; and (iv) a variety effect. In a two‐country asymmetric setting, stronger unions soften competition for domestic firms and toughen it for exporters. With profit‐centre bargaining, we show how trade liberalization can affect wage inequality among identical workers both across firms (via its effects on competitive selection) and within firms (via wage discrimination across destination markets). On etudie comment la syndicalisation affecte la selection concurrentielle entre les firmes heterogenes quand la negociation salariale peut se faire soit au niveau de la firme ou du centre de profit. Avec des salaires lies a la productivite specifique, un accroissement dans le pouvoir du syndicat a pour effet (1) d’adoucir le processus de selection, (2) d’avoir un effet anticoncurrentiel, (3) de provoquer des inegalites de salaires, et (4) d’avoir un effet de variete. Dans un monde asymetrique a deux pays, des syndicats plus forts adoucissent la concurrence pour les firmes domestiques et la rendent plus dure pour les exportateurs. Avec une negociation au niveau du centre de profits, on montre que la liberalisation du commerce peut affecter l’inegalite des salaires de travailleurs identiques a la fois entre firmes (via les effets sur la selection concurrentielle) et intra‐firmes (via la discrimination salariale entre marches de differentes destinations).

'Make-or-Buy' in International Oligopoly And the Role of Competitive Pressure

We study how competitive pressure influences the make-or-buy decision that oligopolistic firms face between producing an intermediate component in-house or purchasing it from a domestic supplier. We model outsourcing as a bilateral relationship in which the supplier undertakes relationship specific investments. A home and foreign firm compete in the home market. Firms’ mode of operation decision depends on cost and strategic considerations. Competitive pressure increases firms’ incentive to outsource. Consumer gains from trade liberalisation are enhanced when it leads to less outsourcing.