Delia Ionascu

Free Trade Versus Strategic Trade as a Choice between Two 'Second-Best' Policies: A Symmetric Versus Asymmetric Information Analysis

Abstract We analyse the following policy dilemma: strategic trade policy versus free trade when the domestic government is bound to intervene only after the domestic firms strategic variable in the form of R&D investment is chosen, and when the information can be either symmetric or asymmetric. The novel feature of our model is that the information asymmetry stems from the assumption that the government may not a priori know the true mode of competition. The intervention in the above set-up allows the domestic firm to manipulate the domestic government and results in a socially inefficient choice of the strategic variable. However, commitment to free trade leads to forgoing the benefits from profit-shifting. Yet, from the social point of view, free trade may be optimal even under the assumption of symmetric information. Due to costly signalling, this result is reinforced in the case of asymmetric information.

Formal and Informal Institutional Distance, and International Entry Strategies

The concept of ???distance??? has been used by international business scholars to explain variations in international business strategies and operations across countries. The more distant a host country is from the organizational centre of a multinational enterprise (MNE), the more it has to manage cultural, regulatory and cognitive differences, and to develop appropriate entry strategies, organizational forms, and internal procedures to accommodate these differences. Scholarly research has focused on the concept of psychic distance, which has been narrowed down in empirical work to indices based on Hofstede???s work on culture. However, these measures capture only very partially the dimensions of distance of concern to international business. In this paper, we show how the broader theoretical concept of institutional distance, which incorporates normative, regulatory and cognitive aspects, affects entry strategies. Specifically, our theoretical arguments suggest that the impact of distance varies with different aspects of the concept of institutional distance, and that this impact interacts with both the investor???s experience and with the relative importance of the pertinent operation for the investing MNE. Using a unique dataset of foreign direct investment in emerging economies that incorporates multi-host as well as multi-home countries, we find empirical support for our propositions, and provide an explanation for apparently inconsistent results in the previous literature.

Trade Policy, Market Leaders and Endogenous Competition Intensity

It is well known that tariff policy can alleviate the negative consequences of breaching intellectual property rights by foreign firms. Yet, the positive effect of tariff protection is thought to be the benefit firms get at the expense of consumers (at least in the short run). Using a set-up in which the intensity of market competition is endogenous, we argue that consumers can benefit from tariffs even in the short run. A high level of tariff protection alters the firms’ cost efficiency distribution and induces tougher market competition. Consumers benefit from the tariff policy, and governments that assign a high enough weight to the consumer surplus set positive tariff levels. Under protection the innovation level remains the same as under free trade but the average industry efficiency increases.

Organized Labor and Restructuring Coal Mines in the Czech Republic and Romania

We examine the role of organized labour in the restructuring experience of two coal-mining regions in the 1990s. Under similar external circumstances, the Czech Republic’s Ostrava region underwent gradual restructuring from early on whereas Romania’s Jiu Valley region went through no restructuring until 1997 followed by massive layoffs over two years. We conduct a quantitative exercise that accounts for mine productivity, labour market conditions and the constraints in compensating laid-off miners. We show that the Jiu Valley’s delay in restructuring was inefficient. Gradual restructuring with compensation would have benefited both the miners and the government. The proximate reason for the delay was the Jiu Valley miners’ action against restructuring. We discuss what motivated their action and why it was effective.

Strategic Trade Policy and Mode of Competition: Symmetric versus Asymmetric Information

In this paper, we analyze the following policy dilemma: strategic trade policy versus free trade when the domestic government is bound to intervene only after the domestic firms strategic variable is chosen. This intervention allows the domestic firm to manipulate the domestic government and results in a socially inefficient choice of the strategic variable. However, commitment to free trade leads to forgoing the benefits from profit-shifting. Yet, from the social point of view, free trade may be optimal even under the assumption of symmetric information. Due to costly signaling, this result is reinforced in the case of asymmetric information.

The Changing Patterns of Foreign Direct Investment: Survey Insights

The questionnaire survey conducted for this research project shows crosscountry differences in the patterns of foreign direct investment (FDI), in the motives for and performance of investment, and in investors’ assessments of the local business environment. Following a brief introduction to the survey methodology, we discuss the investors and review their entry motives, entry modes and performance. Generally, we find fewer changes in entry pattern over the period of the 1990s than expected, but also uncover some interesting differences across the three countries in our study, and between European emerging economies (EEE) and other emerging economies.

Strategic Tariff Protection, Market Conduct, and Government Commitment Levels in Developing Economies

We analyze a simple “tariffs cum foreign competition” policy targeted at enhancing thecompetitive position of a domestic, developing country firm that competes with its developed country counterpart on the domestic market and that carries out an innovative (imitative) effort. We evaluate this policy with respect to social welfare, type of oligopoly conduct, information requirement, time consistency, possibility of manipulative behavior and conclude that the most robust policy set-up is that in which the domestic government is unable to precommit to the level of its policy. Finally, we examine this policy, allowing for asymmetric information, and show that the corresponding social welfare may be higher than under perfect