Helga Kristjánsdóttir

Fixed Costs, Foreign Direct Investment, and Gravity with Zeros

Fixed costs play a crucial role in current models of foreign direct investment (FDI), yet they are almost entirely ignored in empirical treatments of FDI. We fill this gap by using a 1989–2001 panel of FDI flows into Iceland to examine the determinants of fixed costs for multinational firms and how these influence aggregate patterns of investment. Our additions to research in the field include usage of several natural-resource variables, and the analysis of data on initial entry of FDI into a developed country. We use the Heckman two-step procedure, which allows us to account for fixed costs and their impact on estimation. Taken together, we find that the standard OLS approach to the data incorrectly links the quantity of FDI to source-country variables while in fact most of their role is in determining whether FDI takes place at all.

Exports From a Remote Developed Region: Analysed by an Inverse Hyperbolic Sine Transformation of the Gravity Model

Picture a small open economy, alone in the middle of the Atlantic Ocean and highly dependent on trade with NAFTA and the EU. How important are these trading blocs to the country’s exports? How significant is the country’s isolation and small size, and how do these affect the export sectors? Typically, the export volume is significantly impacted by the economic size of the exporting country, but in this case it is not. This suggests that the exports from small remote economies are driven by different factors than exports from large economies. The data are analysed using a unique transformation of the gravity model by an inverse hyperbolic sine function, allowing for accountancy of scattered exports.

Foreign Direct Investment: The Knowledge-Capital Model and a Small Country Case

This research looks at how foreign direct investment (FDI) in a small open economy compares with that of larger countries. I apply several specifications of the knowledge-capital model to unique FDI data from the isolated country of Iceland, allowing for comparison with previous analysis of larger and similarly open economies. Using this together with other techniques, I seek to explain investment determinants by geography, economic size and skilled labor availability. The results of these analysis show that popular specifications do not accurately predict the effects for a small country case.

Foreign direct investment in the hospitality industry in Iceland and Norway, in comparison to the Nordics and a range of other OECD countries

ABSTRACT International hospitality investment is a key indicator of tourisms growing importance, and the question is what drives the investment. This research compares Iceland and Norway to the Nordic countries, and a range of OECD countries. The research establishes through econometric modeling how foreign direct investment in the hospitality industry is driven by factors such as economic and market size of the headquarters home country, value added tax increase, and skilled labor of the headquarters home country, compared to that of the host country. Increased understanding on the determining factors of this growth from a range of available metrics will inform tourism management both from an entrepreneurial and public policy perspective. The paper concludes by outlining how and which factors should be monitored in order to guide investment in the hospitality industry of rapidly emerging destinations.

Foreign direct investment in a small open economy

Think of a small open economy interestingly positioned between the trade blocs of the NAFTA and the EU, with FDI in recent years resembling the pattern before the economic crash, making a pre-crash data set useful for exploring potential long-term trends. In this research, investment is explained by geographic location and country size, using a gravity model to account for the countrys exceptional remoteness and sparseness. A unique extension of the gravity model applies the inverse hyperbolic sine (IHS) function. The IHS functional form is estimated together with fixed difference between investment sectors and trade blocs being estimated simultaneously, an analysis that is rarely possible. Results indicate that under these conditions, investment appears to be more driven by wealth than market size effects.

Can the Butler's tourist area cycle of evolution be applied to find the maximum tourism level? A comparison of Norway and Iceland to other OECD countries

Abstract This research seeks to analyze the S-shape of the Butlers tourist area cycle of evolution in order to capture the maximum tourist level. It is the first time this type of economic regression modeling is performed for the Butlers tourist area cycle of evolution, referred to as the tourism area life cycle (TALC) model. Also, this is the very first time the cycle is applied to forecast a potential peak in inbound tourists in a particular country and sample of countries. To capture the non-monotonic relationship of the cycle, a fifth-degree polynomial is put forward, accounting for government, banks, roads, skilled labor, and Internet application. Results indicate that the S-shape of the Butlers tourist area cycle of evolution can be captured with a polynomial function for a range of OECD countries, as well as for Norway and Iceland combined and for Iceland solely. This can be interesting as well as useful for tourism researchers seeking to explain the flow of tourists. The main implication of this study to managers and tourism policy planners is the potential to apply the TALC model to estimate development and potential peaks in the tourism industry in advance, years before the tourist level reaches maturity at the top.

Knowledge is power: Knowledge‐capital model in the management of power intensive industries

Purpose – The purpose of this paper is to seek a clearer understanding of how firms involved in power intensive industries participate in foreign direct investment. The paper asks the following questions: how skilled are the employees available for hire? What kind of pollution restrictions will be applied to the plant? Is the infrastructure in place to enable free transport of the necessary materials? All of these are factors that can be analyzed on a national level, and are major factors in government policy. Design/methodology/approach – The research is designated to explain how macro policy can be directed towards firms in the power intensive industry, to impact the competitiveness within the industry. Skilled labor differences is reflecting governmental policy in its willingness to contribute to education. Infrastructure can be viewed as an indicator for long‐term policy planning by the government. The pollution variable reflects on macro policy emphasis by governments, by presenting their emission targets. Investment cost variable gives indication of government policy concerning the ease with which foreign investors can enter into and invest in a particular country. The case country is Iceland, an isolated island that is unable to export its abundance directly and therefore must do so through foreign direct investment. Findings – The findings indicate that source countries are attracted by the level of skill in Iceland at the beginning stage of operations when faced with fixed threshold cost. Once the plants have overcome fixed costs, there are positive impacts on marginal investment, the more skilled the source country is compared to the host. Other factors that proved to be important in this case study are distance, infrastructure, government stability, pollution quotas, and the fishing resource. Originality/value – The relative friendliness a countrys policies display towards an industry can make a huge difference when it comes to how successful a business can be, so studying these national‐level policies can help an individual determine what kind of direction to take on the day‐to‐day operational decisions.

Exports under the Flicker of the Northern Lights

Picture a small open economy in the North Atlantic Ocean, highly dependent on trade with the EU and NAFTA. How important are these trading blocs to the countrys exports? How important is the countrys location and size, and how do these affect the export sectors? A unique version of the gravity model is applied here using an inverse hyperbolic sine function. Typically, the export volume is significantly impacted by the economic size of the exporting country, but in this case it is not. This suggests that the exports from small remote economies are driven by different factors than exports from large conomies.

The Longitude and Latitude of Trading in Tourists

One way of looking at the flow of tourists is to view it as trade flow, analyzing people rather than goods or services. This research applies a gravity model to estimate tourist flows as a function of distance and economics as well as market size. The explanatory variables account for gross domestic product, population, oil price, tourism receipts, exchange rates, distance, skilled labor and regional trade agreements. Findings indicate that educated tourists are more interested in visiting the country and higher wealth also increases their willingness to visit. Moreover, tourists arriving from popular tourist destinations are found to be more eager to visit, although travel distance and higher fuel price negatively impacts their interests. Finally, if the tourist home country has regional trade agreement membership they are less willing to visit, although this isnot affected by the strength of their local currency.

Hofstede national culture and international trade

ABSTRACT The objective is to analyse if international trade is affected by different national cultures. International trade of 21 World Bank listed countries is estimated as function of the Hofstede cultural dimensions, gross domestic product and population. First, we estimate the combined Hofstede culture dimensions and find significant positive effects on countries’ international trade. Secondly, we decompose the Hofstede culture dimensions and estimate the effects of each separate dimension on international trade, finding only the MAS dimension to significantly affect international trade. We estimate additional equation versions to account for occasional trade restrictions with no international trade, as well as estimating how international trade varies between years. These additional estimations further support our original findings, and therefore act as robustness check.