Kostas Axarloglou

Exchange Rates and the Choice of Ownership Structure of Production Facilities

The aim of this research is to study the effects of real exchange rates on the long-term ownership strategies of production facilities of firms entering foreign markets. Among the strategies considered are exporting (EXP), joint ventures with local partners (JV), and wholly owned production facilities (WOS) in the foreign country. Our research takes a first step in modeling the influence of exchange rates on the choice and dynamic adjustment of such strategies. The insights obtained from our modeling analysis are then translated into testable hypotheses and empirically verified with the use of firm level data from U.S. multinational corporations (both at the firm and a more aggregate level). An insightful result of our model is the identification of a hysteresis phenomenon that characterizes switching behavior between strategies in the presence of switchover cost. The magnitude of the hysteresis band, which is a measure of the inertia associated with keeping the current ownership structure, is affected by a multiplicity of factors such as exchange rate volatility and market power of the entering firm. Analytical and numerical results on the effects of such factors on the hysteresis band are provided. The four testable hypotheses generated from our modeling analysis are rigorously tested with the use of a multinomial logit model on data obtained from the Harvard Multinational Enterprise database, and a data set maintained by the Bureau of Economic Analysis, the U.S. Department of Commerce. The empirical results strongly support our insights that relatively depreciated real exchange rates (i.e., weak home currency) favor (a) the JV over the WOS and (b) EXP mode over the WOS or JV. Finally, we summarize our results into useful guidelines for global production managers.

The Cyclicality of New Product Introductions

This study analyzes empirically the cyclical nature of the timing of new product introductions in U.S. manufacturing. New product introductions vary more in nonseasonal frequencies than in seasonal frequencies. However, the seasons alone account for only a small part of their total variability with demand factors being much more important. Demand fluctuations account for 35%80% and 17%43%, respectively, of the seasonal and cyclical variability of new product introductions in various industries. Finally, new product introductions respond more to fluctuations in aggregate demand than in market demand and in business cycles than in seasonal cycles.

Do All Foreign Direct Investment Inflows Benefit the Local Economy

The present study measures the impact of FDI inflows on the local economies of the US states that receive most of the FDI inflows in the country. It appears that FDI inflows in manufacturing have rather weak effects on local employment and wages in most of the states in the sample. However, these results are primarily due to the industry composition of the FDI. FDI inflows in Printing and Publishing, Transportation Equipment and Instruments have positive effects on local employment and wages, while FDI inflows in Leather and Stone/Clay/Glass have detrimental effects on local labour markets in most of the states in the sample. These findings indicate the importance of industry characteristics in evaluating the effects of FDI inflows on local communities. Also, they emphasise the need for US states to selectively target and attract FDI inflows in specific industries.

What Attracts Foreign Direct Investment Inflows in the United States

The present study evaluates the relative impact of industry and state specific economic factors on inward FDI in several US states that compete for the same inward FDI. It appears that relative labor productivity, relative spending on education, and relative crime rate are important in inter-state competition for the same inward FDI. Also, when the contest in attracting inward FDI comes down to two states, relative tax incentives also become important in attracting FDI inflows.

Local labor market conditions and foreign direct investment flows in the U.S

This study evaluates the impact of industry and state-specific economic conditions on inward Foreign Direct Investment (FDI) in several states in the U.S. FDI inflows in the U.S. are attracted by high industry and state specific labor productivity, and also by high state spending on education. Multinational companies seem to highly value a productive and educated labor force.

Multinational Corporations and Inertia in Foreign Direct Investment Flows

This article, and based on company level data, tests empirically the impact company and industry conditions have on the magnitude of the inertia in FDI transactions, and thus on the hysteresis in FDI flows. The findings indicate that exchange rate volatility and industry concentration strengthen the inertia in FDI transactions, while industry demand growth weakens it. Finally, in the presence of high adjustment cost, the effects of exchange rate volatility and industry concentration on the inertia in FDI transactions become stronger, while the effects of industry demand growth on the same inertia become weaker.

A Cartel that Lasts for Centuries: The Case of the Eastern Orthodox Church Indulgences

In this paper, we present a non-conventional case of collusive behavior and tactics that last for centuries. In particular, we focus on the process through which the Patriarchates of the Eastern Orthodox Church (specifically, those of Constantinople, Jerusalem, Antioch, and Alexandria) distributed indulgences to believers in their jurisdictions during the period between the sixteenth and the seventeenth centuries. By employing a wide variety of primary sources such as correspondence among the various patriarchates and among individual clerics, printing orders for indulgences, and income-expenditure records among others, we present evidence of oligopolistic interaction and behavior among the various Patriarchates in the distribution of indulgences. The observed long duration of this collusive structure is the outcome of high barriers to entry, well defined market segmentation, effective monitoring, a strong enforcement mechanism and finally little product innovation. Overall, the data suggest that, besides their spiritual importance, indulgences were promoted in a way that resembles very much the distribution method and process of any typical product in a modern market economy.

New products and market competition

Using a novel data set on new product introductions in U.S. manufacturing, the paper studies the relationship between new product introductions and the intensity of market competition as it is measured by industry-specific price-cost margins. New product introductions intensify market competition and depress price-cost margins. These results draw significant empirical support from a sample of five U.S. manufacturing industries. A 10 percent increase in the number of new product introductions causes price-cost margins to drop by approximately 0.5 percent. Although price-cost margins appear procyclical with respect to fluctuations in industry sales, new products make price-cost margins less procyclical and therefore, the intensity of market competition more procyclical.