Leonard K. Cheng

What are the determinants of the location of foreign direct investment? The Chinese experience

By estimating the effects of the determinants of foreign direct investment (FDI) in 29 Chinese regions from 1985 to 1995, we find that large regional market, good infrastructure, and preferential policy had a positive effect but wage cost had a negative effect on FDI. The effect of education was positive but not statistically significant. In addition, there was also a strong self-reinforcing effect of FDI on itself. There was no convergence in the equilibrium FDI stocks of the regions between 1985 and 1995, but there was convergence in the deviations from the equilibrium FDI stocks.

Comparing Bertrand and Cournot Equilibria: A Geometric Approach

By presenting a geometric analysis of a duopoly, this article attempts to provide some insights into recent results by Singh and Vives regarding Bertrand and Cournot equilibria and the relative dominance of price and quantity strategies. It shows that under fairly general and reasonable assumptions (a) Cournot equilibrium prices (quantities) are higher than Bertrand equilibrium prices (quantities) and (b) a quantity (price) strategy dominates a price (quantity) strategy if the goods are substitutes (complements).

Global production and trade in East Asia

1. Introduction L.K. Cheng, H. Kierzkowski. 2. Financial Crisis, Trade, and Fragmentation A. Deardorff. 3. Horizontal Aspects of Vertical Fragmentation R.W. Jones, H. Kierzkowski. 4. Function vs. Form in the Fragmented Industrial Structure: Three Examples from Asia Pacific Experience H. Wan, Jr. 5. Production Sharing in East Asia: Who Does What for Whom, and Why? F. Ng, A. Yeats. 6. Intra-Industry Foreign Direct Investment and Trade Flows: New Measures of Global Competition D. Greenaway, et al. 7. Fragmentation, Internalization, and Interfirm Linkages: Evidence from the Micro Data of Japanese Manufacturing Firms F. Kimura. 8. Sanyal and Jones on Fragmentation and Trade: Empirical Evidence for South Korea U. Kohli. 9. Taiwans High-Tech Industries C. Schive, R.Y.-S. Chyn. 10. Export-Oriented Foreign Direct Investment in the Peoples Republic of China: Division of Value Added between Source and Host Economies Y.-W. Sung. 11. The Globalization of Trade and Production: A Case Study of Hong Kongs Textile and Clothing Industries L.K. Cheng, W.K. Fung. 12. The Changing Pattern of Production Fragmentation in Singapore, and Its Economic Consequences H.T. Hoon, K.W. Ho. 13. The Implications of Increasing Fragmentation and Globalization for the World Trade Organization R.E. Baldwin. 14. Rules of Origin and Fragmentation of Trade P. Lloyd. 15. Intrafirm Fragmentation: Fujitsu, Ltd.s Production of Hard Disk Drives F. Kimura. 16. The Development Pattern of Taiwans Bicycle Industry W.-w. Chu. 17. Taiwans Integrated Circuit Industry A.-C. Tung. 18. A Case Study of Tech Tronic Industries Co., Ltd. H. Kierzkowski. 19. Li & Fung Ltd: An Agent of Global Production L.K. Cheng. 20. Arms-Length Transactions vs. Affiliates: A Study of Two Electronic Components Firms in Singapore H.T. Hoon, K.W. Ho.

Optimal Trade and Technology Policies: Dynamic Linkages

This paper examines the dynamic linkages between technology policy on the one hand and tra de and industrial policies on the other. When any of the latter polic ies affects the incentives of firms to innovate, there is an independ ent argument for or against such a policy in addition to those obtain ed from the usual analysis of international oligopoly. The adoption o f an R&D policy involves a dynamic tradeoff in welfare, the pattern o f which depends on whether an R&D subsidy or tax is optimal. Noncoope rative R&D subsidies may lead to Pareto superior outcomes in the pres ence of international technological diffusion. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

International trade and technology: A brief survey of the recent literature

The works of Posner [1961], Hufbauer [1966], Vernon [1966] and others in the sixties have led to the rediscovery of the importance of technology in international trade and international investment. This renewed orientation has resulted in a large body of literature. Recently, there is a tendency for a new surge of interest in the area. It appears that this would be an appropriate time to take stock of the existing literature, in particular, to relate the various issues that have been raised and to summarize the main results that have been obtained. Although there are two recent surveys on the subject, one by Jones and Neary [1984] and the other by Pugel [1981], the present paper differs from them in two important respects. First, while they focus mostly, if not exclusively, on the theoretical writings, this paper also pays a considerable amount of attention to the empirical evidence. Second, this paper covers more ground, especially the most recent writings, although it is by no means exhaustive. Because different countries engage in different rates of research and development (R&D) and because the dissemination of technological information is not instantaneous and complete, some countries are technologically more advanced than others. Until every technological gap is closed, either due to a greater R&D effort in the less advanced countries or due to the continual dissemination of information from the advanced ones or both, the owners of superior technologies would enjoy a temporary monopoly position. They may tap their potential profits with an appropriate combination of the following channels: (a) exports, (b) licensing, and (c) direct foreign investment. The conditions under which these alternative channels are chosen and how the choice changes over time represents a major area of interest. Another important area focuses on the implications of the creation and diffusion of new technologies for the pattern of trade, investment, and national welfare. In the literature, depending on the nature and scope of the questions being addressed, both informal, verbal and formal, mathematical models have been developed. Most of the the policy and empirical writings rely on intuitive reasoning, but the bulk of theoretical works employ formal models. These formal models can in turn be distinguished

A multisectoral general equilibrium model of Schumpeterian growth and fluctuations

Abstract This paper builds a dynamic multisectoral general equilibrium model of Schumpeterian growth and fluctuations based on the endogenous introduction of new products. The set of technological opportunities determines the degree of product- quality upgrading and consists of breakthroughs and improvements the latter exhibiting diminishing returns. If the degree of diminishing returns to technological improvements is low, then there is no steady-state equilibrium but cycles of breakthroughs and improvements. We analyze two symmetric stable patterns of innovation which generate endogenous cycles and growth. There is a negative correlation between the duration of each cycle and the long-run growth trend.

On The Strategic Choice Between Capital And Labor Mobility

Abstract This paper analyzes the strategies of two governments when choosing between capital and labor mobility. For each type of factor mobility, the Nash equilibria under both income taxes and quotas on factor flows are derived. From each countrys point of view, an income tax dominates a quota. The paper also shows that in a strategic environment, Ramaswamis result that a country prefers the restricted inflow of a scarce factor to the restricted outflow of an abundant factor continues to hold for some initial factor endowments, but the opposite result may obtain for other factor endowments.

Anti-dumping measures as a tool of protectionism: A mechanism design approach

In this paper we explore the design of optimal incentive-compatible anti-dumping (AD) measures. When the weight given to the domestic firms profit in the governments objective function is relatively small, it is shown that no AD duty should be imposed if the foreign firm reports its own costs, but a constant AD duty should be imposed if the domestic firm reports the foreign firms cost. When this weight is large, in either case of reporting the AD duty is a prohibitive tariff. The optimal AD measures are modified in the presence of a GATT/WTO constraint.

Supplier Preferences and Dumping: An Analysis of Japanese Corporate Groups*

While the nature and intensity of issues confronting the international economy change over time, the trade and investment tensions between the U.S. and Japan have continued unabated for many years. In part they find their origin in Japans overall and bilateral trade surpluses, although these are generally recognized as macroeconomic phenomena. Apart from the trade imbalances, bilateral disputes arise also from the perceived inability of American exporters and investors to penetrate the Japanese market. There is empirical evidence indicating that the Japanese firms have a distinct preference to buy their needed machinery and other inputs from other Japanese firms [5; 6; 7]. It is the closed nature of Japans market that triggered the bilateral negotiations known as Structural Impediments Initiative. One reason for the difficulty faced by outsiders trying to sell in Japan is the way in which Japanese companies are organized. Keiretsu is a form of interlocking relationships among Japanese firms and industry groups [2] that allegedly enjoys advantages such as risk-sharing and stable inter-firm relations (which encourage efficient investment in relation-specific assets) and oligopolistic market power.1 It has been suggested as a possible reason for low sales by non-Japanese firms to Japanese firms operating inside and outside of Japan. There is certainly a strong tendency for member companies of a Keiretsu to source from within their own corporate group. This paper explores an economic rationale for this behavior by examining the implications of cross ownership and implicit contracts (long-term reciprocity), and shows that supplier preferences unambiguously increase the incidence of dumping. In this fashion the paper provides a link between two sets of stylized facts: supplier preferences by Japanese firms, and the numerous dumping complaints brought in the US. against large Japanese companies. Supplier preferences

Li & Fung, Ltd.: An agent of global production

The trade theory that deals with international production fragmentation assumes that producers in different parts of the world specialize in segments of various value chains such that the final price of each product is as low as possible. The slicing of a value chain into segments to be allocated to producers in different countries depends on technical feasibility and on the costs of linking the successive production processes. In practice, how do producers in different countries determine their respective positions along the value chain?