M. C. Sunny Wong

Foreign Direct Investment Outflows and Business-Cycle Fluctuations

This paper investigates business-cycle effects for a countrys foreign direct investment (FDI) outflows. Ordinary least squares and panel regressions show that volatility in economic growth has a negative and significant impact on FDI outflows. Furthermore, we find different types of shocks have asymmetric impacts on FDI outflows. In other words, fluctuations of the same magnitude in a boom and a recession have different effects on FDI outflows. This relationship is more evident in OECD countries. We also include exchange rate volatility, lagged business-cycle measure, and control for potential endogeneity problems as robustness checks. Our findings are robust across different specifications. Copyright

Ranking Economics Journals, Economics Departments, and Economists Using Teaching- Focused Research Productivity

This note constructs a new ranking of economics departments that employs a measure of teaching-focused research productivity, an area of growing importance in recent years. The ranking methodology presented here aggregates and orders citations to an institutions research output that is published in the Journal of Economic Education, the leading journal in economic education. Among the top 40 institutions using this approach are Vanderbilt and Indiana, two universities that often rank high using quality indices of more traditional forms of economics research. Others that rank high here, such as Denison and Occidental College, do not often fare as well using methodologies that evaluate more traditional types of economics research.

Testing Monetary Policy Intentions In Open Economies

Temple (2002) argues that the inflation level used in Romer (1993) lacks power in revealing the policy intentions of monetary authorities. Temple also points out that Romers use of the openness–inflation correlation cannot be explained by time consistency theory. In this article, we demonstrate that more open economies experience less inflation volatility and persistence. We attribute our findings to the hypothesis that monetary authorities in more open economies adopt more aggressive monetary policies. This pattern emerges strongly after 1990. Our results indicate that the near-universal regime shift in 1990 is not just a simple process of increased monetary policy aggressiveness, but an increased response to economic openness.

Learning from the Expectations of Others

The assumption of perfectly rational representative agents is commonly questioned. This paper explores the equilibrium properties of boundedly rational heterogeneous agents. We combine an adaptive learning process in a modified cobweb model within a Stackleberg framework. We assume that there is an asymmetric information diffusion process from leading to following firms. In contrast to a simple cobweb model which has a unique REE, our model may produce multiple restricted perceptions equilibria (RPE). However, a unique and learnable RPE, under certain conditions, can exist in our model. In addition, the following firms’ forecasts can confound the leading firms’ forecasts - when the following firms misinterpret information coming from the leading firms. We refer this situation to the boomerang effect. We also find that the leading firms’ mean squared forecast error can be even larger than that of following firms if the proportion of following firms is sufficiently large in the market.

Political Campaign Advertising Dynamics

We investigate the effectiveness of political campaign advertisements. From findings in communications, political science, and psychology, we know that the relation between voters and campaign strategists is dynamic and evolves until voters’ views on a candidate crystallize. After that point, political campaign advertisements are ineffective. To capture this “dynamic” we develop an adaptive learning model that relates voters’ impression formation to expectations about candidate behavior, one form of which (rational expectations), renders political advertising ineffective. We treat rational expectations as a limiting result that supports the concept of crystallization. Our model assumes that voters misspecify their forecasts about a particular candidate’s attributes and campaign strategy. Over time voters can reach a rational expectations equilibrium about a candidate’s qualities and discount political advertising. We illustrate the learning dynamics using simulations. As one application of this approach we focus on the influence campaign message (strategy) volatility has on crystallization (i.e., reaching the rational expectations equilibrium). Our simulation results show that campaign message volatility has an important effect on crystallization. One implication is that crystallization is a fragile, special case result that can be altered by informational shocks during the campaign.

A note on Romer's openness-inflation relation: the responsiveness of AS and AD to economic openness and monetary policy

Temple (2002) empirically challenges Romers (1993) negative openness-inflation relation on empirical grounds. This article links economic openness to the slopes of aggregate supply (AS) and aggregate demand (AD) to explain why the openness-inflation relation can be ambiguous. Starting with a widely used assumption initiated by Romer (1993) that more open economies face greater output inflation tradeoffs, we demonstrate that greater output-inflation tradeoffs in more open economies (reflected in the steeper AS) induce policymakers to adopt more aggressive optimal monetary policy (reflected in the flatter AD). Empirical results from 15 developed countries’ data support our theoretical explanation on the recent empirical failure in finding the negative openness-inflation relation.

The Effect of Foreign Direct Investment on International Migration: Does Education Matter?

Using migration data in 1990 and 2000, we find that inward foreign direct investment (FDI) in non‐OECD countries affects the out‐migration of individuals with tertiary and secondary education to OECD countries originating the investments, but has no significant effect on the out‐migration of individuals with primary education. Distinguishing between linkage and home effects, our results show a dominant home effect of FDI for individuals with tertiary education, but a stronger linkage effect for those with secondary education. The existing stock of former migrants in foreign countries influences the out‐migration of individuals with primary education.

FDI Location and the Relevance of Spatial Linkages: Evidence from Provincial and Industry FDI in China

In this study both aggregate and industry-level foreign direct investment (FDI) data are employed to investigate the spatial dependence of FDI hosts. The analysis contributes to the existing literature by focusing on the heterogeneous spatial correlation of FDI in different industries. Using more comprehensive FDI data across multiple industries and multiple provinces in China from 1999 to 2007, the results show a significant spatial correlation among provinces. Aggregate FDI tends to be regional trade platform oriented indicating neighboring provinces become competitors for FDI. In contrast, results based on industry-level provincial FDI show stronger support for vertical or complex vertical FDI.

The Role of Policymakers in Business Cycle Fluctuations

This paper examines the role of a policymaker in macroeconomic outcomes. A standard model of aggregate supply is linked with an interest rate policy rule that targets in‡ation and output stability. The role of the policymaker centers on using policy rule targets in a countercyclical manner to encourage e¢cient business cycle outcomes (price and output stability). The model produces the following results: 1) In the presence of supply and demand shocks, there are pareto improving combinations of in‡ation and output targets; 2) Outside the optimal combinations of in‡ation and output targeting, increasing emphasis on an in‡ation (output) target destabilizes output (in‡ation); 3) In the presence of a demand shock, aggressive application of countercyclical policy is a pareto improving result. On the other hand, a similar policy tack when a supply shock is present results in a trade-o¤ between the two policy targets; and 4) An aggressive policy creates interest rate volatility and is generally inconsistent with policy implementation designed to smooth interest rates. Therefore, pareto improving results only apply to in‡ation and output stability. The Role of Policymakers in Business Cycle Fluctuations Jim Granato¤ Sunny M. C. Wong Second Draft ¤ Earlier versions of this paper were presented at the Annual Meeting of the Midwest Political Science Association, Chicago, Illinois (April, 2001), and the Centro de Estudios para el Desarrollo Institucional (CEDI), Universidad de San Andres, Buenos Aires, Argentina (June, 2001). Granato is currently Political Science Program Director, National Science Foundation, 4201 Wilson Blvd., Suite 980, Arlington, Virginia 22230 (e-mail: jgranato@nsf.gov). Wong is in the Department of Economics, University of Oregon, Eugene, Oregon 97403 (e-mail: wong@darkwing.uoregon.edu). We would like to thank Jim Alt and Mary Bange for their comments. The views and ...ndings in this paper are those of the authors and do not necessarily re‡ect those of the National Science Foundation.

Openness and Aggressive Monetary Policy: A Study of Inflation Volatility and Persistence

This paper investigates the relation between economic openness and the aggressiveness of monetary authorities to ensure price stability. In a sample of 114 countries for the period 1949-2001, we find that more open economies tend to have more aggressive monetary policies which results in less inflation volatility and persistence. We find this pattern emerges strongly after 1990. This latter finding suggests that the universal regime shift in 1990 is not just a simple process of increased policy aggressiveness. Countries also conduct more aggressive monetary policies in response to increased economic openness.