Satya P. Das

Foreign direct investment and the relative wage in a developing economy

Abstract This paper examines the issue of the effect of foreign direct investment on the relative wage in the context of a developing economy. Recognizing that competing domestic entrepreneurs are potentially skilled workers, foreign investment in skilled-labor intensive sectors is shown to lower the relative wage. Moreover, a general lump sum subsidy to foreign and domestic firms is shown to lower aggregate welfare, whereas a discriminatory subsidy only to foreign firms may raise welfare.

Strategic managerial delegation and trade policy

Abstract This paper examines the implications of delegation of quantity or price setting power to the managers by the firm owners, for trade policy. Delegation reduces the scale of strategic trade policy in an exporting industry. In an import-competing oligopoly industry, the optimal tariff is less or greater than the standard optimal tariff depending on whether firms compete in quantity or price. A quantitative import restriction is collusive even when firms compete in quantities, and induces the home firm to become less sales-oriented and produce less. Delegation reduces the gains from integration of similar markets across countries.

Direct Foreign Investment versus Licensing

This paper examines the choice among alternative modes of direct foreign investment, namely, the wholly owned subsidiary (the S option) and joint venture (the J option), vis-a-vis licensing (the L option). The focus is on the role of moral hazard, difference in risk attitude and the prospect of the host countrys policy toward the venture. An apparently surprising result is that riskiness of the project is a factor against the J option. Moreover, in the absence of policy intervention, L is dominated by either S or J, whereas if there is an anticipation of policy intervention (i.e., there is a policy moral hazard) L may emerge as the best option. Copyright 1999 by Blackwell Publishing Ltd

On the choice of international joint venture: the role of policy moral hazard

This paper examines the choice problem facing a multinational firm, whether to establish a wholly owned subsidiary or form a joint venture with a firm from the host country, as the mode of direct foreign investment. It is shown that, all other considerations aside, the prospect of policy variation toward the venture (restrictive or conducive), which is called policy moral hazard facing the host government, is a factor for joint venture to emerge as the preferred option.

Dynamics of entry and exit of firms in the presence of entry adjustment costs

Abstract This paper presents a simple model of industry dynamics with entry adjustment costs. These costs imply a non-instantaneous adjustment path to the steady state, so that the model permits the short-run and long-run characterization of industry dynamics in a single framework. The type of the steady state (zero entry and exit or positive entry and exit with the co-existence of high-efficiency and low-efficiency firms) depends on the fixed cost of entry as well as entry adjustment costs. The short-run dynamics exhibits non-monotonicity if persistence in efficiency over time is not too high. The model is consistent with the empirical observations that the total number of firms and net entry follow non-monotonic paths and entry and exit are positively correlated over time.

Endogenous Trading Bloc Formation in a North-South Global Economy

The majority of the trading blocs to date are between similar countries, rather than between developed and developing countries. This paper provides a rationale for why trading blocs among similar countries may arise as an equilibrium phenomenon. It develops a model of an asymmetric world economy in which there are at least four countries. The countries are differentiated with respect to their market size and they choose their trading partners. In the coalition-proof Nash equilibrium, either there is global free trade or free trade areas are formed among similar countries.

Trade and relative wages: The role of supervisory function by skilled workers

Abstract The effect of trade on relative wages is examined taking into consideration some aspects of internal organization of firms, namely, the twin function of production and supervision by skilled workers. When trade is based on endowment differences, the effect of trade is greater than is predicted by the Stolper–Samuelson theorem. When trade is based on technological differences, freer trade tends to reduce the relative wages in each country in a two-country world economy.

Trade and Relative Wage in a Global Economy

The effects of trade among similar countries and that among dissimilar countries on the relative wage are examined. Product quality is a choice variable by firms. Quantity production is assumed to satisfy constant costs, while quality production is more skilled-labor intensive than quantity production and obeys increasing costs. Compared to autarky, free trade, by fostering more competition, leads to quality improvement, which in turn tends to increase the relative wage. Trade among similar countries increases the relative wage in all trading countries, while trade among dissimilar countries, in a two-country model, increases it in one country but may increase or lower it in the other.

A Dynamic Analysis of Child Labor with a Variable Rate of Discount: Some Policy Implications

Abstract This paper analyzes the problem of child labor in an infinite-horizon dynamic model with a variable rate of time preference and credit constraints. The variability in the rate of time preference leads to the possibility of multiple steady states and a poverty trap. The paper considers the long-run and short-run effects of an array of policies like enrollment subsidy, improvement in primary education infrastructure, lump-sum subsidy, and variations in loan market parameters. We distinguish between policies that reduce child labor in the long run only in the presence of a variable discount rate and other policies which work whether or not the discount rate is variable. Credit-related policies belong to the former group. Policies that reduce child labor and increase family consumption in the long run may have an adverse effect of lowering consumption in the short run.

Endogenous Distribution, Politics, and the Growth-Equity Tradeoff

In comparison to the standard literature on inequality and growth which assumes the former to be exogenous, we formulate a model in which inequality and growth are both endogenous. Long-run distribution, at least locally, is shown to be independent of the initial distribution of factor ownership. It is shown that exogenous policy changes that are primarily targeted towards growth and foster less inequality do enhance growth. But policies that are primarily redistributive and imply a more equal distribution reduce growth. This is consistent with recent empirical work which shows that inequality and growth may be positively related.