Usha Nair-Reichert

Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries

The remarkable increase in FDI flows to developing countries over the last decade has focused attention on whether this source of financing enhances overall economic growth. We use a mixed fixed and random (MFR) panel data estimation method to allow for cross country heterogeneity in the causal relationship between FDI and growth and contrast our findings with those from traditional approaches. We find that the relationship between investment, both foreign and domestic, and economic growth in developing countries is highly heterogeneous and that estimation methods which assume homogeneity across countries can yield misleading results. Our results suggest there is some evidence that the efficacy of FDI in raising future growth rates, although heterogeneous across countries, is higher in more open economies.

Investments in Modernization, Innovation and Gains in Productivity: Evidence from Firms in the Global Paper Industry

This paper examines the impact of investments in modernization and innovation on productivity in a sample of firms in the global pulp and paper industry. This industry is important because it has traditionally accounted for significant amounts of employment and capital investment in North America and Europe. In contrast to much of the existing literature which focuses on the impact of R&D and patents on firms’ performance and productivity, we examine data on actual investment transactions in four main areas of operations: (i) mechanical, (ii) chemicals, (iii) monitoring devices and (iv) information technology. We find that firms which made decisions to implement a greater number of investment transactions in modernization achieved higher productivity, and these estimated quantitative effects are greater than the impact of standard innovation variables such as patents and R&D. Investment transactions in the information technology and digital monitoring devices imparted a particularly noticeable boost to productivity. These results are obtained after controlling for other firm-specific variables such as capital-intensity and mergers and acquisitions. Two broad messages emerge from our study. First, firms’ decisions to undertake investments in modernization and various forms of incremental innovations appear to be critical for achieving gains in productivity. While these may typically generate small gains on a year-to-year basis, they can compound to form meaningful differences in performance, productivity and competitive position across firms in the longer-run. Second, for some of the traditional industries like pulp and paper, R&D and patents seem to be particularly poor indicators of innovation and, more generally, how firms go about achieving gains in productivity. While this paper focuses on the pulp and paper industry, our broad framework and methodology is general and can be applied to understanding firms’ strategies related to enhancing performance and productivity in a variety of industries.

How Effective are Trade Barriers? An Empirical Analysis of Trade Reduction, Diversion, and Compression

We analyze the effects of trade barriers using highly disaggregated data. The level of disaggregation allows us to separate the effects of tariffs and nontariff barriers (NTBs) into reduction, diversion, and compression effects. We find that multilateral tariffs significantly reduce trade flows and that trade preferences have a significant diverting effect. We also find that higher multilateral tariffs tend to shift trade towards larger exporters, suggesting that the desire to minimize fixed costs associated with trading dominates any preference for variety. In the case of NTBs, we find that, as often as not, the imposition of an NTB leads to an increase in the value of trade; in industries with low import demand elasticities, the influence of rising prices outweighs the decline in quantity.

Patent Regimes, Host Country Policies, and the Nature of MNE Activities*

This paper provides useful insights in the debate regarding the relationship between stronger patent rights, host country policies and multinational activity using panel data from US MNEs. It analyzes the impact of stronger patent protection on the exports, local affiliate sales and licensing activities by explicitly modeling the joint nature of the MNEs decision-making process in servicing a foreign market. The key findings support the idea that the policy environment in the host country influences the impact of stronger IPRs on US MNE activities during the period 1992 to 2000. A risky environment in the host country appears, on average, to have a negative and significant impact on unaffiliated exports and affiliate sales. Increased patent protection in high-risk countries, on average, appears to reduce licensing, and increase unaffiliated exports, suggesting a dominant monopoly effect of stronger IPRs in the former case and a dominant market expansion effect in the latter case.

Total state in-migration rates and public policy in the United States: a comparative analysis of the Great Recession and the pre- and post-Great Recession years

This study adopts state-level data to investigate empirically the Tiebout hypothesis (as extended by Tullock) of ‘voting with one’s feet’ for the period referred to in the United States as the ‘Great Recession’ (2007–09). As compared with previous studies, more recent data are used and estimates are provided for three time periods: the ‘Great Recession’ (from 1 July 2007 to 30 June 2009), the pre-Great Recession period (1 July 2004 to 30 June 2006) and the post-Great Recession period (1 July 2009 to 30 June 2011). This analysis also differs from most previous literature by including a separate cost-of-living variable and a variable measuring effective state personal income tax rates. After allowing for various economic factors and quality of life/climate variables, migrants (consumer-voters) over the 2007–09 period appear to prefer states with lower effective state personal income tax rates and higher levels of ‘fiscal surplus’, defined in this study for each state as the total outlay per pupil on primary and secondary public education minus the per capita property tax level. The three empirical estimates all demonstrate that the Tiebout/Tullock hypothesis was operational not only during but also both before and after the Great Recession since for all three time periods migrants (consumer-voters) manifested a preference for lower effective state personal income tax rates and higher levels of fiscal surplus.

Money and the dispersion of relative prices revisited

This study extends the literature on relative price dispersion by addressing two questions that have remained largely unanswered: (a) What is the impact on relative price dispersion of the variance of the uncertain relationship between money and prices? (b) Is there evidence across industries of a differential impact on price dispersion of the variance of the uncertain relationship between money and prices? These issues are examined in a bivariate GARCH-M model using monthly data from 1963–1997. The results at the aggregate level indicate that the variance of the uncertain relationship between money and prices has a positive and significant impact on relative price dispersion during the period 1963 to 1997. Disaggregated analysis at the industry level suggests that the magnitude of the impact of the variance of the uncertain money-price relationship differs greatly across industries and generally tends to have a greater impact on the price dispersion of durable goods than on the price dispersion of nondurable goods. This study also has important implications regarding the effectiveness of rules-based monetary policy in eliminating uncertainty associated with discretionary monetary policy.

Inflation regimes, core inflation measures and the relationship between producer and consumer price inflation

To date, an overwhelming majority of the literature has addressed mean relationships between producer and consumer price inflation. Granger et al . (1986) represent the only attempt to investigate second moment relationships. We examine the consumer--producer price relationship employing a multivariate GARCH-M framework that allows simultaneous estimation of the bivariate system along with providing explicit times series estimates of the variances of consumer and producer price inflation. This research also breaks new ground in the use of core and over-all inflation variance measures as well as examining state dependent mean and variance relationships. We find that mean relationships are generally sensitive to the measure of inflation used. Food and energy prices play an important role in transmitting changes in aggregate input prices to aggregate output prices. When food and energy prices are eliminated from consumer and producer price inflation measures, mean relationships break down irrespective of whether the economy is experiencing a high or low inflation regime. Variance relationships appear to be more robust in general and input price relationships in particular appear to respond to inflation regime shifts.

International R&D rivalry and export market shares of unionized industries: Some evidence from the US manufacturing sector

Abstract This paper investigates how union activity that captures R&D rents alters the strategic investment behavior of internationally competitive firms. The effect of union activity in the Spencer, B.J., Brander, J.A., 1983 [International R&D rivalry and industrial strategy, Review of Economic Studies 50, 707–722] framework is to reduce the firms strategic investment in R&D and its export market share. The empirical investigation at the industry level indicates that union activity has a significant and negative impact on R&D investment decisions in the US manufacturing sector. An important contribution of this work is its attempt to empirically distinguish between strategic and non-strategic R&D. The strategic effect of R&D on export market share in an imperfectly competitive product market is a decreasing function of the level of union activity.

Does a Lack of Health Insurance Elicit an Increase in the Rate of Voluntary Military Enlistment in the U.S.? The “Military Health Care Magnet Hypothesis,” 1974-2007

This study addresses a question that has not been researched much previously, namely, does the unavailability of health insurance act as an incentive for persons to enlist in the military in the U.S.? This relationship is proffered as the “Military Health Care Magnet Hypothesis.” The present study endeavors to provide insight into this issue within a cost-benefit framework. The empirical analysis uses annual data for the years 1974 through 2007, the only years to date for which all of the variables in the model are dependable after the end of military conscription in the U.S. in 1973. Both OLS and 2SLS results demonstrate, among other things, that the greater the percentage of the civilian population without health insurance, the greater the rate of enlistment in the U.S. Army.