Market Familiarity and the Location of South and North MNEs

We use a systematic empirical analysis of the determinants of South-South (SS) and North-South (NS) foreign direct investment (FDI) as a canvas to explore how multinational enterprises’ (MNEs) location decisions are shaped by better acquaintance with a foreign market resulting from bilateral ties, experience of international expansion, and knowledge of how to deal with poor governance. We find that these various aspects of market familiarity, which can interact together, are important to explain and differentiate the location behaviours of South MNEs (S-MNEs) and North MNEs (N-MNEs) in developing countries.

The distributional consequences of tax reforms under market distortions

In this paper we examine the importance of imperfect competition in product and labour markets in determining the long-run welfare e¤ects of tax reforms assuming agent heterogeneneity in capital hold- ings. Each of these market failures, independently, results in welfare losses for at least a segment of the population, after a capital tax cut and a concurrent labour tax increase. However, when combined in a realistic calibration to the UK economy, they imply that a capital tax cut will be Pareto improving in the long run. Consistent with the the- ory of second-best, the two distortions in this context work to correct the negative distributional e¤ects of a capital tax cut that each one, on its own, creates.

The Impact of Population Ageing on the Labour Market: Evidence from Overlapping Generations Computable General Equilibrium (OLG-CGE) Model of Scotland

This paper presents a dynamic Overlapping Generations Computable General Equilibrium (OLG-CGE) model of Scotland. The model is used to examine the impact of population ageing on the labour market. More specifically, it is used to evaluate the effects of labour force decline and labour force ageing on key macro-economic variables. The second effect is assumed to operate through age-specific productivity and labour force participation. In the analysis, particular attention is paid to how population ageing impinges on the government expenditure constraint. The basic structure of the model follows in the Auerbach and Kotlikoff tradition. However, the model takes into consideration directly age-specific mortality. This is analogous to “building in” a cohort-component population projection structure to the model, which allows more complex and more realistic demographic scenarios to be considered.

Trade Costs, International Competition and Selection: The Effects of Unionisation on Market Size

Within a two-country model of international trade in which heterogeneous firms face firm-specific unions, we study the effects of different forms of trade liberalisation on market structure and competitive selection in the presence of inter-country asymmetries in size and labour market institutions. For given levels of trade openness, an increase in a country’s relative unions’ strength reduces the average productivity of its domestic producers but increases that of its exporters. Whilst an unfavourable union power differential, by increasing wages, weakens a country’s firms’ competitive position, the higher wages reinforce standard market access mechanisms to give rise to aggregate income effects. When the initial levels of trade openness are sufficiently low, this ‘expansionary’ aggregate effect can attract industry in the country with stronger unions and also result in an increase in the extensive margin of exports. For sufficiently large inter-country differences in the bargaining power of unions, trade liberalization can then result in a pro-variety effect, with an increase in the total availability of varieties to consumers in both countries, regardless of there being inter-country differences in size.

Stock Market Reaction to Fed Funds Rate Surprises: State Dependence and the Financial Crisis

This paper examines the impact of Federal Funds rate (FFR) surprises on stock returns in the United States over the period 1989-2009, focusing on the impact of the recent financial crisis. We find that prior to the crisis, stock prices increased as a response to unexpected FFR cuts. State dependence is also identified with stocks exhibiting larger increases when interest rate easing coincided with recessions, bear stock markets, and tightening credit market conditions. However, an important structural shift took place during the financial crisis, which changed the stock market response to FFR shocks, as well as the nature of state dependence. Specifically, during the crisis period stock market participants did not react positively to unexpected FFR cuts. Our results highlight the severity of the recent financial turmoil episode and the ineffectiveness of conventional monetary policy close to the zero lower bound for nominal interest rates.

EMU, EU, Market Integration and Consumption Smoothing

We take a new approach to the study of the impact of EMU on consumption smoothing. Rather than relying on inferences based on the behavior of consumption levels or growth, we focus on consumption volatility and therefore on smoothing more directly. Consequently, we find that even though EMU tends to smooth consumption, it is not through cross-country property and claims. Rather it comes through the promotion of the tradability of goods, capital in particular: specifically, the encouragement of price competition, contestable home markets, ability to borrow and buy insurance at home, and the harmonization of regulations. Some of the consumption smoothing may also depend on EU membership rather than EMU as such but EMU adds to it. As a fundamental part of the analysis, the paper uses a new index of currency union which focuses on the ratio of trade with other countries sharing the same currency relative to total foreign trade.

The Impact of Population Ageing on the Labour Market: Evidence from Overlapping Generations Computable General Equilibrium (OLG-CGE) Model of Scotland

This paper presents a dynamic Overlapping Generations Computable General Equilibrium (OLG-CGE) model of Scotland. The model is used to examine the impact of population ageing on the labour market. More specifically, it is used to evaluate the effects of labour force decline and labour force ageing on key macro-economic variables. The second effect is assumed to operate through age-specific productivity and labour force participation. In the analysis, particular attention is paid to how population ageing impinges on the government expenditure constraint. The basic structure of the model follows in the Auerbach and Kotlikoff tradition. However, the model takes into consideration directly age-specific mortality. This is analogous to “building in” a cohort-component population projection structure to the model, which allows more complex and more realistic demographic scenarios to be considered.

Caught Between Theory and Practice: Government, Market, and Regulatory Failure in Electricity Sector Reforms

The world-wide electricity sector reforms of the early 1990s have revealed the considerable complexities of making market driven reforms in network and infrastructure industries. This paper reflects on the experiences to date with the process and outcomes of marketbased electricity reforms across less-developed, transition and developed economies. The reforms outcomes suggest similar problems facing the electricity sector of these countries though their contexts vary significantly. Many developing and developed economies continue to have investment inadequacy concerns and the need to balance economy efficiency, sustainability and social equity after more than two decades of experience with reforms. We also use a case study of selected countries that in many respects represent the current state of the reform though they are rarely examined. Nepal, Belarus and Ireland are chosen as country-specific case studies for this purpose. We conclude that the changing dynamics of the electricity supply industry (ESI) and policy objectives imply that analysing the success and failure of reforms will indeed remain a complex process.

The Market for "Rough Diamonds": Information, Finance and Wage Inequality

During the past four decades both between and within group wage inequality increased significantly in the US. I provide a microfounded justification for this pattern, by introducing private employer learning in a model of signaling with credit constraints. In particular, I show that when financial constraints relax, talented individuals can acquire education and leave the uneducated pool, this decreases unskilled inexperienced wages and boosts wage inequality. This explanation is consistent with US data from 1970 to 1997, indicating that the rise of the skill and the experience premium coincides with a fall in unskilled-inexperienced wages, while at the same time skilled or experienced wages do not change much. The model accounts for: (i) the increase in the skill premium despite the growing supply of skills; (ii) the understudied aspect of rising inequality related to the increase in the experience premium; (iii) the sharp growth of the skill premium for inexperienced workers and its moderate expansion for the experienced ones; (iv) the puzzling coexistence of increasing experience premium within the group of unskilled workers and its stable pattern among the skilled ones. The results hold under various robustness checks and provide some interesting policy implications about the potential conflict between inequality of opportunity and substantial economic inequality, as well as the role of minimum wage policy in determining the equilibrium wage inequality.