Political Risk, Economic Integration, and the Foreign Direct Investment Decision

In this paper we analyse the impact of policy uncertainty on foreign direct investment strategies. We also consider the impact of economic integration upon FDI decisions. The paper follows the real options approach, which allows investigating the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic due to political uncertainty and investments are partially reversible. Across the board we find that political uncertainty can be very detrimental to FDI decisions while economic integration leads to an increasing benefit of investing abroad.

Labour Market Imperfections, International Integration and Selection

Although a large body of literature has focused on the effects of intra-firm differences on export performance, relatively little attention has been devoted to the interaction between firms' selection and international performance and labour market institutions - in contrast with the centrality of the latter to current policy and public debates on the implications of economic globalisation for national policies and institutions. In this paper, we study the effects of labour market unionisation on the process of competitive selection between heterogeneous firms and analyse how the interaction between the two is affected by trade liberalisation between countries with different unionisation patterns.

Unionisation, International Integration and Selection

We study how unionisation affects competitive selection between heterogeneous firms when wage negotiations can occur at the rm or at the profit-centre level. With productivity specific wages, an increase in union power has: (i) a selection-softening; (ii) a counter-competitive; (iii) a wage-inequality; and (iv) a variety effect. In a two-country asymmetric setting, stronger unions soften competition for domestic firms and toughen it for exporters. With profit-centre bargaining, we show how trade liberalisation can affect wage inequality among identical workers both across firms (via its effects on competitive selection) and within firms (via wage discrimination across destination markets).

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.

Personal indebtedness, community characteristics and theft crimes

Becker (1968) and Stigler (1970) provide the germinal works for an economic analysis of crime, and their approach has been utilised to consider the response of crime rates to a range of economic, criminal and socioeconomic factors. Until recently however this did not extend to a consideration of the role of personal indebtedness in explaining the observed pattern of crime. This paper uses the Becker (1968) and Stigler (1970) framework, and extends to a fuller consideration of the relationship between economic hardship and theft crimes in an urban setting. The increase in personal debt in the past decade has been significant, which combined with the recent global recession, has led to a spike in personal insolvencies. In the context of the recent recession it is important to understand how increases in personal indebtedness may spillover into increases in social problems like crime. This paper uses data available at the neighbourhood level for London, UK on county court judgments (CCJ's) granted against residents in that neighbourhood, this is our measure of personal indebtedness, and examines the relationship between a range of community characteristics (economic, socio-economic, etc), including the number of CCJ's granted against residents, and the observed pattern of theft crimes for three successive years using spatial econometric methods. Our results confirm that theft crimes in London follow a spatial process, that personal indebtedness is positively associated with theft crimes in London, and that the covariates we have chosen are important in explaining the spatial variation in theft crimes. We identify a number of interesting results, for instance that there is variation in the impact of covariates across crime types, and that the covariates which are important in explaining the pattern of each crime type are largely stable across the three periods considered in this analysis.

Unionisation, International Integration and Selection

We study how unionisation affects competitive selection between heterogeneous firms when wage negotiations can occur at the firm or at the profit-centre level. With productivity specific wages, an increase in union power has: (i) a selection-softening; (ii) a counter-competitive; (iii) a wage-inequality; and (iv) a variety effect. In a two-country asymmetric setting, stronger unions soften competition for domestic firms and toughen it for exporters. With profit-centre bargaining, we show how trade liberalisation can affect wage inequality among identical workers both across firms (via its effects on competitive selection) and within firms (via wage discrimination across destination markets).

Fractional Integration of the Price-Dividend Ratio in a Present-Value Model of Stock Prices

We re-examine the dynamics of returns and dividend growth within the present-value framework of stock prices. We find that the finite sample order of integration of returns is approximately equal to the order of integration of the first-differenced price-dividend ratio. As such, the traditional return forecasting regressions based on the price-dividend ratio are invalid. Moreover, the nonstationary long memory behaviour of the price-dividend ratio induces antipersistence in returns. This suggests that expected returns should be modelled as an AFIRMA process and we show this improves the forecast ability of the present-value model in-sample and out-of-sample.