Three essays in international finance

Executive Summary The first essay of this dissertation investigates whether greater exchange rate uncertainty (i.e., variation over time in the exchange rate) fosters or depresses the foreign investment of multinational firms. In addition to the direct capital financing it supplies, foreign investment can be a source of valuable technology and know-how, which can have substantial positive effects on a host country's economic growth. Thus, it is critically important for policy makers and central bankers, among others, to understand how multinationals base their investment decisions on the characteristics of foreign exchange markets. In this essay, I first develop a theoretical framework to improve our knowledge regarding how the aggregate level of foreign investment responds to exchange rate uncertainty when an economy consists of many firms, each of which is making decisions. The analysis predicts a U-shaped effect of exchange rate uncertainty on the total level of foreign investment of the economy. That is, the effect is negative for low levels of uncertainty and positive for higher levels of uncertainty. This pattern emerges because the relationship between exchange rate volatility and 'the probability of investment is negative for firms with low productivity at home (i.e., firms that find it profitable to invest abroad) and the relationship is positive for firms with high productivity at home (i.e., firms that prefer exporting their product). This finding stands in sharp contrast to predictions in the existing literature that consider a single firm's decision to invest in a unique project. The main contribution of this research is to show that the aggregation over many firms produces a U-shaped pattern between exchange rate uncertainty and the probability of investment. Using data from industrialized countries for the period of 1982-2002, this essay offers a comprehensive empirical analysis that provides evidence in support of the theoretical prediction. In the second essay, I aim to explain the time variation in sovereign credit risk, which captures the risk that a government may be unable to repay its debt. The importance of correctly evaluating such a risk is illustrated by the central role of sovereign debt in previous international lending crises. In addition, sovereign debt is the largest asset class in emerging markets. In this essay, I provide a pricing formula for the evaluation of sovereign credit risk in which the decision to default on sovereign debt is made by the government. The pricing formula explains the variation across time in daily credit spreads - a widely used measure of credit risk - to a degree not offered by existing theoretical and empirical models. I use information on a country's stock market to compute the prevailing sovereign credit spread in that country. The pricing formula explains a substantial fraction of the time variation in daily credit spread changes for Brazil, Mexico, Peru, and Russia for the 1998-2008 period, particularly during the recent subprime crisis. I also show that when a government incentive to default is allowed to depend on current economic conditions, one can best explain the level of credit spreads, especially during the recent period of financial distress. In the third essay, I show that the risk of sovereign default abroad can produce adverse consequences for the U.S. equity market through a decrease in returns and an increase in volatility. The risk of sovereign default, which is no longer limited to emerging economies, has recently become a major concern for financial markets. While sovereign debt plays an increasing role in today's financial environment, the effects of sovereign credit risk on the U.S. financial markets have been largely ignored in the literature. In this essay, I develop a theoretical framework that explores how the risk of sovereign default abroad helps explain the level and the volatility of U.S. equity returns. The intuition for this effect is that negative economic shocks deteriorate the fiscal situation of foreign governments, thereby increasing the risk of a sovereign default that would trigger a local contraction in economic growth. The increased risk of an economic slowdown abroad amplifies the direct effect of these shocks on the level and the volatility of equity returns in the U.S. through two channels. The first channel involves a decrease in the future earnings of U.S. exporters resulting from unfavorable adjustments to the exchange rate. The second channel involves investors' incentives to rebalance their portfolios toward safer assets, which depresses U.S. equity prices. An empirical estimation of the model with monthly data for the 1994-2008 period provides evidence that the risk of sovereign default abroad generates a strong leverage effect during economic downturns, which helps to substantially explain the level and the volatility of U.S. equity returns.

Campaign effects in direct-democratic votes in Switzerland

The purpose of this article is to analyse the conditions under which referendum campaigns have an impact on voting choices. Based on a model of opinion formation that integrates both campaign effects and partisan effects, we argue that campaign effects vary according to the context of the popular vote (size and type of conflict among the party elite and intensity and direction of the referendum campaign). We test our hypotheses with two-step estimations for hierarchical models on data covering 25 popular votes on foreign, European and immigration policy in Switzerland. Our results show strong campaign effects and they suggest that their strength and nature are indeed highly conditional on the context of the vote: the type of party coalition pre-structures the patterns of individual voting choices, campaign effects are higher when the campaign is highly intense and they are more symmetric when it is balanced.

European integration, FDI and the internal geography of trade : evidence from Western European border regions

In this paper we use a gravity model to study the trade performance of French and Spanishborder regions relatively to non-border regions, over the past two decades. We find that,controlling for their size, proximity and location characteristics, border regions trade onaverage between 62% and 193% more with their neighbouring country than other regions,and twice as much if they are endowed with good cross border transport infrastructures.Despite European integration, however, this trade outperformance has fallen for the mostperipheral regions within the EU. We show that this trend was linked in part to a shift in the propensity of foreign investors to move their affiliates from the regions near their home market to the regions bordering the EU core.

European integration, FDI and the internal geography of trade : evidence from Western European border regions

In this paper we use a gravity model to study the trade performance of French and Spanishborder regions relatively to non-border regions, over the past two decades. We find that,controlling for their size, proximity and location characteristics, border regions trade onaverage between 62% and 193% more with their neighbouring country than other regions,and twice as much if they are endowed with good cross border transport infrastructures.Despite European integration, however, this trade outperformance has fallen for the mostperipheral regions within the EU. We show that this trend was linked in part to a shift in the propensity of foreign investors to move their affiliates from the regions near their home market to the regions bordering the EU core.

Multidetector-row computed tomography in the preoperative diagnosis of intestinal complications caused by clinically unsuspected ingested dietary foreign bodies: a case series emphasizing the use of volume rendering techniques

Objective The present study was aimed at describing a case series where a preoperative diagnosis of intestinal complications secondary to accidentally ingested dietary foreign bodies was made by multidetector-row computed tomography (MDCT), with emphasis on complementary findings yielded by volume rendering techniques (VRT) and curved multiplanar reconstructions (MPR). Materials and Methods The authors retrospectively assessed five patients with surgically confirmed intestinal complications (perforation and /or obstruction) secondary to unsuspected ingested dietary foreign bodies, consecutively assisted in their institution between 2010 and 2012. Demographic, clinical, laboratory and radiological data were analyzed. VRT and curved MPR were subsequently performed. Results Preoperative diagnosis of intestinal complications was originally performed in all cases. In one case the presence of a foreign body was not initially identified as the causal factor, and the use of complementary techniques facilitated its retrospective identification. In all cases these tools allowed a better depiction of the entire foreign bodies on a single image section, contributing to the assessment of their morphology. Conclusion Although the use of complementary techniques has not had a direct impact on diagnostic performance in most cases of this series, they may provide a better depiction of foreign bodies' morphology on a single image section.

Elinkaarihankkeen rakennusliikeriskit

Tiivistelmä: Elinkaaren palvelumallit ovat suosittuja julkisten palveluiden hankintamuotoja Iso-Britanniassa. PPP–malli on yksi monista julkisten palvelujen kumppanuusmalleista, josta on tullut joissakin kunnissa yhä suositumpi hankintamalli myös Suomessa. Tämä on seurausta kuntien tiukasta taloustilanteesta, jossa PPP–hankkeen katsotaan mahdollistavan julkisen sektorin investoinnit joutumatta leikkaamaan muita pakollisia hankintoja. Kuitenkin koko elinkaaren kattavat palvelutarjonnan hankintamallit ovat vielä melko uusia malleja ja meillä on tarve löytää toimivia sopimusmalleja ja käytäntöjä, jotta hankkeista saadaan rakennusliikettä kiinnostavia liiketoimintamalleja. Ulkomailla elinkaarihankkeista on tehty monia tutkimuksia ja konsultit ovat kääntäneet niitä omiin tarkoituksiinsa sopiviksi. Kuitenkin Suomen lainsäädäntö on erilainen julkisten palveluiden tuottamisessa, erityisesti lakisääteisissä terveydenhuoltopalveluissa, vesi- ja jätevesihuollossa, vankeinhoidossa, ja niin edelleen. Tästä näkökulmasta ulkomailla tehdyt tutkimukset eivät sellaisenaan sovi Suomeen käytettäviksi. Esimerkiksi tutkimuksissa esitetään, että elinkaarihankkeet tuottavat pitkän aikavälin kassavirtaan, mutta tämä etu koskee vain rahoittaja ja kiinteistöpalvelu yrityksiä - ei rakennusyritystä. Tutkimuksissa mainitaan myös muista elinkaarihankkeiden mahdollisuuksista, jotka jäävät kuitenkin rakennusliikkeen näkökulmasta epäselviksi. Perinteisiin rakennuttamisen malleihin verrattuna elinkaarihankkeiden sopimusmenettelyt ovat monimutkaisempia sekä aikaa vievempiä ja sopijaosapuolten yhteistyö elinkaarihankkeissa on välttämätöntä. Käytännössä elinkaarihankkeiden riskienjako nähdään julkisen sektorin ja yksityisen sektorin välillä yksipuoliseksi. Jotta elinkaarimalli yleistyisi Suomessa, niin elinkaarisopimuksen riskienjaosta on tehtävä tasapuolinen ja käyttäjä pitää saada myös riskejä kantamaan. Tässä työssä keskitytään arvioimaan elinkaarimallien keskeisiä menestystekijöitä ja riskitekijöitä ja löytää mahdollisia tapoja tehdä hankintaprosessista helppoa ja sujuvaa. Samalla yritetään selvittää, miten elinkaarihankkeesta saadaan rakennusliikkeen kannalta menestyvää liiketoimintaa. Johtopäätökset perustuvat aikaisempiin tutkimuksiin ja empiiriseen tapaustutkimukseen. Työssä arvioidaan niitä seikkoja, jotka vaikuttavat yksityisen sektorin tarjouspäätökseen. Arvioinnissa erotetaan toisistaan kolme erillistä riskitekijää; tarjouksen tekemisen riskit, rakennushankkeen riskit ja elinkaaren aikaiset riskit. Työssä todetaan, että aikaisemmat tutkimukset ovat riittämättömiä rakennusliikkeen riskien arvioimiseen.

Essays in open economy macroeconomics with borrowing frictions

Cette thèse comporte trois essais en macroéconomie en économie ouverte et commerce international. Je considère tour à tour les questions suivantes: sous quelles conditions est-il optimal pour un pays de former une union économique? (essai 1); l'augmentation de la dispersion transversale des avoirs extérieurs nets des pays est-elle compatible avec une dispersion relativement stable des taux d'investissement? (essai 2); le risque de perte de marché à l'exportation du fait de l'existence des zones de commerce préférentiel joue t-il un rôle dans la décision des pays exclus de négocier des accords commerciaux à leur tour? (essai 3). Le premier essai examine les conditions d'optimalité d'une union économique. Il s'intéresse à une motivation particulière: le partage du risque lié aux fluctuations du revenu. Dans la situation initiale, les pays ont très peu d'opportunités pour partager le risque à cause des frictions: les marchés financiers internationaux sont incomplets et il n'y pas de mécanisme pour faire respecter les contrats de crédit entre pays. Dans ce contexte, une union économique apparait comme un arrangement qui pallie à ces frictions entre les pays membres seulement. Cependant, l'union dans son ensemble continue de faire face à ces frictions lorsqu'elle échange avec le reste du monde. L'arbitrage clé dans le modèle est le suivant. D'un coté, l'intégration économique permet un meilleur partage du risque entre pays membres et la possibilité pour le partenaire pauvre d'utiliser la ligne de crédit du partenaire riche en cas de besoin. De l'autre coté, l'union peut faire face à une limite de crédit plus restrictive parce que résilier la dette extérieure est moins coûteux pour les membres l'union. De plus, le fait que le partenaire pauvre peut utiliser la limite de crédit du partenaire riche génère une externalité négative pour ce dernier qui se retrouve plus fréquemment contraint au niveau des marchés internationaux des capitaux. En conformité avec les faits observés sur l'intégration économique, le modèle prédit que les unions économiques sont relativement peu fréquentes, sont plus susceptibles d'être créées parmi des pays homogènes, et généralement riches. Le deuxième essai porte sur la dispersion des avoirs extérieurs nets et la relation avec la dispersion des taux d'investissement. Au cours des récentes décennies, la dispersion croissante des déséquilibres extérieurs et les niveaux record atteints par certaines grandes économies ont reçu une attention considérable. On pourrait attribuer ce phénomène à une réduction des barrières aux mouvements internationaux des capitaux. Mais dans ce cas, il est légitime de s'attendre à une augmentation de la dispersion au niveau des taux d'investissement; ceci, parce que le financement des besoins en investissements constitue une raison fondamentale pour laquelle les pays échangent les capitaux. Les données indiquent cependant que la dispersion des taux d'investissement est restée relativement stable au cours des récentes décennies. Pour réconcilier ces faits, je construis un modèle d'équilibre général dynamique et stochastique où les pays sont hétérogènes en raison des chocs idiosyncratiques à leurs niveaux de productivité totale des facteurs. Au niveau des marchés internationaux des capitaux, le menu des actifs disponibles est restreint à une obligation sans risque et il n'y a pas de mécanisme pour faire respecter les contrats de crédit entre pays. A tout moment, un pays peut choisir de résilier sa dette extérieure sous peine d'exclusion financière et d'un coût direct. Ce coût direct reflète les canaux autres que l'exclusion financière à travers lesquels les pays en défaut sont pénalisés. Lorsque le modèle est calibré pour reproduire l'évolution de la dispersion transversale des avoirs extérieurs nets, il produit une dispersion relativement stable des taux d'investissement. La raison principale est que les incitations que les pays ont à investir sont liées à la productivité. Avec l'intégration financière, même si les opportunités d'emprunt se sont multipliées, les incitations à investir n'ont pas beaucoup changé. Ce qui permet de générer une dispersion accrue de la position des avoirs extérieurs nets des pays avec une dispersion relativement stable des taux d'investissement. Le troisième essai analyse un aspect de l'interdépendance dans la formation des accords commerciaux préférentiels: j'examine empiriquement si le risque de diversion des exportations en faveur des pays membres des zones de commerce préférentiel est un facteur déterminant dans la décision des pays exclus de ces accords de négocier un accord à leur tour. Je construis un indicateur qui mesure le potentiel de diversion des exportations auquel font face les pays et estime un modèle probit de formation des zones de commerce préférentiel créées entre 1961 et 2005. Les résultats confirment que les pays confrontés à un plus grand potentiel de détournement des échanges sont plus susceptibles de former une zone de commerce préférentiel à leur tour.

Les tiers dans le contentieux arbitral des investissements internationaux : de l'intervention au recours direct

L’arbitrage public international est demeuré un domaine exclusif aux États souverains jusqu’à la fin des années 50, alors que sont apparus les traités bilatéraux relatifs aux investissements (TBI). La principale caractéristique de ces TBI est sans conteste le recours direct de l’investisseur étranger en arbitrage international contre des États récalcitrants, une alternative aux tribunaux locaux souvent inefficaces. Plus récemment, en 1998, l’organe d’appel de l’OMC est allé jusqu’à accepter l’opinion d’amicus curiae dans un différend opposant des États et aujourd’hui, l’admission de ce type d’opinion est expressément prévue dans plusieurs TBI de nouvelle génération. Mais si l’investisseur bénéficie d’un recours devant une instance arbitrale neutre, il en va tout autrement pour la population locale qui se trouve souvent lésée par la présence, sur son territoire, d’investisseurs étrangers. Le droit de présenter une opinion ne peut remplacer le droit de faire valoir une réclamation. Se pose donc la question : est-ce que, dans le contexte actuel du droit de l’investissement international, des tiers (par rapport aux parties signataires de TBI et par rapport aux parties au différend) peuvent prétendre à une voie de recours direct en arbitrage international? Nous sommes d’avis qu’une telle voie de recours est actuellement possible et que le contexte de l’arbitrage relatif à l’investissement constitue un terrain fertile pour la mise en place de ce droit, étant donné la place déjà faite aux investisseurs. Nous verrons que les principales objections à l’admission de tiers à l’arbitrage international peuvent être rejetées. L’objection de l’absence du consentement des parties intéressées tombe quand on constate les nombreux cas d’arbitrage international où la portée du consentement a été étendue pour inclure des non-parties ou encore pour soumettre à l’arbitrage des matières non envisagées au départ. Par ailleurs, l’absence de qualité pour agir en droit international est un problème théorique, car les investisseurs y ont déjà accès malgré l’absence de cette qualité. Reste donc à déterminer quelle pourrait être la base d’un recours en droit substantiel international pour qu’un tiers puisse faire valoir une réclamation. Nous verrons qu’il existe des instruments juridiques et des principes internationaux dont la contravention pourrait très bien engager la responsabilité de l’État ou de l’investisseur fautif, tout comme il est possible de bien circonscrire les critères d’admissibilité des tiers à la procédure d’arbitrage international.

Political Parties and Foreign Aid

The influence of partisan politics on public policy is a much debated issue of political science. With respect to foreign policy, often considered as above parties, the question appears even more problematic. This comparison of foreign aid policies in 16 OECD countries develops a structural equation model and uses LISREL analysis to demonstrate that parties do matter, even in international affairs. Social-democratic parties have an effect on a country's level of development assistance. This effect, however, is neither immediate nor direct. First, it appears only in the long run. Second, the relationship between leftist partisan strength and foreign aid works through welfare state institutions and social spending. Our findings indicate how domestic politics shapes foreign conduct. We confirm the empirical relevance of cumulative partisan scores and show how the influence of parties is mediated by other political determinants.

Televised Whorf: cognitive restructuring in advanced foreign language learners as a function of audio-visual media exposure

The encoding of goal-oriented motion events varies across different languages. Speakers of languages without grammatical aspect (e.g., Swedish) tend to mention motion endpoints when describing events, e.g., “two nuns walk to a house,”, and attach importance to event endpoints when matching scenes from memory. Speakers of aspect languages (e.g., English), on the other hand, are more prone to direct attention to the ongoingness of motion events, which is reflected both in their event descriptions, e.g., “two nuns are walking.”, and in their non-verbal similarity judgements. This study examines to what extent native speakers of Swedish (n = 82) with English as a foreign language (FL) restructure their categorisation of goal-oriented motion as a function of their English proficiency and experience with the English language (e.g., exposure, learning). Seventeen monolingual native English speakers from the United Kingdom (UK) were engaged for comparison purposes. Data on motion event cognition were collected through a memory-based triads matching task, in which a target scene with an intermediate degree of endpoint orientation was matched with two alternative scenes with low and high degrees of endpoint orientation, respectively. Results showed that the preference among the Swedish speakers of L2 English to base their similarity judgements on ongoingness rather than event endpoints was correlated with their use of English in their everyday lives, such that those who often watched television in English approximated the ongoingness preference of the English native speakers. These findings suggest that event cognition patterns may be restructured through the exposure to FL audio-visual media. The results thus add to the emerging picture that learning a new language entails learning new ways of observing and reasoning about reality.

Corporate strategic responses to foreign entry: insights from prospect theory

Purpose – The purpose of this paper is to address how firms adapt their product and geographic diversification as a response to foreign rivals penetrating their domestic market by adopting a behavioral perspective to understand firm-level strategic responses to foreign entry. Design/methodology/approach – The study proposes that strategic responses to foreign entry selected by domestic incumbents have both a framing component and a related, strategic choice component, with the latter including changes in product and geographic market diversification (though other more business strategy-related responses are also possible, e.g. in product pricing and marketing). This study tests a set of hypotheses building on panel data of large US firms. Findings – The study finds, in accordance with our predictions, that domestic incumbents reduce their product and geographic diversification when facing an increase in import penetration. However, when increased market penetration by foreign firms takes the form of FDI rather than imports, the corporate response appears to be an increase in product and geographic diversification, again in line with our predictions. Originality/value – The study develops a new conceptual framework that is grounded in prospect theory, but builds on recent insights from mainstream international strategic management studies (Bowen and Wiersema, 2005; Wiersema and Bowen, 2008).

Direct Determination of Phosphite in Fertilizers by Amperometric Titration

Amperometric titration using two Pt microelectrodes for the determination of phosphite in fertilizers based on the oxidation of analyte by iodine is proposed. The influence of pH, buffer composition, temperature, and foreign species on the end point and titration time was investigated. For titrations carried out at 70 degrees C using the pH 6.8 phosphate buffer, samples containing ca. 0.4% (m/v) P(2)O(5) could be titrated with 0.050 mol L(-1) iodine titrant, and the end point determined by extrapolating the linear portions of the plot to their intersection coincided with the end point identified by spectrophotometry. Accuracy was checked for phosphite determination in five fertilizer samples. Results were in agreement at the 95% confidence level (paired t test) with spectrophotometry. Recoveries of phosphite added to fertilizer samples ranged from 97% to 102% regardless of the amount of spiking in several determinations. The relative standard deviation (n = 10) was 1.0% for a diluted sample containing 0.050 mol L(-1) Na(2)HPO(3).

Foreign investment and competitive development in Latin America and the Caribbean

Includes bibliography

O investimento direto externo de empresas brasileiras na América do Sul

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

BMP-2 liberated from biomimetic implant coatings induces and sustains direct ossification in an ectopic rat model

INTRODUCTION: Using a rat model, we evaluated the kinetics and histomorphometry of ectopic bone formation in association with biomimetic implant coatings containing BMP-2. MATERIALS AND METHODS: One experimental and three control groups were set up: titanium-alloy discs coated with a biomimetically co-precipitated layer of calcium phosphate and BMP-2 [1.7 microg per disc (incorporated-BMP group)]; uncoated discs (control); discs biomimetically coated with a layer of calcium phosphate alone (control); and discs biomimetically coated with a layer of calcium phosphate bearing superficially adsorbed BMP-2 [0.98 microg per disc (control)]. Discs (n = 6 per group) were implanted subcutaneously in rats and retrieved at 7-day intervals over a period of 5 weeks for kinetic, histomorphometrical, morphological and histochemical analyses. RESULTS: In the incorporated-BMP-2 group, osteogenic activity was first observed 2 weeks after implantation and thereafter continued unabated until the end of the monitoring period. The net weekly rates of bone formation per disc were 5.8 mm3 at 2 weeks and 3.64 mm3 at 5 weeks. The total volumes of bone formed per disc at these junctures were 5.8 mm3 and 10.3 mm3, respectively. Bone tissue, which was formed by a direct ossification mechanism, was deposited at distances of up to 340 microm from the implant surfaces. The biomimetic coatings were degraded gradually, initially by foreign body giant cells alone and then also by osteoclasts. Forty percent of the coating material (and thus presumably of the incorporated BMP-2) remained at the end of the monitoring period. Hence, 60% of the incorporated BMP-2 had been released. At this 5-week juncture, no bone tissue was associated with any of the control implants. CONCLUSION: BMP-2 incorporated into biomimetic calcium phosphate coatings is capable not only of inducing bone formation at an ectopic site in vivo but also of doing so with a very high potency at a low pharmacological level, and of sustaining this activity for a considerable period of time. The sustainment of osteogenic activity is of great clinical importance for the osseointegration of dental and orthopedic implants.