Which foreign investors worry about foreign exchange risk in South Asia and why?

The authors show that the potential benefit to a host country of forward markets or of foreign exchange guarantees depend on the investor's country of origin and on specific characteristics of investment. They show this in terms of the effects on foreign-exchange risks and on the amount of foreign direct investment taking place. Their main lessons for foreign investors: (a) the benefits of hedging exchange risks through forward markets vary substantially, depending on the investor, the type of investment, and, for foreign direct investment (FDI), the direction of the market supplied; (b) for short lived investment or FDI targeted to the host country market, the potential for gain from forward contracts is substantial because in the short run, nominal exchange rate fluctuations tend to be larger than real exchange rate fluctuations; (c) for long-lived investments or export oriented FDI, the gains from forward contracts will be much smaller. Firms investing in long lived assets or in activities targeted to exports net natural insurance from the correlation between the nominal exchange rate and the firm's earnings in host-country currency; and (d) the evidence on exchange rate and price fluctuations between 1975 and 1991 suggests that the demand for coverage is likely to be stronger in South Asia than in Latin America. In East Asia, the evidence is mixed. Their main lessons for host country governments: (a) in the short run, if there are no private forward markets, the optimal policy for a risk-neutral host country is to provide the firm with forward contracts at the expected spot exchange rate. This government insurance has the same effects as allowing trading in forward markets. But these contracts can have fiscal consequences, as they did in Latin America; (b) forward markets do not discriminate against host country firms. Those engaged in international trade can also benefit from the presence of forward markets; and (c) in the medium run, as exchange controls are being liberalized, forward markets may be slow to develop because of participants'uncertainty about their ability to get foreign currency to cover forward commitments. In this transitional period, contracts offered by the government are likely to be the most efficient means of reassuring foreign investors. These contracts should also be make available to host-country firms during the transitional period, in order not to discriminate against domestic investors.Economic Theory&Research,Environmental Economics&Policies,Financial Intermediation,Banks&Banking Reform,Economic Stabilization

Efficient Delegation by an Informed Principal

Consider the case of a firm with private valuation information bargaining with a supplier over the price and quantity of a good. If the firm and the supplier bargain directly, the bargaining outcome may not yield a first-best outcome due to the presence of information rents. The question we examine in this paper is whether these direct bargaining inefficiencies can be eliminated if the firm delegates the authority to negotiate with the supplier to an agent. We model the agent as an independent profit center that contracts with the parent firm as well as the supplier. The delegation of decision-making to the agent can influence the interaction between the firm and the supplier by altering the information rents the agent can claim from the supplier. To identify the role of delegation, we focus instead on two games. Both games have a continuum of equilibria, which we compare to the set of incentive efficient equilibria of the initial no-delegation bargaining game. The first game involves partial delegation as the firm controls the release of its private information through a public transfer price charged to the agent. Because the relationship between the agent and the uninformed supplier is one of full information, the unique equilibrium quantity is first-best yet we show that the informed firm still earns an information rent. The second game involves full delegation as the agent controls both the quantity choice and the release of the firm's private information. We show that the full delegation game has a large set of equilibria that includes all of the incentive efficient equilibria of the bargaining game as well as inefficient equilibria. We believe our notion of partial delegation can be reflected in firms organized as profit centers and the management practice of category managementDelegation, common agency

Trade reform design as a signal to foreign investors : lessons for economies in transition

A few years ago, many western companies were eager to consider investing in Eastern Europe and, more recently, in South Asia, where ongoing reform, large domestic markets, and cheap but qualified labor are transforming the region into a potentially fierce competitor for foreign direct investment (FDI). Although this growing interest was reflected in large commitments by foreign investors announcing major FDI reforms, actual disbursements have been modest. This reflects the investors'concern about the credibility of governments'long-term commitment to change. The credibility of policy announcements is important to investors because the returns from the sunk investment can be affected by later changes in policy. To reduce investors'concern, governments can send clear signals to show their commitment to change. The achievements of trade reform can be an effective indicator of a government's commitment to change as indicated by the strong correlation between increases in trade flows and increases in FDI disbursements. The authors examine how countries can design trade reform to speed up increases in trade. Countries can tailor their commitment to reform to foreign investors by targeting the design of these instruments to the source of their credibility problem. Governments face two credibility problems: 1) investors know the current government's policy preferences (whether they are protectionist or free trade-oriented) but ignore those preferences if the government will later have an incentive to change its position; and 2) investors are uncertain about actual government's commitment to a reform program. The model presented in the paper shows that the recommendations in favor of free trade prevail when investors know the government's preferences and have reason to doubt the government's commitment to a reform program. But in the most realistic scenario in which investors do not know the government's preferences and the policymakers cannot otherwise demonstrate their commitment to reform, a government actually committed to change may want to signal this commitment by subsidizing investments or imports if it wants to be competitive in the market for FDI. In this model, the quickest way to attract FDI is through an investment subsidy, but it is also the most costly -- an import consideration for a reforming government trying to keep tight fiscal control.International Terrorism&Counterterrorism,Economic Theory&Research,Environmental Economics&Policies,Payment Systems&Infrastructure,Trade Policy,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Environmental Economics&Policies,International Terrorism&Counterterrorism,Trade and Regional Integration

A Dynamic Two Country Heckscher-Ohlin Model with Non-Homothetic Preferences

We examine the properties of a two country dynamic Heckscher-Ohlin model that allows for preferences to be non-homothetic. We show that the model has a continuum of steady state equilibria under free trade, with the initial conditions determining which equilibrium will be attained. We establish conditions under which a static Heckscher-Ohlin theorem will hold in the steady state, and also conditions for a dynamic H-O theorem to hold. If both goods are normal, each country will have a unique autarkic steady state, and all steady state equilibria are saddle points. We also consider the case in which one good is inferior, and show that this can lead to multiple autarkic steady states, violations of the static H-O theorem in the steady state. Furthermore, there may exist steady state equilibria that Pareto dominate other steady states. These steady states will be unstable if discount factors are the same in each country, although they may exhibit dynamic indeterminacy if discount factors differ.two-country model, Heckscher-Ohlin, inferior good, multiple equilibria, indeterminacy

Using tariff indices to evaluate preferential trading arrangements : an application to Chile

The author presents a tariff index that uses constant-elasticity-of-substitution aggregators of tariff line data to calculate how preferential tariff reductions affect both prices and average tariff rates. A simple general-equilibrium model with sector-specific factors of production can be combined with the tariff indices to calculate how a preferential trade arrangement affects sectoral output, factor prices, and general welfare. The general equilibrium model is simple enough that it can be calculated on an Excel spreadsheet, and is flexible enough to be used with different ranges of available domestic data. The author presents an example of the model, simulating the effects of free trade agreements between Chile and MERCOSUR countries and between Chile and NAFTA countries. Calculations for the case of Chile show that the index is simple to calculate because of its recursive structure, which allows large amounts of detailed tariff line data to be aggregated for use with domestic production data that is available only at a more aggregated level. The author finds that results using the tariff aggregators may differ substantially from those derived using simpler averages of tariff reductions. Reductions in import prices using the index were 10 to 30 percent larger than those calculated using a simple average of tariffs. Ignoring the information available in tariff line data could lead to a substantial overestimate of the average tariff rate on imports after a preferential reduction. The tariff index could be extended to incorporate the role of quantitative restrictions. The general equilibrium model could be usedto consider the effects on domestic production of allowing reallocation of capital between industries over time.Export Competitiveness,Environmental Economics&Policies,Economic Theory&Research,Markets and Market Access,Rules of Origin,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Environmental Economics&Policies,Economic Theory&Research,Trade and Regional Integration,Export Competitiveness

Ziegler-Natta and metallocene catalyzed isotactic polypropylene : a comprehensive investigation and comparison using crystallization kinetics, fiber spinning and thermal spunbonding

Isotactic polypropylene (iPP) can be synthesized using, conventional heterogeneousZiegler-Natta (zriiPP) and homogenous metallocene catalysts (miPP). Materials catalyzed using the Ziegler-Natta catalysts typically have broad molecular weight distributions, high peak melting temperatures, a heterogeneous distribution of stereo defects, and significant portions of non crystallizable (atactic) material. Metallocene resins typically have a narrow molecular weight distribution, lower peak melting temperatures than zniPP resins, a more uniform distribution of stereo and regio defects, and very small amounts of atactic material.The purpose, of this work was to investigate and compare and contrast miPP resins tozniPP resins.The resins in this study were thoroughly characterized by cNMR and solutionfiuctionation to determine the number, type and distribution of defects. The resins were then studied under isothermal and nonisothermal quiescent crystallization conditions to determine the bulk and crystal growth kinetics, crystal structure, crystallinity and thermal properties. The resins were also melt spun into fibers to allow the effects of molecular weight md molecular weight distribution on as-spun filament properties to be determined.The as-spun fibers were then characterized to determine the crystalline and noncrystalline orientation functions, birefringence, density, thermal properties and tensile mechanical properties (elongation-to-break, modulus, tensile strength). In addition, on-linecrystallization studies were also conducted using the resins to determine the locations in the spinline where crystallization occurred. Selected resins were then used to study the effect of as-spun fiber properties on nonwoven fabric mechanical properties using a thermal point spunbonding process.The resins in this study were thoroughly characterized by cNMR and solutionfiuctionation to determine the number, type and distribution of defects. The resins were then studied under isothermal and nonisothermal quiescent crystallization conditions to determine the bulk and crystal growth kinetics, crystal structure, crystallinity and thermal properties. The resins were also melt spun into fibers to ^ow the effects of molecular weight and molecular weight distribution on as-spun filament properties to be determined.The as-spun fibers were then characterized to determine the crystalline and noncrystalline orientation functions, birefringence, density, thermal properties and tensile mechanical properties (elongation-to-break, modulus, tensile strength). In addition, on-linecrystallization studies were also conducted using the resins to determine the locations in the spinline where crystallization occurred. Selected resins were then used to study the effect of as-spun fiber properties on nonwoven fabric mechanical properties using a thermal point spunbonding process.The cNMR and xylene fractionation studies indicated the miPP resins had substantially more total defects in the crystallizable material than either of the zniPP resins in this study. The miPP resins also contained regio type polymerization defects, which were not present in the zniPP resins. The results also found that, in general, the miPP resins contained much smaller portions of atactic material, as determined by xylene fractionation. The totality of the stereoregularity results suggest the miPP resins have amore uniform defect distribution than the zniPP resins.Combined results from DSC, SAXS and WAXD indicated the miPP and zniPPresins have similar a-monoclinic equilibrium melting temperatures (Tm0), despite the differences in defect content, type and distribution.The presence of atactic material wasfound to lower the observed equilibrium melting temperature of a particular resin, whethermiPP or zniPP. The γ-crystal structure, observed in the miPP resins using WAXD andDSC, had a lower equilibrium melting temperature than the α-structure. The (Tm0) of the &alpha-monoclinic structure was found to be 186± 2°C, while the γ-structure T(Tm0) was found to be 178 ±2°C, when crystallized at atmospheric pressures. The miPP resins were found to melt lower temperatures than the zniPP resins, at similar crystal thicknesses, which is attributed to the ntiPP resins having significantly higher fold surface free energies when crystallized under isothermal conditions.The isothermal crystallization studies showed the miPP resins readily produce the γ-crystalstructure. The zniPP resins also produced small amounts of the γ-structure, at high crystallization temperatures. Defects were found to be excluded from the crystal under isothermal crystallization conditions. The defects excluded from the crystal core are thought to be rejected into the crystal fold surface region, increasing the fold surface free energy. SAXS studies indicate the lamellae fold surface of isothermally crystallized miPP resins might be rough, possessing a three-dimensional topology instead of a two dimensional structure. The Tm0 and fold surface free energy for each resin was determined from the Gibbs-Thompson equation. The Gibbs-Thomson equation normalizes to a two dimensional crystal fold surface, therefore the apparent fold surface free energy is higher in the miPP resins with a three-dimensional topology. These conclusions are supported by the non isothermal crystallization studies which showed that defects are incorporated into the crystal core and that the fold surface free energies of the non isothermally crystallized films using rruPP and zniPP resins are similar.For crystallization under isothermal crystallization conditions, the observed linear growth rates were found to be dependent upon defect content. Under non isothermal conditions, the growth rate was found to depend mostly on the molecular weight. Forresins with similar molecular weights, the number of defects was also found to be important under nonisothermal crystallization conditions. The nucleation density was found to have a strong effect on the overall bulk crystallization kinetics. The relative order of bulk crystallization rates for the resins in this study was found to be strongly determined by the relative nucleation density of a particular resin.Fiber spinning studies showed that the molecular weight and molecular weight distribution of an iPP resin is largely determined by the point of crystallization in thespinline, the crystallization temperature and as-spun filament properties. Increasing the molecular weight (also increasing the spinning speed) tended to increase the density and crystallization temperature, i.e. c^stallization in the spinline occurs closer to the spirmeret.Narrowing the molecular weight distribution and decreasing the molecular weight (also with increasing the spinning speed) tended to increase the noncrystalline and crystalline orientation function, birefringence and tensile strength (elongation-to-break was the inverse) for most the resins. The more narrow molecular weight distribution resins also delay crystallization to a distance further away from the spinneret and to lower crystallization temperatures. The as-spun fiber tensile modulus was found to increase as the spinning speed increased, a result of the birefringence and crystallinity increasing. The Observed differences in fiber spinning behavior between the miPP and zniPP resins are mainly attributed to the differences in molecular weight and its distribution.Studies on the mechanical properties of nonwoven fabrics made using the thermalpoint spunbonding process were found to be dependent on the fiber properties, when bonded at the optimum bonding temperature. , The optimum bonding temperature is the temperature in the bonding curve where the fabric mechanical properties are the best.Increasing the as-spun fiber non crystalline orientation function and birefringence increased the optimum bonding temperature. Increasing the fabric basis weight also increased the optimum bonding temperature. No significant differences in fabric properties between miPP and zniPP resins could be found that are not explained by differences in the as-spun fiber properties. The as-spun fiber properties were found to be different between the two. catalyst systems, a result of differences in their molecular weight and molecular weight distribution

A general two-sector model of endogenous growth with human and physical capital: balanced growth and transitional dynamics

Economic development ; Human capital

A general two sector model of endogenous growth with human and physical capital

Human capital

Accession Rules and Trade Agreements: The Case of the WTO

This paper models the accession process to the World Trade Organization (WTO) as a two stage game. In the first stage, member countries choose tariff rates to be applied on trade with each other. In the second stage a non-member country applies for membership in the agreement and negotiates with the member countries over the tariff rates to be applied. Based on the rules of the WTO accession process, we model this negotiation using the Nash bargaining solution. The analysis focuses on the question of how the pattern of trade between the acceding country and the member countries affects the distribution of gains from accession between the members and the acceding countries, given the rules of the WTO negotiation process. We consider two n good, n country trade models which highlight features of the WTO tariff negotiations. The first is a model in which each country imports one good from all of the other countries (competing supplier model). This model highlights the role of the MFN principle, since member countries are forced to extend the same tariff treatment to non-members when they join. We show that the non-member will free ride on tariff reductions among the member countries in this case, and that the non-member will gain a larger fraction of the gains from accession if transport costs are sufficiently low. The second model considers a case in which each country exports a single good to the other countries (principal supplier model). We show that in this case tariff reductions by the member countries reduce the welfare of the non-member country, and the member countries gain a larger share of the gains from accession.

COMPULSORY LICENSING PRICE CONTROLS AND ACCESS TO PATENTED FOREIGN PRODUCTS

www.vanderbilt.edu/econ Compulsory licensing, price controls, and access to patented foreign product