Strategic Trade Policy and Mode of Competition: Symmetric versus Asymmetric Information

In this paper, we analyze the following policy dilemma: strategic trade policy versus free trade when the domestic government is bound to intervene only after the domestic firm's strategic variable is chosen. This intervention allows the domestic firm to manipulate the domestic government and results in a socially inefficient choice of the strategic variable. However, commitment to free trade leads to forgoing the benefits from profit-shifting. Yet, from the social point of view, free trade may be optimal even under the assumption of symmetric information. Due to costly signaling, this result is reinforced in the case of asymmetric information.strategic trade policy; free trade; first-best versus second best policy; government's commitment; signaling

Strategic Trade Policy and Mode of Competition: Symmetric versus Asymmetric Information

In this paper, we analyze the following policy dilemma: strategic trade policy versus free trade when the domestic government is bound to intervene only after the domestic firm's strategic variable is chosen. This intervention allows the domestic firm to manipulate the domestic government and results in a socially inefficient choice of the strategic variable. However, commitment to free trade leads to forgoing the benefits from profit-shifting. Yet, from the social point of view, free trade may be optimal even under the assumption of symmetric information. Due to costly signaling, this result is reinforced in the case of asymmetric information.strategic trade policy, free trade, first-best versus second best policy, government's commitment, signaling

Organized Labor and Restructuring: Coal Mines in the Czech Republic and Romania

We examine the role of organized labor in the restructuring experience of two coal mining regions in the 1990’s: Ostrava in the Czech Republic and the Jiu Valley region in Romania. Under similar external circumstances, the Ostrava region undertook gradual restructuring from early on whereas in Jiu Valley there was no restructuring until 1997, followed by massive layoffs over two years. We conduct a quantitative exercise that accounts for the mine productivity, the labor market conditions, and the constraints in compensating the laid-off miners. We show that the delay in restructuring in Jiu Valley was inefficient: gradual restructuring with compensation would have benefited both the miners and the government. The proximate reason for the delay was the Jiu Valley miners’ action against restructuring. We interpret their action in part as a behavioral pattern under a perceived threat to their livelihood. This accords with their history of militancy in contrast to Ostravian miners.http://deepblue.lib.umich.edu/bitstream/2027.42/40159/3/wp773.pd

Organized Labor and Restructuring: Coal Mining in the Czech Republic and Romania (in English)

The authors examine the role of organized labor in the restructuring experience of two coal-mining regions in the Czech Republic and Romania in the 1990s. Under similar external circumstances, the Ostrava region of the Czech Republic undertook early gradual restructuring, whereas the Jiu Valley region in Romania did not undertake restructuring until 1997, which was followed by massive layoffs in the sector. The authors conduct a quantitative exercise that accounts for mine productivity, labor-market conditions, and constraints in compensating laid-off miners. They show that the belated restructuring in the Jiu Valley was inefficient: gradual restructuring with reasoned compensation would have benefited both the miners and the state. An important factor in the delayed restructuring was the miners’ resistance to it. The authors discuss what motivated the miners’ opposition and the consequences.coal, organized labor, restructuring, transition, welfare

Organized Labor and Restructuring: Coal Mines in the Czech Republic and Romania

We examine the role of organized labor in the restructuring experience of two coal mining regions in the 1990’s: Ostrava in the Czech Republic and the Jiu Valley region in Romania. Under similar external circumstances, the Ostrava region undertook gradual restructuring from early on whereas in Jiu Valley there was no restructuring until 1997, followed by massive layoffs over two years. We conduct a quantitative exercise that accounts for the mine productivity, the labor market conditions, and the constraints in compensating the laid-off miners. We show that the delay in restructuring in Jiu Valley was inefficient: gradual restructuring with compensation would have benefited both the miners and the government. The proximate reason for the delay was the Jiu Valley miners’ action against restructuring. We interpret their action in part as a behavioral pattern under a perceived threat to their livelihood. This accords with their history of militancy in contrast to Ostravian miners.organized labor; restructuring; coal; transition; welfare

Estimating the Impact of Time-Invariant Variables on FDI with Fixed Effects

This paper applies the panel fixed effects with vector decomposition estimator to three FDI datasets to estimate the impact of time-invariant variables on FDI while including fixed effects. We find that the omission of fixed effects significantly biases several of these variables, especially those proxying for trade costs and culture. After including fixed effects, we find that many time-invariant variables indicate the importance of vertical FDI. We also find that by eliminating these biases, the differences across datasets largely disappear. Thus, controversies in the literature that are driven by differences in data sets may be resolved by using this estimation technique.Foreign Direct Investment, Trade Costs, Culture

The Role of Competition and of the Initial Firm Efficiency. Evidence from the Czech Republic

It has been argued that the effect of competition on a company’s incentive to innovate and to reduce managerial slack depends on the initial level of efficiency. For example, while firms close to the technology frontier invest more in innovation if competition increases, backward firms reduce innovation. On a panel data of Czech companies, for the years 1993-2005, we empirically assess the impact of increased competition on firm productivity and the importance of the initial firm efficiency level. We depart from the empirical literature on emerging markets by taking into account both domestic and foreign competition. In line with the theory, our results show that there is an inverted U-relationship between domestic competition and firm productivity. Our results also confirm that trade liberalization has a positive impact on productivity. However, the effect is less significant if domestic competition is not taken into account. In addition, we find that both domestic and foreign competition have an effect on productivity in companies close to the technology frontier but not in backward companies

ORGANIZED LABOR AND RESTRUCTURING: COAL MINES IN THE CZECH REPUBLIC AND ROMANIA*

ABSTRACT We examine the role of organized labor in the restructuring experience of two coal mining regions in the 1990's. Under similar external circumstances, the Ostrava region in the Czech Republic undertook gradual restructuring from early on whereas the Jiu Valley region in Romania went through no restructuring until 1997, followed by massive layoffs over two years. We conduct a quantitative exercise that accounts for the mine productivity, the labor market conditions, and the constraints in compensating the laid-off miners. We show that the delay in restructuring in Jiu Valley was inefficient: gradual restructuring with compensation would have benefited both the miners and the government. The proximate reason for the delay was the Jiu Valley miners' action against restructuring. We discuss what motivated their action and why it was effective

Institutional Distance and International Business Strategies in Emerging Economies

The concept of ‘distance’ has been used by international business scholars to explain variations in international business strategies and operations across countries. The more distant a host country is from the organizational centre of a multinational enterprise (MNE), the more it has to manage cultural, regulatory and cognitive differences, and to develop appropriate entry strategies, organizational forms, and internal procedures to accommodate these differences. Scholarly research has focused on the concept of psychic distance, which has been narrowed down in empirical work to indices based on Hofstede’s work on culture. However, these measures capture only very partially the dimensions of distance of concern to international business. In this paper, we show how the broader theoretical concept of institutional distance, which incorporates normative, regulatory and cognitive aspects, affects entry strategies. Specifically, our theoretical arguments suggest that the impact of distance varies with different aspects of the concept of institutional distance, and that this impact interacts with both the investor’s experience and with the relative importance of the pertinent operation for the investing MNE. Using a unique dataset of foreign direct investment in emerging economies that incorporates multi-host as well as multi-home countries, we find empirical support for our propositions, and provide an explanation for apparently inconsistent results in the previous literature

Insights from a New Survey

Foreign direct investment (FDI) in Central and Eastern Europe (CEE) has been maturing as the region prepared to join the European Union (EU). Since the beginning of transition the pattern of FDI has evolved, reflecting new business strategies pursued in anticipation of EU membership. Based on first results from a questionnaire survey conducted in 2003 in Hungary, Lithuania and Poland, we portray the recent patterns and developments in foreign investment, the motives for investment, and managers’ assessment of the local business environment. Some questions have been replicated from a study conducted in the emerging economies of Egypt, India, South Africa, and Vietnam, which allows us to benchmark FDI patterns in CEE against other emerging economies in different parts of the world. We find that find fewer changes over the period of the 1990s then we expected, but some interesting differences across the three countries in our study, and between CEE and other emerging economies