FDI Technology Spillovers and Wages

This study distinguishes multinational firm (MNE) technology-spillover from learning effects. Whenever learning takes time, the model predicts that foreign investors deduct the economic value of learning from wages of inexperienced workers and add it to experienced ones to prevent them from moving to local competitors. Hence, the national wage bill is unaffected by the presence of MNEs. In contrast to learning, technology spillover effects occur whenever a worker with MNE experience contributes more to local firms’ than to MNEs’ productivity. In this case, experienced MNE workers are hired by indigenous firms and the host country obtains a welfare gain from the presence of MNEs. Implications of this model for the empirical findings of the MNE wage premium and the empirical FDI technology spillover literature are also discussed.FDI, foreign takeover, cross-border M&A, FDI technology spillover

Are Cardiovascular Diseases Bad for Economic Growth?

We assess the impact of cardiovascular disease (CVD) mortality on economic growth, using a dynamic panel growth regression framework taking into account potential endogeneity problems. We start from a worldwide sample of countries for which data was available and detect a non-linearity in the influence of working age CVD mortality rates on growth across the per capita income scale. We then split the sample (according to the resulting income threshold) into low- and middle-income countries on one hand, and high-income countries on the other hand. In the latter sample we find a robust negative contribution of increasing CVD mortality rates on subsequent five-year growth rates. Not too surprisingly, we find no significant impact in the low- and middle-income country sample.cardiovascular disease, growth empirics, dynamic panel data estimator

For Whom is MAI? A theoretical Perspective on Multilateral Agreements on Investments

Why do we observe some LDCs objecting the prospect of a Multilateral Agreement on Investment (MAI), although they have been keen to liberalize investment in preferential agreements in recent years? In this paper, we analyse the issue of MAI implementation and assess the welfare consequences of such kind of agreements. In our model, participation to MAI involves a trade-off between less rent extraction from multinational firms (MNEs) and more abundant FDI in‡ows. At equilibrium, either all countries enter MAI, or all countries stay out, or only some of them enter. Coordination problems may induce multiple equilibria: the three types of equilibria may coexist. So, the implementation of MAI may depend not only on structural factors but also on the general ”political climate”. When all countries join MAI, world welfare is maximized because this minimizes the hold-up problem faced by MNEs and stimulates investment. However, in an asymmetric world, welfare gains are not guaranteed for all countries.Foreign Direct Investment, International Agreements, Incomplete

The Veblen-Gerschenkron Effect of FDI in Mezzogiorno and East Germany

The presence of foreign multinational enterprises (MNEs) should benefit local economies. In particular if MNEs are particularly productive compared to domestic firms they may promote learning and catch-up of local firms. Such channel of spillovers from MNEs to local firms is known as the Veblen Geschenkron effect. Rather than the overall density of MNE in a region or sector, it is their productivity advantage on the local firm to determine the positive effect on domestic productivity growth.We test this hypothesis using firm level data for German and Italian company for the 90''s. and we find evidence of a significant and robust Veblen-Gerschenkrion effect. The initial total factor productivity advantage of MNEs on local firm acts as a stimulus for productivity growth of local firms in the same region.FDI, Spillovers, Productivity

Foreign Takeovers and Wage Dispersion in Hungary

This study tests FDI technology spillover models with the assumption that learning takes time against wage bargaining models by estimating the wage-premium of a foreign takeover. The technology spillover theory predicts a larger wage growth in firms taken over by foreign investors than in local firms. However, this wage growth should be confined to high-skilled workers or workers with a high level of education. Wage bargaining models also predict such a wage growth. But it should be confined to workers who are organized in trade unions, i.e. workers with low or medium level of education or skill. We apply Hungarian employee-employer matched data from 1992 until 2001, and reject the FDI technology spillover model in favor of the wage bargaining model when differentiating the wage premium by education or occupation, both by applying Mincer wage regressions and the nearest-neighbor matching method.FDI, foreign takeover, cross-border M&A, Mincer wage regression, employee-employer matched data, nearest-neighbor matching

Neoclassical Growth, Manufacturing Agglomeration and Terms of Trade

This paper presents an integrated view of economic growth, development traps, and economic geography. We explain why there is income convergence among some countries (neoclassical regime) and income divergence among others (poverty trap regime). Income convergence (divergence) and manufacturing industry diffusion (agglomeration) are re-enforcing each other in a cumulative process. Moreover, trade openness may trigger a catch-up process of an economy that is stuck in a \"poverty trap\". This catch-up is characterized by an increase in the investment-to-GDP ratio and an improvement of the terms of trade. A new dynamic welfare gain of trade liberalization is identified, which is likely to be large.agglomeration, complementarities, convergence, dynamic trade theory, dynamic welfare gains of trade, poverty trap, terms of trade, trade liberalization

Terms of Trade, Catch-up, and Home Market Effect: The Example of Japan

This paper explores theoretically and empirically the long run relation of the terms of trade (ratio of domestic and foreign prices of traded manufacturing goods) and economic growth of a pair of industrialized countries, one of which experiences a major catch-up process towards the other. It is shown theoretically that there is no mean reversion of the terms of trade towards PPP during a catch-up process, which suggests very long half-life times of terms of trade. Two theoretical interdependencies between the terms of trade and economic growth are offered: the home market effect and the productivity shock effect. These two effects are testedagainst each other in a cointegration analysis for Japan and the US from 1957 until 1997. Income appears to be a relevant variable to explain the terms of trade in the Post-Bretton-Woods era. The relevant empirical channel is the home market effect. However, financial market effects appear also to be relevant.convergence, real exchange rates, PPP, terms of trade, cointegration

Multilateral Investment Agreement in a Political Equilibrium

This study provides a theoretical explanation, first, as to why some less-developed countries (LDCs) have complained about the OECD negotiations of a multilateral investment agreement (MAI) in 1998 although they were free to join or opt out. Second, it explains why we observe instead an explosion of bilateral investment treaties (BITs). The explanation rests on an FDI model with three distortions: there is a time-inconsistency problem of extracting rents from FDI, there is an underprovision of public goods in LDCs, and there is a lobbying distortion in political decision making that is initially unobservable to foreign investors which causes political risk. The negotiation of MAI by a club exerts a negative information externality on non-members. A regime of BITs undermines the club agreement and unravels the information-asymmetry problem. However, an appropriately designed MAI is world-welfare superior compared to a regime of BITs by alleviating the lobbying distortion.foreign direct investment, multilateral agreements, adverse selection, bilateral investment treaties

Neoclassical growth, manufacturing agglomeration, and terms of trade

This paper presents an integrated view of economic growth, development traps, and economic geography. We explain why there is income convergence among some countries (neoclassical regime) and income divergence among others (poverty trap regime). Income convergence (divergence) and manufacturing industry diffusion (agglomeration) are re-enforcing each other in a cumulative process. Moreover, trade openness may trigger a catch-up process of an economy that is stuck in a “poverty trap”. This catch-up is characterized by an increase in the investment-to-GDP ratio and an improvement of the terms of trade

The economic benefits of health and prevention in a high-income country: the example of Germany

This paper complements the current health policy debate, which is largely confined to the cost aspects of health systems, by considering explicitly the potential economic benefits of investing in health in general and via - chiefly primary - prevention. While concerns about high and rising health care costs are justified, we see a pressing need to also measure the benefits, ultimately enabling a complete economic assessment of the socially optimal level of resources for health. Despite the use of Germany as our point of reference, our approach and findings likely apply to a wider set of European highincome countries. Using new and already existing data, we find that in sheer health terms Germany has a lot to gain from more and better illness prevention. Assuming part of this existing burden can be reduced via effective preventive interventions, we find that the resulting economic benefits - expressed in people's willingness to pay for a reduction in mortality risk - would be substantial. We also gather Germany-specific evidence to suggest that the existing burden of ill health - whether caused by lack of prevention or treatment - negatively impacts a number of important economic outcomes at the individual and macro-economic level. Referring to work carried out in parallel to this project, we find that a number of cost-effective, primary preventive interventions exist to tackle part of the avoidable disease burden. Yet we note a deficit of economic evaluations, in particular in non-clinical interventions - a finding that underlines the role of government in the production of research on specifically non-clinical prevention. In light of the market failures discussed, from an economic perspective the role of government not only consists of research, but also - surprisingly to many - extends to actual interventions to address the health behaviour-related determinants of chronic disease. With the stakes as high and the economic justification for action in place, the case for scaling up preventive efforts in Germany, backed up by solid epidemiological and economic research, is hard to deny. -- Die vorliegende Studie ergänzt die gegenwärtige gesundheitspolitische Debatte, die sich vorwiegend auf Kostenaspekte des Gesundheitswesens konzentriert, indem sie den potentiellen ökonomischen Nutzen von Gesundheitsinvestitionen im allgemeinen und (Primär-)Prävention im besonderen hervorhebt. Auch wenn die Sorge um hohe und steigende Kosten des Gesundheitswesens berechtigt ist, bleibt die Notwendigkeit, auch den Nutzen der Gesundheitsausgaben zu erfassen, um somit zu einer ökonomisch vollständigen Einschätzung des sozial optimalen Niveaus der Gesundheitsausgaben zu gelangen. Trotz des Fokus auf Deutschland sind unser Ansatz und die Ergebnisse auch auf andere Mitgliedsländer der EU übertragbar. Wir zeigen anhand neuer und schon bekannter Daten, dass der Spielraum für Gesundheitsverbesserungen, vorwiegend durch Prävention, in Deutschland erheblich ist. Der ökonomische Nutzen - gemessen an der Zahlungsbereitschaft der Bevölkerung - der durch Reduktion eines Teils dieser Krankheitslast mittels Interventionen erzielt werden kann, ist nach unseren Berechnungen beachtlich. Darüber hinaus zeigen mehrere Studien, wie die aktuell gegebene Krankheitslast, ob durch einen Mangel an Prävention oder Versorgung verursacht, eine Reihe relevanter ökonomischer Grössen auf individueller und gesamtwirtschaftlicher Ebene beeinträchtigt. Wie eine parallel durchgeführte Studie der Autoren ergab, existieren auch eine Reihe kosten-effektiver Interventionen im Bereich der primären Prävention. Dennoch bestehen noch Lücken in der ökonomischen Bewertung insbesondere nicht-klinischer Interventionen - ein Ergebnis, das die Rolle des Staates in der Evaluation dieser Interventionen unterstreicht. Aufgrund von Marktversagen in einigen relevanten Bereichen besteht eine ökonomische Rechtfertigung für staatliches Handeln nicht nur im Bereich der Forschung, sondern - überraschend für manche - auch im Bereich der (Primär-)Prävention der nicht-ansteckenden und mit dem individuellen Gesundheitsverhalten verbundenen Krankheiten. Aufgrund des in diesem Papier dokumentierten hohen gesundheitlichen und ökonomischen Nutzens sowie der ökonomischen Rechtfertigung der Rolle des Staates kann das Argument für eine Verstärkung der Prävention in Deutschland nur schwer bestritten werden.