The role of foreign sentiment in small open economy

The role of foreign sentiment is researched for explaining macroeconomic fluctuations in small open economy. The main goal is to find out whether the domestic variables react significantly to the shocks in the foreign sentiment. For this purpose a structural vector autoregression model is constructed for the Czech Republic and the Slovak Republic including relations between foreign environment and domestic variables. Both small open economies considered are highly dependent on foreign demand from euro area. Therefore the foreign development is represented by real GDP in euro area and alternatively is explored the possibility to replace foreign real GDP by economic sentiment indicator of euro area as sentiment indicators are available in advance. The impact of foreign shocks is examined by impulse response functions on the following domestic variables – real gross domestic product, consumer prices and effective exchange rate against euro area trading partners. The study confirms that foreign economic sentiment can be used for explaining fluctuations of domestic variables of a small open economy.Web of Science42685

A survey of announcement effects on foreign exchange returns

Researchers have long studied the reaction of foreign exchange returns to macroeconomic announcements in order to infer changes in policy reaction functions and foreign exchange micro­structure, including the speed of market reaction to news and how order flow helps impound public and private information into prices. These studies have often been disconnected, however; and this article critically reviews and evaluates the literature on announcement effects on foreign exchange returns.Foreign exchange

Comparative Cost Study of Foreign and Thai Domestic Banks 1990-2002: Estimating Cost Functions of the Thai Banking Industry

This paper investigates the changing cost performances of foreign and domestic banks in Thailand in relation to increased foreign bank penetration by estimating their cost functions using panel data from 27 banks during 1990-2002. Our empirical analysis suggests that production technologies of foreign bank branches are distinct from those of Thai domestic banks. After the Asian crisis, financial reforms increased operating costs of domestic banks and reduced costs of foreign bank branches. Foreign acquisition of domestic banks after the crisis modernized their business activities, reduced costs associated with fee-based businesses and improved their operational efficiency.Cost function, Foreign Entry, Crisis, Thailand

First impressions and perceived roles: Palestinian perceptions on foreign aid

This paper summarizes some results of a wider research on foreign aid that was conducted in the West Bank and Gaza Strip in 2010. It seeks to describe the impressions and feelings of Palestinian aid beneficiaries as well as the roles and functions they attached to foreign aid. To capture and measure local perceptions on Western assistance a series of individual in depth interviews and few focus group interviews were conducted in the Palestinian territories. The interview transcripts were processed by content analysis. As research results show — from the perspective of aid beneficiaries — foreign aid is more related to human dignity than to any economic development. All this implies that frustration with the ongoing Israeli-Palestinian conflict inevitably embraces the donor policies and practices too

Exchange rate stabilization in developed and underdeveloped capital markets

The target zone model by Krugman (1991) assumes that foreign exchange intervention targets exchange rate levels. We argue that the fit of this model depends on the stage of development of capital markets. Foreign exchange intervention of countries with highly developed capital markets is in line with Krugman’s (1991) model as the exchange rate level is targeted (mostly to sustain the competitiveness of exports) and the volatility of day-to-day exchange rate changes are left to market forces. In contrast, countries with underdeveloped capital markets control both volatility of day-to-day exchange rate changes as well as long-term fluctuations of the exchange rate levels to sustain the competitiveness of exports as well as to reduce the risk for short-term and long-term payment flows. Estimations of foreign exchange intervention reaction functions for Japan and Croatia trace the asymmetric pattern of foreign exchange intervention in countries with developed and underdeveloped capital markets. JEL Classification: F31foreign exchange intervention, reactions functions, target zones, underdeveloped capital markets

Productivity growth and functional upgrading in foreign subsidiaries in the Slovenian manufacturing sector

The paper discusses the determinants of productivity growth in manufacturing foreign subsidiaries in Slovenia. Special attention is given to the impact of control pattern. Using the standard growth accounting approach we show that productivity growth is significantly and positively correlated with the level of foreign parent companies' control of marketing and strategic business functions. Larger subsidiaries and subsidiaries with higher exports to sales ratio also experience higher changes in the productivity level. Subsidiaries in high technology intensity sectors exhibit significantly lower change in productivity than subsidiaries in other sectors

Nature and determinants of productivity growth of foreign subsidiaries in Central and East European countries

The paper examines the determinants of productivity growth in foreign manufacturing subsidiaries in five Central and East European (CEE) countries by analysing patterns of control, nature of firms' capabilities and firms' market orientation. Building on the so called 'developmental subsidiaries' perspective we show that productivity growth is determined jointly by corporate governance, production capability and market orientation variables. CEE subsidiaries have relatively strong autonomy over control of their business functions, but within a dominantly production oriented mandate. Majority foreign equity share has a significant and positive impact on subsidiaries' productivity growth. These results present very strong regional characteristic

Global Links and Local Bonds: The Role of Ownership and Size in Productivity Growth

This paper examines direct and indirect contributions of foreign firms and small and medium-sized enterprises (SMEs) to aggregate productivity growth. We focus our attention on foreign firms and small firms for three reasons. First, industrial policy in almost all countries is oriented towards supporting SMEs and attracting foreign investment. Second, these two categories of firms contribute to micro-heterogeneity in all industries. Third, the recent industrial dynamics literature on foreign investment and small firms emphasizes the potential benefits of foreign firms and SMEs in generating new technologies, and creating new jobs. Using the data for Turkish manufacturing plants, we estimate production functions for all ISIC 4-digit level industries for the 1983-2001 period. We decompose productivity growth into its components (structural change, entry and exit, technical change, efficiency change, and scale effects) by firm ownership and size. The decomposition analysis by firm ownership and size allows us to understand the sources of productivity contributions by foreign firms and small firms.Productivity dynamics, decomposition, foreign direct investment, small and medium sized enterprises

What Determines Differences in Foreign Bank Efficiency? Australian Evidence

This study applies parametric distance functions to estimate the efficiency of foreign banks in Australia, and subsequently employs extreme bounds analysis to establish the determinants of foreign bank efficiency that are robust to model specification. The limited global advantage hypothesis of Berger et al (2000) is supported. Following clients is found to reduce the efficiency of the profit-creation process. The market share of the incumbent banks acts as a barrier to entry to efficiency in the retail market, with acquisition of a domestic bank reducing this effect. Internet-based bank product delivery reduces the efficiency of profit creation in the initial phases of operation, and parent profits do not improve efficiency in the host market.foreign bank efficiency, distance functions, extreme bounds analysis, barriers to entry, following clients

Tax Rate and Tax Base Competition for Foreign Direct Investment

This paper argues that the large reduction in corporate tax rates and only gradual widening of tax bases in many countries over the last decades are consistent with tougher international competition for foreign direct investment (FDI). To make this point we develop a model in which governments compete for FDI using corporate tax rates and tax bases. The model’s predictions regarding the slope of policy reaction functions and the response of equilibrium tax parameters to trade costs and market size are shown to be consistent with panel data for 43 developed countries and emerging markets. Using estimated policy reaction functions we simulate the effect of regional trade integration and find that this integration has contributed significantly to the observed fall in corporate tax rates.corporate taxes, tax competition, foreign direct investment, multinational firms, free-trade areas, regional integration