GW-CIBER Funded Projects: 2007-2008

Role of Institutions and the Business Environment in Determining Industry Life Cycles

PI: Meghana Ayyagari, Assistant Professor, Department of International Business, GWSB

Brief Description:
Using new panel data on 30 industries across 100 countries, this study examines the impact of institutions on industry life cycles. The PI discusses factors such as industry and country characteristics, as well as the interaction between the two, to analyze the changes in number of producers within an industry and thus predict its life-cycle stage. Additionally, the impact of stock market liberalizations on industry life cycles is analyzed, and a new algorithm is also used in order to identify and map out structural breaks in both industry life cycles and in growth rates of countries. The research consists of three components – research, dissemination, and teaching.

Meghana Ayyagari, A. Demirguc-Kunt, and V. Maksimovic. What determines protection of Property Rights? An Analysis of Direct and Indirect Effects

Abstract: Using cross-country data, this paper evaluates historical determinants of protection of property rights. We examine four historical theories that focus on conceptually distinct causal variables believed to shape institutions: legal origin, endowments, ethnic diversity and religion. There is only one realization of the data with relatively few observations, which have by now been well explored in the literature. Given the correlations between the explanatory variables, it is difficult to fashion empirical tests which are consistent in their treatment of the competing theories and to know which regressions to take seriously, giving rise to competing interpretations in the literature. We use Directed Acyclic Graph (DAG) methodology to identify which historical factors are direct determinants of property rights protection and which are not, and subject the outcomes to a battery of robustness tests. The empirical results support ethnic fractionalization as a robust determinant of property rights protection. Despite the attention it has received in the literature, the impact of legal origin on protection of property rights appears fragile and dependent on the inclusion of transition economies in the sample.

Meghana Ayyagari, A. Demirguc-Kunt, and V. Maksimovic. Firm Innovation in Emerging Markets

Abstract: In this paper we investigate the determinants of firm innovation in over 19,000 firms across 47 developing economies. We define the innovation process broadly, to include not only core innovation such as the introduction of new products and new technologies, but also other types of activities that promote knowledge transfers and adapt production processes. We find that more innovative firms are large exporting firms characterized by private ownership, highly educated managers with mid-level managerial experience, and access to external finance. By contrast, firms that innovate less are typically state owned firms without foreign competitors. Identity of the controlling shareholder seems to be particularly important for core innovation – private firms whose controlling shareholder is a financial institution are the least innovative. While the use of external finance is associated with greater innovation by all private firms, it does not make state owned firms more innovative. Financing from foreign banks is associated with higher levels of innovation compared to financing from domestic banks.

Economic Determinants of the Preferential Trade Agreement Network

PI: Maggie Xiaoyang Chen, Assistant Professor, Department of Economics, CCAS

Brief Description:
Preferential Trade Agreements (PTAs) have become an increasingly favored approach for countries who are seeking free trade. However, although economists have extensively studied the effect of these agreements, little attention has been devoted to analyzing their determinants. This project aims to identify the economic and strategic factors that play a significant role in countries’ decision to form a PTA and their choice of preferential trading partners. Research for the project includes inquiry into current PTAs that have been adopted by nearly all WTO member nations.

Maggie Xiaoyang Chen. Third-Country Effects in the Formation of Free Trade Agreements 

Abstract: The proliferation of regional economic integration has resulted in a complex and continually expanding network of free trade agreements (FTAs). In explaining the formation of these agreements, the literature has generally focused on the effect of country-pair characteristics and ignored the role of existing FTA network. In this paper we investigate, both theoretically and empirically, how third countries affect nations’ incentives to form new FTAs in various types of network. Compared to an empty network where there is no FTA between countries, having an exclusive FTA with a third country raises a country’s incentives to form new FTAs but weakens the incentives of others to reciprocate. A new FTA will therefore only be jointly supported when the country with exclusive FTA partners has a sufficiently large market size and high marginal cost of production. In a hub-and-spoke network, however, where two countries are mutually linked to a third country, the existence of the mutual FTA partner raises both nations’ incentives to form an agreement leading to an unambiguous increase in the probability of jointly supported FTAs.

Trade Openness, Property Rights and Private Investment

PI: Shahe Emran, Assistant Professor, Department of Economics, CCAS

Brief Description:
This project seeks to understand the link between trade-growth and institutions-growth by looking at the effects of trade openness and quality of property rights institutions on private investment across a sample of developed and developing countries. According to the PI, this is an important analysis since capital accumulation is found to be the most robust determinant of growth, and trade liberalization that is conditioned by higher quality institutions (especially such as those that protect property rights) encourages private investment and entrepreneurship. The project involves econometric analysis using cross panel data for the period 1960-2003 to investigate the above conjectures and interactions.

Shahe Emran, M. and Stiglitz, Joseph E., “Financial Liberalization, Financial Restraint, and Entrepreneurial Development.”

Abstract: This paper argues that there is a fundamental conflict between financial liberalization and private sector led development strategy in developing countries. Using a simple model of occupational choice with moral hazard, it shows that under financial liberalization banks may (i) fail to finance new entrepreneurs because of poaching externality, and (ii) systematically favor projects with front-loaded returns at the expense of projects with strong learning effects. We identify two types of policies that are helpful in escaping from a ‘no entrepreneurial experimentation equilibrium’: intersectoral and intertemporal policies. Among intersectoral policies, a deposit rate ceiling, or a tax on the deposits coupled with a ‘contingent subsidy’ to the new industrial financing (but not interest rate subsidy) may be helpful for entrepreneurial discovery. The intersectoral policies are, however, not effective in weeding out short-termism in project choice. Among intertemporal policies, a dual track policy where competition is preserved in the lending to competing activities (agriculture) but limited duration monopoly is awarded to industrial lending is shown to be effective for both the discovery of new industrial entrepreneurs and tackling short-termism in project choices.

Domestic Institutions and State-Private Actor Relations in Electronic Information Governance

PI: Henry Farrell, Associate Professor, Elliott School of International Affairs

Brief Description:
This project seeks to understand how states’ domestic institutions shape new forms of global governance. The specific objectives of the study are: (i) to map the relationship between domestic institutions, private actors, and global governance arrangements in key fields of e-commerce and information policy; and (ii) using cases from the field of e-commerce, to examine the circumstances under which states can or cannot use these domestic institutions to press private actors into service as proxy regulators, and thus to shape effective international regulatory outcomes.

Henry Farrell
“Making International Markets: Domestic Institutions in International Political Economy” Review of International Political Economy. Forthcoming 2010.

This article will be the lead article of a special issue on the topic of new forms of business and market regulation.

Diaspora Homeland Investment

PI: Tjai Nielsen, Assistant Professor, Department of Management, GWSB

Brief Description:
This project seeks to contribute to the literature on the role of diasporas in homeland foreign direct investment by: (i) empirically testing a multi-level model of diaspora homeland investment; (ii) exploring the process of interested diaspora homeland investors becoming actual investors; (iii) investigating how diaspora business incubators might play a vital role in encouraging diaspora homeland investment; and (iv) bringing together leading scholars to discuss the relationship between participation in transnational cultures and managerial attitudes, values, and performance.

Nielsen, Tjai M. and Riddle, Liesl
Why Diasporas Invest in the Homeland: A Conceptual Model of Motivation

Abstract: Little is known about why diaspora members invest in their homelands or why investment intensity varies among diaspora communities. Employing an interdisciplinary approach, we generate a multi-level, conceptual model of diaspora homeland investment. Our model examines the effects of inter-diaspora cultural differences, support from diaspora organizations, and three types of investment expectations—financial, social, and emotional—to better understand this phenomenon.

Transnational Washington: Leveraging Diasporic Entrepreneurship in a Global City

PI: Marie Price, Associate Professor, Department of Geography, CCAS
Elizabeth Chacko, Associate Professor, Department of Geography, CCAS
Robert Albro, Associate Professorial Lecturer, Department of Anthropology, CCAS

Brief Description:
This study investigates the Washington metropolitan area’s diasporic communities as a base of the economic pyramid approach to understand how diasporic entrepreneurs interact with each other, as well as with other immigrant and native-born groups, in making the area more transnational and competitive. The research compares a range of diasporic groups and asks: (i) where and how they build local and global entrepreneurship; (ii) what sectors of the economy they are most active in; (iii) what the role of ethnic and social capital in creating entrepreneurship is; and (iv) how this capital is most effectively integrated with the economies of global cities. By shifting analysis from the scale of the nation-state to that of the metropolitan area, this research highlights the often invisible local contexts, institutions, and networks facilitating (or impeding) entrepreneurship among a range of diasporic groups.

Business Responses to the Protective Public Policy Process

PI: Jorge Rivera, Associate Professor, Department of Strategic Management and Public Policy, GWSB

Brief Description:
Building on a previously-funded GW-CIBER project, this study explores the business responses to the enactment and implementation of public policies requiring enhanced social labor standards, worker health and safety, consumer protection, and environmental protection. The current study aims at developing a more robust theoretical model of the protective policy process-business response relationship.


Voluntary Environmental Programs: A Policy Perspective

Edited by Peter deLeon and Jorge E. Rivera

Protecting the environment is often not the primary objective of businesses. As the world has become more environmentally aware, the necessity of environmental regulations becomes apparent. Voluntary Environmental Programs: A Policy Perspective examines different approaches to environmental protection in business. Environmental improvements on the part of industry often result from government regulations that command certain action on the part of industry and then control how well they perform. An alternative approach is Voluntary Environmental Agreements (VEA), where firms voluntarily commit to make certain environmental improvements individually, as part of an industry association, or under the guidance of a government entity. For example, many new initiatives targeted towards climate change originate from companies that voluntarily commit to reduce their carbon output or “footprint.” Voluntary Environmental Programs (VEP) provides an overview of current research on VEPs, looking at issues such as what motivates firms to participate, how a VEP structure affects a company’s efficiency and credibility with stakeholders, and who monitors compliance of participants. This current work examines how a firm’s environmental performance over time compares with VEP commitments. This book also discusses the particular considerations for VEPs in developing countries, where information flows and regulatory oversight capacities differ from the U.S. This book has been published by Lexington Books.

The Role of Targeted Promotion of FDI in Industrialization Strategy: An Analysis of Institutions Promoting or Curtailing FDI into Developing Countries in Light of Recent Research

PI: Stephen Smith, Professor, Department of Economics, CCAS

Brief Description:
This project examines incentives designed to promote (or sometimes channel or curtail) Foreign Direct Investment (FDI) into developing countries by multilateral, bilateral, and domestic developing country agencies. The project focuses on theory and (conjecture) practice of targeted promotion of particular types of FDI as part of an industrialization strategy (and more broadly of national economic development policies). In particular, the study will examine the relationship between strategic export promotion and strategic FDI promotion. Related economic development policy issues to be considered in the context of FDI promotion are human capital policy and infrastructure planning.

Resource Nationalism Meets the Market: Competition between Private and State-Owned Enterprise in Oil

PI: Robert Weiner, Professor, Department of International Business, GWSB

Brief Description:
This project examines the impact of resource nationalism in oil industry (where state-owned enterprises remain dominant) on the competitiveness of multinational enterprises (MNEs). More specifically, it investigates if the state role in the industry provides an unfair competitive advantage to national oil companies (NOCs) over MNEs. The assessment of NOC-MNE competition involves the identification of the market with (i) relevance to resource nationalism; (ii) head-to-head competition between the two groups; (iii) many transactions (to permit statistical analysis); and (iv) detailed information about each transaction and its counterparties, including their ownership.