GW-CIBER Funded Projects: 2008-2009
Remittances and the Real Exchange Rate
PI: Brett Rayner, Doctoral Student, Department of Economics, CCAS
The goal of this study is to determine the effects that remittances may have on the equilibrium real exchange rate and therefore the competitiveness of the export sector in the receiving country. The PI investigates the extent to which the marginal propensity to consume non-tradables is different from that of tradables in remittance receiving households. The relevant question is how expenditures stemming from remittance receipts affect the relative demand and therefore relative price of non-tradables. There exists a lack of study in this area due to the fact that there is a conventional wisdom which suggests that households or individuals will spend their income without regard to the source of that income. However, the PI contends that, compared to other income, remittances are used in different way by the receiving households. This study uses household-level micro data in order to determine how remittances are used.
Surviving (Even Thriving?) Under Excessive Volatility: A Case Study of the Firestone Plantation Company in Liberia from 1980 to 2007
PI: Suzanne Kathleen McCoskey, Assistant Professor, Department of Economics, CCAS
This research aims at determining how the Firestone Plantation Company in Liberia was able to survive in the presence of an extreme combination of domestic shocks and near chaos in the country during the years of 1980-2007. Thus, this study promotes the understanding of U.S. foreign direct investment (FDI) in developing countries, particularly in the presence of conflict. Further identifying reasons for Firestone’s survival could allow for competitive lessons learned for other U.S. companies interested in FDI in Africa. An additional hypothesis of the research is that the ability for Firestone to thrive, not only survive, in the future will depend on the institutional capacity of Liberia and its ability to work with the company to strengthen its bond with the people and future of the nation.
Transnational Washington: Immigrant Entrepreneurship and Development Linkages in a Global City
PI: Marie Price, Professor, Department of Geography, CCAS
Elizabeth Chacko, Associate Professor, Department of Geography, CCAS
The study examines business strategies and trade linkages of Ethiopian, Bolivian and Indian immigrant entrepreneurs in the Washington metropolitan area with their respective countries, and sheds light on how they use their social networks and cultural connections to start new business ventures, build business relationships, and gain market share. Through a web survey of immigrant entrepreneurs from the above country groups, the project documents the entrepreneurial histories and strategies of the members, identifying obstacles as well as opportunities for business growth and development. This project also enhances our understanding of how immigrants’ investments in their home countries are linked to U.S. enterprises and the extent to which such connections have contributed to the firms’ success.
Public-Private Partnerships: Addressing Global Challenges and Opportunities
PI: Jennifer Brinkerhoff, Associate Professor, Trachtenberg School of Public Policy and Public Administration
This project builds on the conceptual and empirical knowledge of public-private partnerships (PPPs) in the international arena. Although PPPs have traditionally been used for service delivery and infrastructure, they have the potential to contribute to providing global public goods, establishing new global governance architecture, coping with the unprecedented movement of people and information, and mitigating intra-state conflict and its security implications. Therefore, a better understanding of the range and potential of PPPs can: clarify the role of the private sector’s contribution; inform U.S. businesses’ competitiveness strategies in terms of new markets, new partners, new marketing opportunities, and risk management; and help guide government policymaking to better support initiatives that capitalize on the strengths of the private sector.
Indigenous Firm Response to FDI Investment: A Dyadic Analysis
PI: Meghana Ayyagari, Associate Professor, Department of International Business, GWSB
Despite extensive research, the direction and magnitude of spillovers from foreign direct investment (FDI) to local firms in developing countries remain unclear. This project takes a different methodological approach focusing on multinational enterprises’ (MNEs) characteristics that contribute to differential spillovers in India. The PI uses a unique database that tracks the capital investments of MNEs and local firms in India; since the country is vast, it offers the opportunity to study the role of FDI across different institutional environments. A greater understanding of the impact of FDI can assist U.S. trade negotiators in making the case for liberalization, and help MNE managers predict the probable response of local policy makers and the strategic response of local competitors to their investment. In addition, identifying how governance-related factors influence MNE investment and local firm response will help contrast U.S. governance models with non-market based models in other countries.
Do Financial Development and Strong Institutions Reduce Corporate Level Financial Constraints
PI: Senay Agca, Associate Professor, Department of Finance, GWSB
This research project addresses important issues that are relevant for cross-discipline studies of corporate finance and international business. More specifically, the project investigates whether firms in countries with strong institutions, better governance, and improved financial sector (factors that reduce capital market imperfections) raise external funds easier and depend less on internal funds. Additionally, the PI examines whether the above-mentioned factors really matter in each country, and, if there are deviations in the countries, what the possible reasons for this are.
Senay Agca, Gianni De Nicolo and Enrica Detragiache: Credit Market Reforms and Corporate Debt Policy: International Evidence
Abstract: We study how the deregulation of the domestic banking sector affects corporate debt policy. If deregulation lowers the cost of credit and increasing its availability, as intended, firms should use more debt in their capital structure following deregulation. We test this hypothesis with a large panel of publicly traded non-financial firms using a new index that carefully tracks policies to deregulate domestic credit markets. After controlling for other factors, we find that reforms seem to be associated with a reduction, rather than an increase, in corporate debt in emerging market firms. This negative effect is attenuated in countries with better institutions, and it disappears in advanced countries. Furthermore, we do not find evidence of a differential effect of reforms on financially constrained firms, financially dependent firms and firms with no access to global markets.
How Do Labor Standards Affect Trade and Investment in Developing Countries
PI: Emmanuel Teitelbaum, Assistant Professor, Department of Political Science, CCAS
In recent years, social scientists have become increasingly interested in how government respect for worker rights affects trade and investment in low- and middle-income countries. According to the general discussion in the econometric literature, higher labor standards result in increased labor costs. If the principle comparative advantage of developing countries lies in their low labor costs, and higher labor standards result in higher level of unionization and therefore higher wages, more respect for worker rights should cut against export performance and foreign direct investment (FDI). However, the literature examining how worker rights affect investment has been characterized by contradictory findings. A fundamental reason for this may be that the mechanisms through which labor standards affect trade and investment have not been fully explored. Therefore, the PI takes up on investigating one such underdeveloped mechanism of this relationship, and this mechanism refers to the argument that higher labor standards facilitate trade and investment by enhancing social stability and promoting human capital.
Emmanuel Tietelbaum. Measuring Trade Union Rights Through Violations Recorded in Textual Sources: An Assessment
Abstract: The author uses Item Response Theory to evaluate the increasingly prominent method of measuring labor rights developed by Kucera (2007). The analysis shows that most of the component items in the Kucera index relate to the same latent variable, which can be construed as ‘the propensity to violate labor rights.’ At the same time, individual country scores highlight the method’s inability to distinguish between countries known to have excellent respect for worker rights and extremely repressive countries. The final section tests the robustness of Kucera’s finding that there is no relationship between observed labor rights violations and foreign direct investment.
Globalization & Transnational Terrorism: An Empirical Investigation
PI: Holger Schmidt, Assistant Professor, Department of Political Science, CCAS
This project examines the links between economic globalization and countries’ vulnerability to transnational terrorism. Many analysts and policymakers assert that the current surge of transnational terrorist activity is at least partly rooted in a backlash against economic globalization. While this argument is not entirely implausible, the evidence used to support it is anecdotal. The goal of the present study is to move this debate onto more solid empirical ground by conducting a quantitative analysis of the link between economic openness and the level of terrorist activity experienced by countries. In addition, the project also aims to examine whether U.S. businesses abroad are at particular risk when operating in societies that are underdeveloped yet highly exposed to economic globalization, or whether moves toward greater economic openness help reduce the likelihood that U.S. firms and personnel become the targets of transnational terrorist activity.
The Subsidiary Network of Multinational Firms
PI: Maggie Xiaoyang Chen, Assistant Professor, Department of Economics, CCAS
Existing theoretical studies have predicted that a multinational firm’s location choices are interdependent across countries. However, little has been done to test the hypothesis at individual subsidiary level. This project seeks to use a detailed French multinational subsidiary dataset and estimate how a firm’s decision to invest in a foreign country is not only conditional on the characteristics of that country but also the firm’s existing subsidiary network. Preliminary results suggest there is evidence of both horizontal and vertical interdependence in multinationals’ location decisions. While multinational firms have little incentive to duplicate their production in countries with low bilateral trade costs, they are motivated to build a vertical subsidiary network in these countries – especially when the countries have complementary comparative advantages.
Diaspora Investment Motivation in Post-Conflict Economies
PI: Tjai Nielsen, Assistant Professor, Department of Management, GWSB
Diaspora investment can be a critical source of foreign investment for countries experiencing post-conflict economic recovery. Gillespie, Riddle, Sayre, and Sturges (1999) argued that diaspora homeland investment is particularly useful for countries that are deemed less attractive by non-diaspora investors because of weak structural characteristics, inadequate infrastructure, and/or small domestic market size. In fact, politically and economically risky states are seeking creative ways of promoting diaspora homeland investment (Riddle, Brinkerhoff, & Nielsen, 2007). While diasporas constitute an important subset of global foreign investment, we know relatively little about what motivates individuals in the diaspora to invest in their home countries. As part of the GW Diaspora Capital Investment Project (GW-DCIP), our team will survey U.S. Afghans, Lebanese, and Liberians and conduct in-depth interviews with leaders of major diaspora organizations associated with each community. This approach will enable us to empirically examine: (1) the specific investment-facilitation roles that diaspora organizations play and their degree of efficacy; (2) the ways in which diaspora organizations impact these individual-investment motivations; and (3) the individual investment motivations among three different post-conflict diasporas.
Intra-Arab, Arab MENA-US and Arab MENA-EU Trade: Is It Too Little, Too Late? The Competitive Consequences of Arab Non-Oil Participation in the Global Economy to the US
PI: Joseph Pelzman, Professor, Department of Economics, CCAS
This study discusses the issues of international trade and regional integration for the Arab states of Middle East and North Africa (MENA). More specifically, the PI investigates the reasons behind the insignificant share of intra-Arab, MENA-US, and MENA-EU trade, and seeks to provide an answer to the following question: compared with a sample of other countries, with the same endowment and income, do Arab countries trade less with the EU, U.S., and intra-regionally with each other? In order to assess the competitiveness impact of the volume of intra-Arab and inter-regional trade on the U.S., one needs to make a judgment on the ‘normal or ‘expected’ level of trade in the absence of policy-related trade barriers. The project employs a basic gravity model as a method to measure this ‘expected’ level of intra- and inter-regional trade for the Arab MENA region.
Antidumping Use in Developing Countries: Implications for U.S. Business
PI: Michael Moore, Professor, Department of Economics, CCAS
This project, consisting of an empirical study and a one-day conference, is an investigation of how U.S. exporters have been affected by the increased use of antidumping in other countries, especially in the developing world. The focus is on determining the economic factors that explain why these nations launch investigations and impose antidumping duties on U.S. firms. The results could help guide U.S. policymakers as they deal with potential antidumping reform in multilateral and bilateral trade talks.
Michael Moore. Sanctuary Markets and Anti-Dumping: An Empirical Analysis of US Exporters.
Abstract: Proponents of antidumping, especially in the United States, have long argued that foreign firms use profits obtained behind formal and informal barriers in their home markets as a way to “subsidize” aggressive pricing abroad. It has been difficult to analyze whether U.S. accusations of sanctuary markets have any basis in reality. On the one hand, authorities are not required to consider such behavior when administering antidumping. On the other, detailed information about internal market structure is difficult to obtain on a systematic basis in a host of countries exporting to the U.S. This project exploits the increased targeting of U.S. exporters in antidumping actions to examine whether there is evidence of the sanctuary markets hypothesis in the U.S. home market. The work expands on the work of many authors who have examined the determinants of antidumping petition initiations. The empirical study focuses on economic factors that explain why these nations launch investigations against U.S. firms. We find no evidence in support of the general proposition that U.S. firms facing frequent antidumping actions abroad are beneficiaries of a home market sanctuary. Instead, capital-intensive sectors that are successful exporters, especially those in sectors that are characterized by antidumping actions involving other countries, are more likely to experience antidumping actions. This evidence casts doubt on one of the main arguments used in favor of antidumping in the United States.
Capitalizing on Spillovers: The Cease of Immigration Indian Inventors
PI: Anupama Phene, Associate Professor, Department of International Business, GWSB
Research points to a growing immigrant contribution to U.S. technological development particularly by Indian scientists with concentrations in high technology industries like computers and pharmaceuticals. This study tracks the development and innovation patterns of the immigrant inventor community and the process of their integration into the mainstream technological community in the U.S. The PI explores the effects of knowledge spillovers from four social networks based on geography, profession, organization and ethnicity on the quality of innovation that an immigrant, Indian inventor can produce. The PI further evaluates how immigrant inventors can overcome the lack of legitimacy in a foreign context by utilizing the mechanism of knowledge spillovers to improve the quality of their innovation.
Permanent and Transitory Macroeconomic Relationships between the US and Developing Countries
PI: Tara Sinclair, Assistant Professor, Department of Economics, CCAS
This project explores the relationships between macroeconomic variables over time for the U.S. and China. The research uses a recently developed statistical model and a new macroeconomic dataset for China. The new statistical model allows to distinguish cross-country correlations driven by the relationships between permanent innovations, caused by real shocks such as changes in technology and institutions, from those between transitory or cyclical movements, caused by changes in aggregate demand in the two countries. The new dataset addresses some of the concerns about the quality of Chinese macroeconomic data.
Tara Sinclair and Yueqing Jai. Permanent and Transitory Macroeconomic Relationships between the US and China
Abstract: The relationships between the economic fluctuations of the US and China, the largest developed and developing countries respectively, are very important not only to both countries but also to the world economy. This paper applies a two-country correlated unobserved components model to explore the relationships between the real output fluctuations for the US and China over the period 1978q1-2008q4. The model allows us to distinguish cross-country correlations driven by permanent movements, caused by real shocks such as changes in technology and institutions, from those due to transitory movements. We find that the two countries share approximately half of their permanent and transitory shocks. With information from the real output of China, the magnitude of estimated transitory components fluctuations of the US real GDP is larger, while the transitory component of China’s real GDP does not change much with the addition of US information.
National Institutions and Firm Characteristics as Determinants of Corruption: Evidence from the U.N. Oil-for-Food Program
PI: Yujin Jeong, Doctoral Student, Department of International Business, GWSB
Corruption is a major concern in international business, affecting international trade, foreign direct investment, and economic growth. Research on corruption is limited, however, as illicit activity by its very nature is hard to observe. The project examines the determinants of corrupt behavior in international business using an unusual, detailed bribe payment data from a forensic investigation into the UN Oil-for-Food Program (OFFP). The OFFP, as a natural laboratory, enables us to address the question of whether country institutions, firm characteristics, or both matter for corruption in international business.
The Determinants of Technological Change Towards Renewable Energies in the Electricity Industry: Perspectives from the Global Wind Energy Sector
PI: Jocelyn Leitzinger, Doctoral Student, Department of International Business, GWSB
This project aims to identify why countries vary in their adoption rates of renewable energy technologies. Focusing on the wind energy sector within the electricity industry, this project examines cross-country differences in renewable energy technology adoption rates over the past 30 years. The study presents the hypotheses that (i) a nation’s institutions moderate the ability of its national and regional policies to increase levels of renewable energy technology adoption in the wind energy sector; and (ii) a nation’s adoption activity is influenced by economic factors such as prices and the available supply of traditional energy sources. Furthermore, the study considers the effect of institutional factors such as path dependency in the electricity industry, knowledge ties between industry and research institutions, and policy risk, and how they may impede or enhance the effectiveness of policy instruments.
The Business Climate in Sierra Leone for US Companies: Consequences of US and Chinese Economic Policy on African Institutional Development
PI: Jeremey Streatfeild, Doctoral Student, Department of Political Science, CCAS
This research project investigates how U.S. trade and investment policies affect development of institutions in Sierra Leone to provide a more transparent and predictable climate for US businesses and whether this process is undermined or aided by China’s growing economic role in the country. From an academic standpoint, Sierra Leone provides a test case of whether political and economic institutions can arise “bottom-up” through economic development, as the Chinese model appears to suggest, or whether economic development must be coordinated with political development in order to provide a longer term stable business climate for US interests, as the U.S. model and the literature suggest.
Timing Matters: Market Structure, Export Composition, and Growth
PI: Anna Rakhman, Doctoral Student, Department of Economics, CCAS
This research project expands on the existing literature in international trade which examines the relationships between the composition of a country’s export basket and its economic growth. In particular, this study analyzes how the relationship between specific exports and per capita GDP growth changes over time based on the extent of other countries’ exports of competing goods.