JIM GANDERíS ECONOMIC COMMENTS

Topic: Southeast Asia Data

Professors Reynolds and Gander from Utah and Somchai from Chulalongkorn University, Bangkok, Thailand are scheduled to present a paper on "Bank Financial Structure in Pre-Crisis South and Southeast Asia," at the ACAES' 23rd International Conference on Asian Economics in Seoul, Korea from December 15, 1999 to December 17, 1999. The paper uses regression analysis to study various financial ratiios (like, capital/asset ratio), pooling across eight countries (Thailand, Singapore, Malaysia, Hong Kong, Taiwan, Philippines, Indonesia, and Korea) for the time period 1987-1997. Of general interest are the issues of disclosure, transparency, and managerial efficiency, but our particular interest is banking managerial efficiency within and across countries and before and after economic policy liberalization (from 1991 on).

 

Topic: Research Publications 

 

Topic: Economics of International Investment (Bangkok Course, 2000):

This link will have various topics covered in the course. The first topic deals with FDI in general.  

This FDI link has a separate demand and supply figure to show crowding out and crowding in.

To bring it up, click on this line. 

 

 

 

 

Topic: This topic in Course deals with multiplant (cartel) solution. We assume that the firm treated here as a monopoly can replace a domestic plant with a foreign or host plant. The economic motive for this is contained in some of Dunning's LOI factors.

 

Topic: This topic presents a make or buy model used in analyzing vertical competition. The model can be adapted to analyzing locational problems of a MNE by shifting the marginal cost curve for making input "y" and the average cost curve. 

Topic: This topic presents the theory of foreign investment under uncertainty, uncertainty of host demand (or demand for exports), of production (as in the case of labor problems), of government policies (environmental, tax, infrastructure, political), and of cultural acceptance. The probabilities of the Good Times event and Bad Times event are subjective. Expected profit is maximized here, but a utility of profit function could also be used, with different results depending on the risk attitude of the Home MNE. 

Topic: This topic presents the analysis for showing trade and FDI as substitutes. As "t" for tariffs or taxes or shipping or all three increases, trade is reduced but production in the MNE's subsidiary increases, so FDI increases. But, since employment in the host increases due to the increase in the demand for labor, there is an income effect over time and this effect ultimately makes for an increase in the demand for imports, making trade and FDI complements. 

Topic: This topic presents a transaction costs model adapted from Coase's model. I treat the MNE as consisting of two parts, Home and host (or subsidiary). Profit maximization gives the optimum size (or bundle of activities that are internalized within the MNE) jointly for H and h. The theory presented explores heuristically the effect on size of changing parameters controlling the effectiveness of advertising, research and development, and industry competition. An operational definition is defined by the ratio of h/H or h/H+h, using the MNE's foreign sales and domestic sales.

Topic: This topic presents a 2-firm Cournot oligopoly model for a Home multinational enterprise (MNE) producing an output q1 in its subsidiary in a host country and competing with a local firm producing an output q2. The Home market is ignored. Factors of production are acquired instantaneously, once the Nash equilibrium (CE in Fig. 1) outputs are obtained (q*1, q*2). The capital inputs need no lead time. The exchange rate has E=1. The reaction functions, R1 and R2, given in the Fig. 1, are from the first-order conditions. FDI=K1 for the subsidiary. Total industry capital is the sum K1+K2=K. Foreign capital intensity is the ratio K1/K, which depends on the various parameters suppressed in the model. A collusive solution is also possible, where joint profits are maximized at JPE (Fig. 1) and distributed equally. A Nash bargaining solution is also possible where profits are not distributed equally.

Topic: In the previous Cournot model, the inputs were acquired jointly (static model). Usually, capital (plant and equipment and management training) must be acquired and put in place before any output is produced. The lead time could be several years, like for an auto assembly plant. So, the firm needs to decide on capital investment based on its future demand. But, its demand is uncertain due to its rival's uncertain behavior. The same is also true from the rival's perspective. Thus, a two-stage game is needed, where the product demand game is solved first and then the capital game is solved.

 

Topic: This topic analyzes the effect on the net price (P') or profit margin and output (Q) of changes in the vertical and horizontal structure of the industry. Mergers and acquisitions (M/A) among and between MNE's and host firms can be studied using the Zeuthen model. For example, if layer 1 and 2 merge fully (both V and H) then, P' = (1 + 1/5 + 1/3 = N)/1+N = 23/38 = .61 > .50, the full monopoly net price.

 

Topic: This topic examines the effect on employment at the subsidiary of technology transfer (indexed by A, as an augmentor of labor) and improved reliability of labor efficiency (indexed by P, the probability of high reliability given by the subscript G and 1-P, the probability of low reliability given by the subscript B). Both A and P are jointly determined by the MNE's investment (I) in employee training and skill upgrading. Here, technology transfer takes the form of investment in human capital. With the new capital equipment, training and skill upgrading must also occur.

Topic: This topic analyzes the economic benefits and costs of FDI for the host country. The approach is micro. The figure attached is a static model. Dynamically, the net benefits are a stream or flow of benefits over a time horizon (T). If FDI is employment (and other factors) diverting, then there is an opportunity cost. How large it is will depend on whether factors are moved from a low value-added (or efficiency) use to a high value-added use or on how consumer surplus for the industries is affected. If FDI is employment (and capital) creating, then there is a positive-definite gain in value-added. Net externalities must be evaluated. This may involve a pollution effect and/or a technology transfer effect on benefits. Vulnerability of an industry to rapid changes in global supply and demand conditions is an important risk factor that also needs to be considered.

 

Topic: This topic analyzes the effect of the Home MNE's ownership share in the host country subsidiary on the optimal level of investment in the transfer of technology to the host firm. The Home or parent MNE is called the licensor and the host firm is called the licensee. The focus is on the profit to the Home of the investment in human capital. The worker training is firm-specific. The profit function is given by S=[R-C(I)](1-d) - I, where host revenue R is fixed and host cost C is a convex function of I such that C'(I) is negative and C"(I) is positive. The d is the host share of ownership so 1-d is the Home share of ownership in host. If d=0 then the subsidiary is wholly owned by the Home. The first-order condition is given by -MC(I) = 1/(1-d), see the following graph. For d=0, the optimal investment I* > I for d=1 or for any 0< d <1. (Source: Ramachandran, 1993) .

Topic: This final topic looks at technology transfer (TT) and the training investment that it involves, the education of the workers by the government (public schooling), and the net social benefits of FDI. The setting is a MNE's wholly owned subsidiary in a host country. The topic examines the relative burden of training versus education of the labor force in a given industry. Training is, in effect, the technology transfer. The firm and the government are treated as playing a non-cooperative game. Under certain conditions, the firm wants the government to pay for worker training. The government wants the firm to pay for it. The burden is analyzed by examining the determinants of the game-solution ratio of training investment to education investment, T*/E* =, <, > 1.

Topic:(date 2002):For Econ 5360, 6360, and 7100:Oligopoly and multinationalism.Firms in host country in given industry compete with firms in Home country in that industry on a Global basis.Each group of firms in respective countries behaves as one firm so you have a Cournot duopoly bargaining for a larger share of the Global market for that industry.Other firms and countries may have a share but we take that as given and fixed.A Herfindahl concentration index is used with a Nash bargaining function to analyze the equilibrium.

 Topic: (date 2002):For Econ 5360, 6360, 7100 and Bangkok course:Topic analyzes oligosony with a competitive fringe.The dominant firm (DF) determines its supply curve (SDF) for capital (K) by taking the difference between the competitive market capital supply as a function of the price of capital (r) and the competitive fringeís demand for capital (marginal revenue product curve).The DF then obtains its marginal factor cost curve (MFC) and equates this to its capital demand (MRP).It then determines the price (r) it will pay as a price maker and the competitive fringe as a price taker determines its amount of capital.The elasticities have a key role in the price determination.Also, the market power of the DF results in its MRP being greater than the price (r) and the elasticities are key here.This analysis is interesting for it sheds light on the hypothesis that rates of return on capital will be equalized in a competitive market.The model also has implications for multinationalism when the Home firm goes to the host country to invest in a plant.

Topic: This topic contains the summary of readings in the Economics of International Investment course, Part II. Microeconomics Approach, file name is Eco595rd.html.

 

New Multinational firm course, summer 2009: Econ 5520/6520.There are several course documents including

Root on FDI, Raw data, my lecture notes, and course outline.Check with MLI reserve section for Readings.

Title: New BKK course outline 209

Title: Firm Debt Structure and Insulation from Monetary Policy

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