This paper identifies a couple recently very popular, alternative strategies for developing countries trying to catch up with rich countries. These include foreign direct investment in the forms of hosting multinationals’ offshoring activities and acquisition of internationally well-known brands through cross-border mergers. The logic behind these strategies is analyzed and some cases are studied. Possible side effects such as the widening of income inequality, environmental degradation and a lowering of labor standards are also examined.
JEL Classification: F21, F23
This paper examines firm characteristics associated with the probability of relocating activities in a foreign country. Micro-level data for manufacturing firms for the period 1999–2005 shows that cost-cutting is the main determinant of offshoring production. The analysis reveals that firms with a higher research and development activity, larger firms and firms with greater labour intensity tend to be more involved in offshoring. We observe the prominence of foreign firms among those engaging in offshoring; our findings show that self-selection of the ‘best’ firms is much more significant in the case of foreign firms. For national firms, international experience is a key factor in the moving of production abroad.
JEL Classification code: F21, F23.
This paper analyzes the impact of trade liberalization in an intermediate-good sector on a final-good sector using a general equilibrium model. The model clarifies that the final- and intermediate-good sectors gain from trade through distinct mechanisms. Trade in intermediate-goods leads to tougher competition in the intermediate-good sector, which in turn leads to productivity growth in the sector. Final-good producers benefit from the new entry of foreign suppliers. Moreover, the model shows the economic environment and the channel each sector gains from the most.
JEL Classification: F12, F14, L22
This paper investigates the effects of social dumping in cases where firms strategically interact in the output market. Two firms (Northern and Southern) compete in the Northern market. The Southern firm practices social dumping by exploiting its monopsony power in the Southern labor market. Using the Cournot-Ikema curve, I diagrammatically demonstrate that social dumping by the Southern firm is actually beneficial to the Northern firm. However, Northern consumers suffer from social dumping. Imposing social clause tariffs gives a strategic advantage to the Southern firm. At the same time, it may improve Northern social welfare.
JEL Classification: F12, F13, J42, L13.
This paper examines in a two-country model under what conditions political donations establish Pareto-efficient trade and domestic policies. I consider two cases for international lobbying activities: multilateral political donations and international special interest groups. The analysis shows that Pareto-efficient policies are employed when each ruling party values the amount of cross-border donations and the sum of domestic welfare and domestic donations with the same weight in its objective function in the case of multilateral political donations, and when each ruling party only considers donations as the component of its objective function in the case of international special interest groups. JEL Classification: F13, H21