Bureau of Economic and Business Research   

CIBER Abstracts for Working Papers


The main concern in this comparative analysis is the impact of privatization on equity in each country – i.e., the distribution of assets and income.  In the case of Brazil, with a long tradition of asset and income concentration, concern with privatization’s equity impact was not taken into account.  In the case of Russia, which emerged from 70 years of communism, concern about asset and income distribution played a more significant role in the design of its privatization program.  It is the major purpose of this article to analyze the actual distributional results of privatization in each country.


In this paper we use a novel approach to decompose differences in the self-employment probabilities of various socio-economic groups into differences in their entry rates into self-employment and exit rates from self-employment. This decomposition is based on the estimated Markov transition probabilities into and out of three employment states:  non-employment, wage/salary employment, and self-employment. The analysis utilizes data from the March supplement of the Current Population Survey.  We concentrate on differences in self-employment rates due to gender, race, and educational attainment. We demonstrate that the effect of differential entry rates (relative to the effect of differential exit rates) varies both across groups and over the life-cycle. The empirical findings are consistent with some models of self-employment but not with others.  In particular, gender differences in the incidence of self-employment are due to higher female exit rates and are more consistent with conscious career choice rather than with barriers to entry into self-employment.  Race differences in self-employment are due to a black-white gap both in entry and exit rates. However, the entry rate gap becomes progressively smaller over the life-cycle, possibly because African-Americans are able to relax liquidity constraints through life-time savings.  Finally, differences in the self-employment rates of college and high school educated individuals appear at mid-life and are due exclusively to differences in entry rates.  This is consistent with the human capital accumulation hypothesis which postulates that the opportunities for self-employment of educated individuals are enhanced by their experience in the salary sector.

We investigate the effectiveness of passenger shipping cartels in regulating migration across the Atlantic during the early twentieth century.  We test whether trans-Atlantic shipping cartels reduced immigration to North America through higher fares (as claimed by the US Justice Department and predicted by the “consensus” theory of cartels) or led to a stabilization of the trans-Atlantic passenger market (as claimed by the cartels themselves and predicted by models of “destructive competition”).  We assemble a detailed data-base of passenger flows and cartel operations from primary sources and find support only for the first of the above hypotheses:  Cartel operation reduced migratory flows by approximately 20% to 25% while it actually somewhat increased (rather than decreased) flow variability.  We show that there is no strong inter-temporal substitution in migration to North America (at least in the short-run) and, therefore, that the effects of cartel operation were not “undone” by later migration.  Given that immigration patterns shifted after WWI, our results suggest that the operation of the cartels changed North American demographics in an appreciable way.

Using a new short-panel data-set, we (i) construct the employment life-cycle of the South Korean labor-force,  (ii) estimate the transition probabilities of workers between employment states as a function of their age and other characteristics, and  (iii) evaluate the degree to which the Korean labor market is in transition by investigating to what extent the future life-cycle employment profile of the country would differ from the current profile if the current transition probabilities were to hold for a generation.  We find evidence of a trend towards later retirement for educated people.  We also find evidence of a progressive shift of self-employment towards individuals who are better educated and older, regardless of gender or regional background.  These trends in the employment profiles are making the South Korean labor market more similar to that of developed countries.  In contrast, we find no evidence of convergence in the female/male labor force participation and self-employment rates, or any evidence that labor force participation or self-employment rates depend on whether the person was raised in a large city or small city/rural area.  Our approach provides a novel way with which to utilize very short panels to make projections about the future employment profiles in a labor market.

This paper analyses the evolution of the South American Common Market, Mercosur.  It shows how the lack of coordination of macroeconomic policies, especially of the two major participants (Argentina and Brazil), had caused trade strains and conflicting interests in attracting foreign investments.  Divergent macro-economic policies have had negative effects on bilateral trade due to the risk averseness (resulting from bilateral exchange rate volatilities) of exporters and importers, and due to the protectionist forces they have brought forth.  The paper also shows how the lack of policy coordination caused increased confrontations with respect to Foreign Direct Investment in the region.

The current financing system of the European Union is, as a matter of fact, based on grants of the member states.  The EU has neither the power to tax nor the right to run a public debt.  In our paper, we analyze if the EU should receive the right to go into public debt.  We make use of the normatively oriented theory of public indebtedness and of positive political economy analysis.  We propose the assignment of a right to public borrowing to the EU within tight quantitative and qualitative consitutional restrictions.  With respect to the fiscal goal, we suggest public borrowings in order to bridge lacks of liquidity; with respect to the allocation goal, the financing of exclusively long-term investment projects would be meaningful.  For stabilization goals, public indebtedness would be helpful only for extreme cases of emergency, which have to be defined precisely in advance.  According to the political economy analysis, a misuse of public debt may be possible.  But the implementation of strict constitutional constraints could limit such dangers.  




This paper provides a theoretical analysis of the impact of social norms and enforcement regime on the dynamics of taxpayer compliance.  An aggregate-level model, inspired by epidemic models in mathematical biology, is developed to evaluate the flows between classes of compliant and noncompliant taxpayers.  Convergence in theoretical results is sought and found via a second model that emphasizes micro-level agent behavior.  Several interesting observations arise from our analysis.  In particular, the impact of changing enforcement levels on compliance depends upon whether the initial population is relatively compliant or non-compliant.  Compliant populations are insensitive to changes in enforcement policies until the policies become sufficiently lax.  Then a sudden shift to high levels of noncompliance is observed.  In contrast, relatively noncompliant populations respond to increased enforcement severity by gradually increasing compliance.  Then, when enforcement becomes sufficiently harsh, a sudden shift in aggregate behavior is observed, to very high levels of compliance.   Once the discontinuous shift in behavior (from compliance to noncompliance or vice versa) occurs, our models predict that a return to the enforcement policy existing immediately before the change in behavior will be insufficient to cause the population to return to its previous state.  Finally, over a range of compliance levels, two equilibria are observed that are dependent on the initial compliance behavior of the population.  This is consistent with the observation that compliance varies considerable across time and geographically under similar enforcement regimes.

We provide an analytical narrative of the political and economic causes and consequences of institutional changes in the Argentine banking system.  We devote most of our attention to the privatization of the provincial banks.  Our story differs from the prevailing wisdom in its stress on the key roles played by convertibility and an independent Central Bank rather than the Fondo Fiduciario.

This study tests the proposition that foreign market uncertainty leads firms to internationalize incrementally.  The results show that the nature of this relationship differs between operational uncertainty and cultural uncertainty.  Industry and host-country factors were found to moderate the relationship between operational uncertainty and incremental expansion.  No such effect was found for the relationship involving cultural uncertainty.  These findings reinforce the need to re-examine and refine the incremental model.

This article brings up to date the development of the Swiss value added tax, with discussion of the status of the plans to convert the legal basis from an ordinance to a law, a summary of the tax, and data for numbers of firms, taxable and non-taxed sales, in total and by class of firm, and reference to current problems with the tax.

There is substantial decentralization of VAT administration in mainland Tanzania.  Hiring of personnel is done in central office of VAT.  There are 950 registered firms in the Arusha area.  Returns and payments are made in the regional offices; check is made for delinquents in the central office, but nonfilers are contacted in the regional offices.  Coordination of the work in the central office and the regional office is impeded by the lack of a direct computer link.  There are serious problems with the educational backgrounds of the staff in the Arusha office and there are major procedural problems.

 Zanzibar, while a part of Tanzania, has considerable autonomy with a separate VAT Act, now essentially identical with the Tanzania Act.  Zanzibar has a separate Revenue Board.  As on the mainland, there are serious misunderstandings about the VAT.

 There is a widespread belief on the mainland that many transactions escape the Zanzibar tax and then enter the mainland duty free.  Zanzibar officials insist that this is no longer true since the rates of the tax are the same in the two jurisdictions, but mainland firms are not convinced.

This paper examines why and how corporate governance practices are implemented across countries. We look at the worldwide development and adoption of codes of good governance, a set of  "best practice" recommendations regarding the behavior and structure of the board of directors. We find that codes of good governance serve to compensate for deficiencies in the legal system covering shareholders' rights. The results also show that size of capital markets, degree of government intervention, and percentage of foreign investors in the stock market are predictors of the existence of codes of corporate governance, while country openness has no significant effect. 

The integration of the former communist countries of central and eastern Europe into the European Union will create a dilemma for the       EU’s regional policy.  The EU’s expenditure on regional policy (which we term its “active” regional policy) was guided by political reactions on deepening and enlarging the EU and not by a rational regional policy strategy.  In contrast, the strong EU instrument of subsidies surveillance, developed for competition policy (which we will call its “reactive” regional policy) has been relatively successful in avoiding a national race of regional policy subsidies among the member states.  We show that a shift from active regional policy to reactive, competition-oriented regional policies would be a way to handle the challenge of enlargement for the established member states, but at the same time this shift will be difficult for the applicant countries.


Prior to 1999

This article begins with a description of the main characteristics of Brazil's Real stabilization program and its initial success in eliminating inflation. If then examines the use of the exchange rate to keep inflation in check and the problems which overvaluation created. It also focuses on the structural desiquilibria it faced and the various artifices that were used to deal with them but which ultimately let to a set of contradictions that brought about its collapse.

This article focuses on the regional dimension of the traditional dilemma of "equity vs. efficiency as exemplified by the case of Brazil. The main question addressed is whether a more market-oriented and open economy leads to an increased or decreased concentration of income, and whether there is a natural regional "trickle down" effect when unfettered market forces increase regional concentration of economic growth. In the first part of the article these questions are examined from an historical perspective, while the second part concentrates on the regional impact of the open market policies of the 1990's.

Consider an industry where firms can choose their product's price and quality. We examine the profitability of tow different cartel organizational forms: Semi-collusion, where firms collude on price only and full collusion, where firms collude on both price and quality. Under semi-collusion, firms are assumed to choose product quality after an agreement on price is reached. An increase in a firm's product quality leads to higher demand for its product, the second results in a diversion of sales from the other firms. We show that in the presence of demand uncertainty that cannot be contracted upon in the cartel agreement firms may be better off limiting their collusive agreement to price only. In particular, we also show that for any given level of demand uncertainty, their exists a threshold level of demand diversion such that if the demand diversion component is lower, collusion on price only would yield higher profits than collusion on firms may be better off limiting their collusive agreement to price only. In particular, we also show that for any given level of demand uncertainty, their exists a threshold level of demand diversion such that if the demand diversion component is lower, collusion on price only would yield higher profits than collusion on both rice and quality. The degree of demand diversion is crucial for this result. If the demand diversion component is higher than a threshold, then an increase in demand uncertainty makes full collusion more profitable relative to semicollusion, and, therefore, no level of uncertainty will make semicollusion the optimal organizational form.

This article examines the reasons behind the over-optimism of a large segment of the economics profession concerning the performance of East Asian economies, which was shattered by the financial crises of 1997-98. It also shows how the crisis placed into bold relief many institutional characteristics of these economies which negate many past attempts to characterize them as open and market driven.

This article surveys the evolution of technology policy in Brazil from its inception to the present day, examining the changes that it has undergone along the way. Having sketched in the appropriate background, it goes on to discuss the broad technological impact of rapid liberalization in the 1990s.

This paper provides a selective survey of the literature that has used the transaction costs approach to explain the existence and forms taken by the multinational enterprise (MNE) and its alternatives, spot markets and contracts (e.g. procurement contracts, licensing, and franchising).  Transaction costs theory, which is now the dominant theory of international business institutions, partly antedates--and was in large part developed independently of--Williamson's own theories. 

After briefly sketching the differences between the Hymer-Kindleberger and the transaction costs view of the MNE, the paper develops a theory of when and why the organization of international interdependencies will be more efficiently effected in firms (MNEs) than in markets.  Firms are shown to succeed when markets fail because they rely on behavior, as opposed to output constraints.  I then show how the various forms taken by the expansion of firms abroad can be explained by transaction costs theory.   Vertical forward integration into raw materials, components, and distribution can be seen as a response to the relative inefficiency of markets for raw materials, components and parts, and distribution services.  Horizontal integration into manufacturing and services can be explained by the relative inefficiency of markets for knowledge and reputation.  Lastly I show that free-standing firm, an unusual form of pre-1914 MNE, can be explained, like some current forms of MNE's by the internalization of markets for financial capital.  In all cases the MNE is shown to be an institution which reduces the costs of organizing interactions between agents located in different countries.

If the above is true, then government policies that limit the expansion of MNE's should have negative efficiency consequences, and should lead to the development of second-best substitutes.  Part III shows that countertrade is a second best solution chosen when government intervention reduces the efficiency of MNE's.

In Part IV I show how transaction costs theory  can throw light on two main strategic decision MNE face when entering foreign markets:  whether to enter with wholly-owned affiliates or with joint venture, and whether to set up a new affiliate, or acquire an existing firm.  The conclusion outlines what is distinctive with the preceding analysis.

Although the theoretical connection between the value of a firm and the performance of its future cash flows is one of the most important concepts in finance, there has been only one major test of the theory by Kaplan and Ruback.  There has been only one test because forecasted free flows (FCF's) are generally unavailable for academic research.   An objective of this paper is to provide an indirect test of the FCF approach used to estimate the theoretical value of a firm (VF).  We hypothesize that management implements strategies to create shareholder value, therefore the rate of the growth in the long-run value of a firm (GVF) is significantly related to performance of the cash flow components that underlie a firm's FCF--net operative flows, net investment flows and net working capital.  In this study the net working capital flows were decomposed into five cash flow components.  It is hypothesized that all of the cash flow components contribute to the growth in the value of a firm.  Also, a Book/Market value (B/M) measure and a size variable are included in the analysis.   Data from a large sample of American and Japanese companies were used in a regression model to test the significance of the hypothesized relationships.  The results show that net investment and the combined working capital components make nearly equal contributions to the creation of value for American companies.  The size component was the most important variable in estimating growth in the value of American companies.  Net operating flows and the B/M measure were not consistently associated with the growth in the value of the American companies.  The cash flow components make only minor contributions to the value creation process of Japanese companies.   The most important contributions to the creation of wealth in Japanese companies are B/M ratios and firm size.  During extended periods when small stocks were outperforming large stocks, there was not a positive and statistically significant relationship between growth in the value of either Japanese or American firms and their average net operating cash flows.

This paper overviews the formation of the US shipping cartels (conferences) and their state of development before the onset of World War I.  These cartels ranged from simple price agreements to very complex and tight revenue pooling agreements.  The focus of the paper is in identifying the factors that influence the choice of the cartel organizational form.  We find that the degree of collusion is higher in routes in which entry of competing firms is less likely, in routes with fewer firms of relative unequal size, and in routes in which member firms have large global capacity. We also find that multi-market contact facilitates collusion, i.e., a cartel in more likely to be "tight" if its members are also interacting in many other routes.  These results indicate that complex cartels (as opposed to simple rate agreements) are formed when organizational costs are lower and enforcement easier and more credible.

This paper measures total factor productivity in Korean Manufacturing Industries using the refinements introduced by recent scholars.  Our findings show that several capital-intensive industries, which were "pushed" by the Korean Government, did as well as the labor-intensive industries.  This suggests that the Korean policy of selective intervention was helpful.


Taxation in Namibia is divided almost equally among (1) individual and company income taxes, (2) domestic indirect taxes, of which the sales tax is the most important, and (3) custom and excise. The individual income tax is progressive, with a maximum rate of 35%--the same as the company tax rate. Substantial incentives for investment are provided in income tax and some in sales tax. The sales tax is basically a retail sales tax, with broad coverage, an 8% rate on goods, 11% on services. The tax has the usual advantages of retail type sales taxes and the disadvantages of cascading. There is consideration of shift to a value added tax, as South Africa has done. Tax administration suffers from extreme shortage of trained personnel and an antiquated computer system, but there are major plans for improvement. Tax administration is organized on a functional basis.

The objective of this paper is to estimate the excess burden associated with the personal income tax in Brazil. The study is based on a one-period utility maximization labor supply model for urban prime age male employees. We develop a sensitivity analysis based on two different specifications of preferences. Using an estimation procedure that considers the nonlinearity of the budget constraint, constraints on the choice of work hours, and possible measurement error, we find that the choice of functional form influences the results dramatically. Non-nested tests indicate that a Linear Expenditure System is more appropriate than the popular Linear Labor Supply specification used in most labor supply studies. The results suggest that, for the selected populations subgroup, the deadweight loss of the personal income tax in Brazil is small.

Although the theoretical connection between the value of a firm and the performance of its future cash flows is one of the most important concepts in finance, there has been only one major test of the theory by Kaplan and Ruback. The reason there has been only one test is that forecasted free cash flows (FCFs) are generally unavailable for academic research. Therefore, an objective of this paper is to provide an indirect test of the FCF approach of estimating the theoretical value of a firm (VF). We hypothesize that because management implements strategies to create shareholder value, the rate of growth in the long-run value of a firm (GVF) is significantly related to the cash flow components that underlie a firm's FCF. Also a B/M measure and a size variable are included in the analysis. Data from a large sample of American and Japanese companies are used in a regression model to test the significance of the hypothesized relationships. The results show that the data from the American companies were supportive of the hypothesized relationships, but the Japanese data were only modestly supportive. Also, the study found that net operating cash flows may not be as closely related to long-run creation of firm value as previously expected.

This paper investigates the proposition that the greater the cultural distance between the home base of the foreign direct investor and the country where it establishes its affiliate, the lower the chances of survival of that affiliate. We test it on a sample of North European and Japanese affiliates manufacturing in the United States, whose parents come from countries which differ in their cultural distance to the United States, with Northern European countries (Denmark, Finland, the Netherlands and Norway) culturally closer to the US than Japan. Keeping constant all other factors which, besides cultural distance, should affect the survival of these affiliates, we find that, contrary to our expectations, affiliates of Japanese parents do not run a higher risk of exiting the United States (through either a sale to another firm, or through a liquidation/bankruptcy) than those of their Northern European counterparts.

This paper seeks to isolate the partial impact of cross-national ownership on the longevity of joint ventures by comparing two types of joint ventures placed in the same environment, namely the United States. The first type of joint ventures is that between Japanese partners. These joint ventures should not suffer from cross-national cultural conflicts. We contrast the longevity of these joint ventures with that of Japanese-American joint ventures, joint ventures that should experience cross-national cultural conflicts. Carefully controlling for all the other factors that may affect longevity, we then try to pry out whether, everything else constant, joint ventures with mixed parents are shorter-lived than joint ventures between parents from the same country, as would be the case if cross-cultural conflicts had a significant partial effect. We find that the longevity of Japanese-American joint ventures is lower than that of Japanese-Japanese joint ventures. A number of authors have found that the longevity of a joint venture is highly correlated with subjective and financial measures of its performance, so the shorter life of US-Japanese joint ventures gives some support to the hypothesis that cross-national cultural conflict does not hamper joint venture performance. We find, however, that the differential partial impact of cross-national parentage only appears for dissolutions that result from the sale of the venture to one of the partners. Japanese-American joint ventures have the same longevity as Japanese-Japanese joint ventures for dissolutions due to liquidations and sales of the venture to a third party. Contrary to expectations, possible cross-cultural conflicts in Japanese-American joint ventures do not result in higher rats of liquidation or sale to third parties. Instead, cross-cultural conflicts in Japanese-American joint ventures are more likely to be solved by transferring full ownership to one of the partners.


We investigate how Japanese firm's direct and indirect experience with US acquisitions influences its subsequent choice of entering the US with acquisitions rather than with greenfield investments. We test this hypothesis on 283 second and subsequent Japanese entries into US manufacturing industries. Controlling for all the other factors that may affect the choice between acquisitions and greenfields, we find that both direct and indirect experience increase the probability subsequent entries will be acquisitions.

Is there a preferred method foreign investors should use to start the process of building a business in an unfamiliar market? International business theorists have argued that joint ventures with local firms should be the preferred method of initial entry into foreign markets. They have given three main reasons for that choice: (1) joint venturing with local partners allows the novice investor the opportunity to learn to support future expansion; (2) joint ventures can provide quick access to resources necessary to expand in a foreign market; (3) lastly, joint ventures are also an efficient vehicle to exploit one's partner, and to capture the resources it contributes to the venture. While all three rationales seem theoretically persuasive, their implication that firms which choose a joint venture with a local firm for their first entry should perform better over time and that there is therefore a dominant organizational form for initial market entry, has never been tested. Our study, which tracks the expansion paths of Japanese investors in the United States, finds no evidence that Japanese firms which first entered the United States in joint venture with local firms grow faster than in that country than their Japanese counterparts which used wholly-owned subsidiaries for initial U.S. market entry.

While many generalizations, explanations, and prescriptions have been based on the oft noted short lives of international joint ventures, the real meaning of this phenomenon is unclear. First, all foreign affiliates are subject to normal business risk, and to the risk that they will be divested by parents for strategic or financial reasons. We want to know whether these risks are higher for joint venture than for wholly-owned subsidiaries. Second, joint ventures may be shorter lived not because of their joint venture status, but because affiliates which are joint ventured have other characteristics that make them more likely to exit. To know whether joint ventures are shorter lived, one must control for the other factors that affect the longevity of affiliates, whether wholly-owned or joint ventured. Third, many joint ventures contracts contain clauses that allow partners to sell their stakes to one another at specific intervals. Because they make exit easier, we would therefore expect joint ventures to have shorter lives, but these shorter lives should only be due to selloffs, not to liquidations. It is therefore important to see whether the possible higher termination rate of joint ventures stakes is due to a higher rate of selloffs or to a higher rate of liquidations. This paper seeks to answer these questions by analyzing factors that affect the longevity of 355 Japanese stakes in US manufacturing affiliates. We find that, controlling for all the factors that affect exit rates, Japanese parents are more likely to terminate their stakes in U.S. joint ventures than in wholly-owned subsidiaries. This higher termination rate of joint venture stakes is explained by a higher probability of selling them, but not of liquidating them. Most of the other factors have been found significant in explaining gross divestment of foreign affiliates do in fact only affect exits through sales, but not exits through liquidations. Hence it is true that joint ventures have shorter lives, but dangerous to interpret this finding as necessarily meaning that they are more likely to "fail".

Free standing firms were an important type of pre-1914 multinational enterprise (MNE). While they were overshadowed after World War I by the more traditional type of MNEs, they continued to be formed in both the U.K. and the United States, and some are still being floated today. Free-standing firms shared a number of characteristics. They were domiciled in the dominant equity markets of the time (in London, but also in Brussels, Paris, Boston, etc.) and raised equity there by selling shares directly to the public to finance investments that were located overseas. In their country of registration they had a head office, but not industrial activity, all their actual operations (plants, mines, plantations) being in foreign countries, mostly in the least developed part of Europe (Spain, Italy, Russia), in the regions of recent settlement (Australia, Canada, the United States, Argentina), and in developing countries. While they were engaged in a wide variety of businesses, from services to manufacturing, the majority of free-standing firms were in two sectors, ranches and plantations--natural rubber, tea, sugarcane, cinchona--and mining and petroleum. Free-standing firms had two other important characteristics: they were financed in large part by selling equity directly to the public. Most free-standing firms were also single project firms, operating a single plantation, a single mine. Yet these seemingly independent free-standing firms were often linked in clusters. For example, the thirty-six separate companies engaged in the exploitation of Chilean nitrates in 1913 can be traced back to five groups of British capitalists. A full explanation of free-standing firms would therefore seem to require a simultaneous understanding of two related phenomena: the phenomenon of the free-standing firm proper, a single project firm with no domestic operations, and that of their clustering around a firm that takes minority stakes. In this paper I argue that both of these phenomena are hard to explain in terms of the eclectic theory of the multinational enterprise (Dunning 1981). I show that they can be explained by extending transaction costs theory into two directions: into a theory of minority equity stakes and into a theory of transactions costs in capital markets. The paper develops these two theories and shows that the evidence on free-standing firms is generally consistent with their implications.



Last updated January 11, 2002 by Linda Huff
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