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JIM GANDER’S ECONOMIC COMMENTS

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' 23^rd 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.