ACES session held at the ASSA Meeting in Chicago 2011
Institutions and Globalisation
Session Chair: Sugata Ghosh (Brunel University)
E-mail: sugata.ghosh@brunel.ac.uk
The 21st century will be shaped by what happens not just in Rome or Moscow or Washington, but by what happens in Accra, as well. This
is the simple truth of a time when the boundaries between people are overwhelmed by our connections. [President Obama, 2009]1
Globalization of any form including foreign direct investment (FDI), outsourcing, international mergers
and acquisitions, and cross-border firm linkages (via joint venture or license agreements) has
undoubtedly increased in the recent decades. While it is argued that global trade of any of these forms
expands the economic pie and may let both the participating nations raise their welfare levels, their
success has been varied across the globe. This symposium aims to bring together three papers that focus
on possible role of institutions (e.g., corruption and technology licensing) on foreign ownership and
optimal trade policy. The impact of foreign investment of any form on economic prosperity has
significant policy implications and therefore any policy on foreign investment should be based on a more
holistic view of different forms of FDI.
Bridging the Gap? Institution and Foreign Ownership
Presenter: Sarmistha Pal, Brunel University; Sarmistha.pal@brunel.ac.uk
(jointly written with Nigel Driffield, Aston Business School (E-mail:
n.l.driffield@aston.ac.uk); Tomasz Mickiewicz, SSEES, University College London
(E-mail: t.mickiewicz@ucl.ac.uk), and Yama Temouri, Aston Business School
(y.temouri1@aston.ac.uk)
Corruption in a host country may impose significant direct and indirect costs to firms, which
in turn increases the uncertainty of returns to foreign investment and thus may deter FDI. We
argue that in addition to host corruption per se, as accounted for by the existing literature, an
explanation of inter-country variation in FDI needs to account for the distance between the
host and home corruption, which we call relative corruption. In other words, the relative
corruption is a measure of the degree of unfamiliarity of running a business in a host country,
which may further deter FDI. We use a large matched home-host firm-level panel data-set
for 1998-2006 from a group of central and eastern European transition countries and
experiment with alternative measures of grand/petty corruption. Results suggest that, ceteris
paribus, higher relative corruption lowers foreign ownership as the returns to investment
tends to be lower in more corrupt environment; this result holds not only for the full sample,
but also for firms operating in the host countries that joined EU in 2004 as well as 2007.
However, knowledge-intensive parent firms are found to hold controlling ownership, as the
difficulty of successful joint venture looms large in more corrupt environment.
Discussant: Randolph Bruno, Birmingham University (r.l.bruno@bham.ac.uk)
1
President Obama’s speech in Ghana: http://www.america.gov/st/texttransEnglish/2009/July/20090711110050abretnuh0.1079783.html
Corporate Social Responsibility, Smoking Bans and Market Seeking FDI in
the Tobacco Industry
Presenter: Chris Jones (Aston Business School), E-mail: c.jones2@aston.ac.uk
Jointly written with Jo Crotty (Salford Business School) and Nigel Driffield (Aston Business
School)
Abstract: It is acknowledged that attempts by tobacco companies to legitimise its activity through
CSR have largely failed. Stakeholders are not persuaded that tobacco is anything other than a ‘sinful’
industry. Thus in this paper, we set aside whether tobacco firms are either ‘good or bad’ and instead
examine institutional influences on tobacco firms and the link between country level tobacco policy
and firm level CSR. We do so by examining the relationship between smoking bans and the
propensity of tobacco firms to engage in FDI. Using a firm level database of all tobacco firms, we
employ the combined lenses of CSR and institution theory to show that smoking bans at home are an
important institutional intervention, as they appear to reduce the propensity of FDI in developing
countries. We subsequently examine the importance of a country not having any form of ban in terms
of the attractiveness of that country for FDI by tobacco firms. In addition to linking poor sales to the
desire of these firms to engage in FDI, We also show that a developing country is 50% more likely to
attract tobacco FDI if it does not have a smoking ban. We also show that smoking bans at home are
effective as institutional interventions in the industry, making FDI by firms to developing countries
less likely. We finally suggest however that higher proportions of the global tobacco industry will be
dominated by firms from countries without a smoking ban.
Discussant: Professor Sugata Ghosh (Brunel University)
Institutions, Infrastructure and Trade
Miriam Manchin, University College London (E-mail: miriammanchin@gmail.com) jointly
written with Joseph Francois (Johanness Kepler Universitat Lins & CEPR )
ABSTRACT: We work with a panel of bilateral trade flows for 15 years (1988 to 2002),
exploring the influence of infrastructure, institutional quality, colonial and geographical
context and trade preferences on the pattern of bilateral trade. We are interested in threshold
effects and hence emphasize those cases where bilateral country pairs do not actually trade.
We use Heckman selection model based gravity estimators of trade flows. Results confirm that
access to well-developed transport and communications infrastructure and also institutional
quality matters not only for determining the volume of trade, but also for determining the
propensity to trade. Indeed these factors are more important empirically than the variation in
tariff in explaining the volume of north-south trade. This implies that the policy emphasis on
developing country market access, instead of support for trade facilitation, may be misplaced.
Discussant: Professor Sarmistha Pal, University of Surrey (palsarmistha01@gmail.com)