Foreign direct investment (FDI) plays a crucial role in enabling developing economies to embark on a path of inclusive growth. This applies in particular if local subsidiaries of multinational enterprises (MNEs) are committed to ‘principled embeddedness’ meaning that they are prepared to integrate parts of the local economy into global value chains by enabling them to comply with the required quality norms and standards. It also results in capacity development and technology transfer that is likely to benefit local entrepreneurs who contribute to the diversity of markets in the domestic economy. The empirically validated contribution of embedded subsidiaries of MNEs to inclusive growth challenge the normative view that FDI in developing economies would merely pose a threat to existing embedded economic systems.
In response to the unusually high levels of price volatility during the world food price crisis of 2007/2008, US and EU regulators have introduced position limits that aim to protect commodity markets from exposure to excess speculation. Such regulatory initiatives presuppose that excess speculation is indeed responsible for excess volatility. Our results debunk this presupposition and show the opposite effect: speculative activity reduces price volatility, particularly during times of distress. Our findings are based on a cross-section of wheat futures contracts, traded at five different commodity exchanges with various degrees of speculative activity. Volatility is estimated based on a Conditional Autoregressive Range Model (CARR), which is further augmented with exogenous excess-speculation shocks (CARRX). These models capture herding, feedback and noise trading, and a threshold version (TCARRX) identifies regimes in which the anatomy of the volatility process changes according to the level of excess speculation. Our findings support Working's hypothesis that a certain level of excess speculation is essential for a well-functioning market.
This paper uses cross-country, firm-level, panel data to study how exporters from Low Income Countries (LICs) adjust their prices according to their trade partners’ characteristics. The results show that the free on board (fob) price of exports is differentiated across markets in all countries in the sample. This differentiated pricing is not commonly associated with small economies, which are normally considered price takers. This finding confirms that the law of one price does not necessarily apply to exporters in small economies. Most importantly, in contrast to existing evidence, pricing-to-market is not confined to differentiated goods, and rather also applies to homogeneous goods. In addition, this paper shows how the disparate tastes across importing countries lead pricing-to-market in homogeneous goods exported by LICs - under the assumption of variable demand elasticity of substitution (for each product across destinations).
