Government Policy Variables Research Articles

Government Policies, Market Imperfections, and Foreign Direct Investment

The internalization/eclectic theory of foreign direct investment includes the important insight that government policies create market imperfections, which make foreign direct investment an economically rational strategic alternative for firms. This paper reexamines the effects of government policies on market imperfections and foreign direct investment (FDI). It broadens and refines the analysis of the impact of government policies by developing the following arguments: (1) There is a wide range of government policies that affect firms' FDI decisions via their effects on market imperfections. (2) There are numerous dimensions of variability in government policies that need to be identified in order to understand fully the effects of government policies on market imperfections and hence FDI flows. (3) Some of the effects of government policies on market imperfections and FDI are the opposite of those previously noted in the FDI literature. (4) The effects of government policies vary across the several individual components of FDI flows. The paper thus examines the following variables and relationships more extensively and precisely than has the previous literature: government policy variables as causal factors affecting FDI; market imperfection variables as intervening factors in the causal connections between government policies and FDI; and the multiple indicators of the various dimensions of FDI as dependent variables.

Regional Cotton Acreage Response

AbstractAn econometric model of cotton acreage response was estimated for four distinct production regions in the United States. This work builds on previous work in the area of supply response under government farm programs and provides up-to-date regionalized estimates of own-price elasticity of cotton acreage supply. The own-price variable used in this study is a weighted combination of expected market price and government policy variables. Results indicate regional similarity in response to own price but differences with respect to the prices of alternative enterprises. Differences in regional response to paid diversion are also indicated.

The Demand for and Supply of Inflation

ECONOMIC research on the causes of has been primarily devoted to the theoretical and empirical study of the links between government policy variables and the rate of inflation. While debate continues on the process of short-run adjustment, most economists are prepared to agree that in the long run inflation is always and everywhere a monetary phenomenon.3 Abundant empirical evidence has confirmed that the major historical accelerations and decelerations of inflation-not only during wars and hyperinflations but also during peacetime-have been accompanied by accelerations and decelerations in the rate of growth of the supply of money.4 But confirmation of the connection between money and prices is

Some models for simulating canadian manpower flows and related systems

The paper reports on a series of models designed for computer simulation of Canadian manpower flows at different levels of unemployment, either alone or in conjunction with related population flows. The models are disaggregated macromodels of the state-transition variety. One relates to annual flows, the others to monthly flows. The models have been used for various purposes, including simulation analyses of the effects of changes in economic conditions and government policy variables on two government programs, namely unemployment insurance and manpower training. Other applications are possible and, in general, the basic approach underlying the models is considered to have much potential for manpower policy analysis.

An Economic Model of the World Oil Market

This paper presents a regional multicommodity economic model of the world oil market. The four sectors of the model are crude production, transportation, refining, and consumption of products. The regions studied are the United States, Canada, Latin America, Europe, the Middle East and Africa, and Asia. In the model the exogenous variables include the regional supply and demand equations, the technology of refining, and government policy variables. The scope of these variables gives the model sufficient information to determine the levels of consumption, production, and price for each commodity in each region, the pattern of world trade flows, and the refinery capital structure and output in each region. The consequences of monopolistic behavior -- implemented through the producing country cartel, OPEC -- can be studied through the simulation of the effects of changes in the export tax. Use of this model shows that the price increases for crude oil which occurred in late 1973 are not likely to persist because the largest producing region -- the Persian Gulf and North Africa -- would have the problem of allocating reduced production levels among the individual countries.

A Model of Federal Home Loan Bank System and Federal National Mortgage Association Behavior

T HE response of government policy variables to the targets or objectives of policy has received increasing attention in the literature. All of the published studies have limited their investigations to the behavior of the monetary authority.1 This concern with the reaction function of the monetary authority can be traced to three factors: (1) Since the monetary authority is independent (or semiindependent) of the government, investigators have been concerned with whether the central bank has responded to the appropriate social objectives such as price stability and full employment; (2) Central banks have often expressed concern with short-run objectives (such as interest rate stability) and investigators have examined whether the pursuit of such objectives has hindered the implementation of the social goals; and (3) Econometric modelbuilders have become concerned with the statistical problems arising from the endogeneity of policy.2 This paper reports on an attempt at estimating the reaction function of the Federal Home Loan Bank System (FHLBS) and the Federal National Mortgage Association (FNMA). Both FNMA and the FHLBS are governmentsponsored agencies (the FHLBS being under more government control than FNMA) whose major objective concerns the mortgage market and housing activity. FHLBS makes loans (advances) to savings and loan associations which, in turn, use the funds for mortgage loans. FNMA buys (or sells) mortgages in the secondary market. During the 1960's these operations were aimed primarily at stabilizing the volume of mortgage credit with the implicit view towards stabilizing housing activity.3 There were a number of factors during the 1960's which might have prevented the FHLBS and FNMA from pursuing their objective of minimizing the variability in mortgage flows and housing starts. First, before 1968, FNMA purchases and sales of mortgages appeared in the United States budget, hence mortgage purchases, in particular, were carefully examined since such purchases added to the deficit. After 1968 this was no longer true since FNMA was made a private corporation and taken out of the federal budget. During the credit squeeze of 1966 the Johnson Administration placed severe restrictions on the debt issues of various government agencies, including the FHLBS. In effect, this meant that the FHLBS was not free to decide to raise funds to lend to savings and loan associations without severe scrutiny. In the next section, two alternative models of FHLBS behavior are derived within a utility function framework. Empirical estimates of the alternative reaction functions are presented. same is done for FNMA behavior in a subsequent section. remainder of the paper presents the implications of the results for a number of issues, including: (1) whether FNMA and the FHLBS have, indeed, used Received for publication June 29, 1972. Revision accepted for publication December 13, 1972. * author wishes to acknowledge the financial support of the Federal Home Loan Bank System. views expressed are not necessarily shared by the FHLBS. He also thanks M. J. Hamburger, S. M. Goldfeld, and an anonymous referee for their comments. 1See, for example, H. G. Johnson and W. G. Dewald, Analysis of the Objectives of in D. Carson (ed.), Banking and Studies, Irwin Inc., 1963; and J. H. Wood, Model of Federal Reserve Behavior, in George Horwich (ed.), Process and Policy, Irwin Inc., 1967. 2See F. de Leeuw and J. Kalchbrenner, Monetary and Fiscal Actions: A Test of Their Relative Importance in Economic Stabilization-Comment, in Review, Federal Reserve Bank of St. Louis, April, 1969, and the Reply by L. C. Anderson and J. L. Jordon in same issue. 3See Harry Schwartz, The Role of Government-Sponsored Intermediaries in the Mortgage Market, in Housing and Policy, Federal Reserve Bank of Boston, Boston, 1970; and Ernest Bloch, The Federal Home Loan Bank System, in Federal Credit Agencies, Commission on Money and Credit, Prentice-Hall, Englewood Cliffs, N.J., 1963.

Forecasts with Quarterly Macroeconometric Models, Equation Adjustments, and Benchmark Predictions: The U.S. Experience

E CONOMETRIC forecasts that are conditional on particular values for United States government policy variables are used as an aid in the formulation of macroeconomic policy, while unconditional (ex ante) forecasts are used as inputs for other decisions. Both conditional and unconditional forecasts are made with models that typically include adjustments to the constant terms in the stochastic equations. However, the extent of such equation adjustments may vary greatly. Some econometricians use only mechanical adjustments to account for the cyclical patterns in the structural equation residuals. Others use equation adjustments to introduce exogenous factors that are not included in the specification of the Finally, some forecasters allow complete interaction between the model and their judgment. The latter view is expressed forcefully by P. J. Verdoorn of the Dutch Centraal Planbureau: from being a mere mathematical forecasting tool, an econometric model, therefore, serves too as a vehicle for the consistent allocation and processing of such available independent information as was not originally contained in the model. (1970, p. 1).

Statistical analysis of discount rate policy in Belgium, 1957–1968

Econometric studies of the economy usually assume government policy variables as exogenously determined. Income, balance-of-payments, price and employment variables are assumed to be affected by changes in the policy variables, but the latter are assumed to be free from the influence of the former. If policy makers do not behave randomly with respect to changes in the target variables, we must treat their policy instruments as jointly dependent variables in order to obtain consistent estimates of the macromodel. This study attempts to estimate the parameters, and test the temporal stability, of a behavioral equation describing discount rate changes in Belgium. About three-fourths of the total variation in the discount rate can be explained by movements in the balance-of-payments, price level, and unemployment in the expected direction. F-tests could not reject the intertemporal stability of the discount-rate-policy function, implying the existence of a temporally consistent discount-rate-policy frame-work.

A Simple Macroeconomic Model with a Government Budget Restraint: A Comment

In his recent article, Christ presents a standard, six-equation, linear IS-L\it m-odel in which a government budget restraint is incorporated (Christ 1968). One consequence of the restraint is that the number of independent government policy variables is one less than the total number of government policy variables; that is, one of the government policy variables becomes a dependent (endogenous) variable. Another consequence is that "the model is static if the government budget restraint (equation [6]) is ignored but becomes dynamic when it is included" (Christ 1968, p. 55). Two policies are analyzed for the case where the high-pow-ered inoney stock H is the dependent (policy) variable. For each policy, the longrun equilibrium income is found by obtaining and solving a first-order, linear, difference equation with constant coefficients. In both cases, the result i s: g U (10)

Evaluating Incentive Payment Programs Through Aggregate Production Response: The Case of Mohair

In 1966, leading agricultural economists indicated that production response under changing conditions would be a significant factor in agricultural policy, and recommended that research be directed accordingly. The purpose of this paper is to illustrate the use of production response relationships to indicate the effectiveness of government policy. One commodity for which this approach can be easily demonstrated is mohair, which is included in the National Wool Act and supported by production incentive payments. Thus, the response of mohair producers to changes in expected market price, government policy and other variables is estimated.