US Investment Research Articles

The geographies and geopolitics of industrial policy: Designing a data-driven UK semiconductor strategy

Industrial policy is witnessing a global resurgence. We propose that well-designed industrial policy must consider an industry’s regional structures, global linkages, and (variegated) exposures to geopolitical dynamics. In 2023, the UK government published a National Semiconductor Strategy. The National Semiconductor Strategy aims to grow this high-value sector, mitigate supply chain disruptions and protect national security. However, the strategy relies on an incomplete portrait of the industry’s regional geography, global integration and geopolitical exposures. Using newly available commercial data, this commentary examines 61 leading UK semiconductor firms to offer a far more comprehensive mapping of the UK’s semiconductor ecosystem than the National Semiconductor Strategy. Our analysis reveals overlooked aspects of the UK semiconductor industry. The Midlands and North West emerge as potentially under-recognised semiconductor hubs, with a significant workforce and revenue share. Heavy reliance on US suppliers, customers and investors creates vulnerabilities not addressed in the current strategy. Strong European ties exist, but Brexit-related trade barriers may harm UK firms. Last, we detect a subtle, though probably uncoordinated, pattern of Chinese investment in the sector that could expose UK firms to growing US-China tensions. We recommend that the new UK government take four steps. First, revise the National Semiconductor Strategy based on an up-to-date and systematic survey of the industry’s global linkages. Second, it will enhance its supply chain resilience strategy to address geopolitical risk and Brexit-related frictions. Third, track foreign investment patterns in high technology sectors especially regarding incremental changes in Chinese ownership. Fourth, to do so on the basis of close attention to regional clustering dynamics.

Factors Affecting Sukuk Return and Issuance: Insight from Sukuk Market of Türkiye

Since the first sukuk issuance in 2001, sukuk transaction volumes have been increasing day by day in major financial markets. Sukuk has become an attractive investment tool, especially for US and EU investors, as well as being preferred by investors who embrace Islamic finance principles and shariah compliance. Parallel to increased attention all over the financial markets, also sukuk plays a critical role in facilitating the deepening capital markets of Türkiye. To this end, this paper aims to identify the effect of inflation, deposit interest rate, dollar currency and sukuk issuance size on sukuk return. Furthermore, as a part of the analyses, the causality relationship is tested between macroeconomic variables and sukuk issuance. The Toda-Yamamoto causality test is utilised to rigorously assess the causal relationships between variables. In contrast, the Autoregressive Distributed Lag (ARDL) is applied to detect both short-term and long-term coefficients among the variables, employing a monthly dataset that encompasses the period from 2013 to 2024. Empirical evidence shows the constructed ARDL model is significant at the 1% significance level. On top of that, a significant positive relationship between sukuk returns and deposit interest rate, inflation, and sukuk issuance size might be stated by assessing the long-term coefficients. Only the USD/TRY exchange rate negatively affects sukuk returns as indicated by long-term coefficients. Moreover, the coefficient of error correction model is negative and significant which is developed to get the short-term coefficients. ECM model reflected that 75% of a shock occurs in the short term and these shocks will disappear in the long term. In addition, a Toda-Yamamoto causality test stated that dollar exchange rate and deposit interest rates are the two factors that have a causal relationship with the size of sukuk issuance. This study elucidates the importance of macroeconomic variables on both sukuk return and sukuk issuance. It highlights the factors that sukuk issuers and investors should consider throughout their decision-making process.

Transatlantic Economic Relations at a Crossroads

The article was written on the eve of the US presidential election in 2024 and is devoted to the economic aspects of modern transatlantic relations. Descriptive statistics is used to assess the role and place of the transatlantic economy in terms of gross product, export-import operations, trade of US and EU branches and investment activity. The article touches upon the interconnectedness of the economy. It tense noted that the parties remain the main source of prosperity for each other. On this basis, hypotheses has been put forward about the reasons for restarting the dialog and its instability. Taking into account the logic of well-known integration theories, the author deliberates about the predisposition of the USA and the EU to institutionalize relations with the creation of common norms. However, small advantages on the US side in the ratio of benefits from economic integration are a factor of instability and an opportunity for further competition within the transatlantic economy. Based on the analysis of official reports on the activities of the US-EU Trade and Technology Council and other documents, the author's vision of the purpose of the dialogue is formulated – to test political innovations that contribute to completing the transition of the transatlantic economy to the sixth wave of innovation and maintaining its leadership positions in the world.

Inflation differentials and the diversification benefits of small cap equities in emerging markets for US investors

Inflation differentials and the diversification benefits of small cap equities in emerging markets for US investors

The Global (Mis)Allocation of Capital

The allocative efficiency of capital flows is one of the oldest and most contentious questions. We answer it by matching cross-border securities holdings reported in the US external statistics from 1995 to 2022 with the corresponding firm-level measures of allocative efficiency. We find that US investors tilt their international equity investment toward firms with high MRPK and markups, thereby fostering their potential for growth. Foreign investors tilt their holdings toward US firms with high productivity and intangible capital. A horse race shows that productivity is the best predictor of foreign investment in US firms and MRPK for US investment in foreign firms. Both US and foreign firms that receive more international funding increase spending on intangible capital, and foreign firms also increase tangible capital. The results are stronger for more productive firms.

New Evidence on the US Excess Return on Foreign Portfolios

We provide new estimates of the return on US external claims and liabilities using confidential, high-quality, security-level data. The excess return is positive on average, since claims are tilted toward higher-return equities. The excess return is large and positive in normal times but large and negative during global crises, reflecting the global insurance role of the US external balance sheet. Controlling for issuer's nationality, we find that US investors have a larger exposure to equity issued by Asia-headquartered corporations than reported in the aggregate statistics. Finally, equity portfolios are concentrated in 'superstar' firms, but for US liabilities foreign holdings are less concentrated than the overall market.

AFRICAN COUNTRIES IN THE INVESTMENT PRACTICE OF US COMPANIES

Leading the world in the sphere of outward direct investment, the US has placed less than 1% of its investment volume in Africa. However, the energy transition can stimulate investment and change the situation. Without reliable and sustainable supplies of the necessary minerals, the leadership of the United States in key sectors of the global economy is in question. The growing influence of China is also in the area of interest of the American side, since it is Africa that is the focus of the commitments related to the Belt and Road Initiative (BRI) at the regional level., Congress's desire to strengthen U.S. development finance instruments and respond to China's Belt and Road Initiative (OBOR) has prompted the creation of the U.S. International Development Finance Corporation/DFC, which will carry out all the major functions. In assisting US investors, the American side sees a reliable alternative to public investment by authoritarian governments and strategic competitors, applying best practices in terms of transparency, environmental and social safeguards, and taking into account the acceptable level of partner debt. A special arsenal of tools has been developed countering China.

Policy approaches to increase external investment by US pension funds in African countries

AbstractLimited external investment has dampened the prospect for a prosperous African continent that capitalises on economic integration and its demographic dividend. This article explores US pension funds as a candidate for increased investment by framing it through an institutional lens and the scholarly understanding of the risk–return dynamics in private capital allocation. The original research is centered on interviews of senior‐level professionals who work in the US pension fund investment ecosystem as well as experts at multilateral organisations. It identifies the primary investment impediments articulated in interviews and offers approaches policymakers in OECD member countries could undertake to increase the scale of US pension fund investment in African countries. These include: (1) Transform guarantee programs in size, scope, and risk tolerance; (2) Establish large pass‐through investment vehicles; (3) Focus resources to improve capital markets in African countries; and (4) Mandate development organisations to coordinate and proactively collaborate with firms in the US investment ecosystem.

The Health and Economic Benefits of United States Investments in Measles and Rubella Control and Elimination.

Background: Prior to measles vaccine introduction in 1963, measles virus caused hundreds of thousands of annual reported cases, which led to substantial US morbidity, mortality, and costs. Similarly, congenital rubella syndrome (CRS) led to highly visible and tragic lifelong disability for thousands of Americans, before rubella vaccine introduction in 1969. The US certified national virus transmission elimination of indigenous measles in 2000 and rubella in 2004. Methods: Applying an existing integrated transmission and economic model, this analysis characterizes the net benefits of US investments in measles (1963-2030) and rubella (1969-2030) immunization assuming continued high routine immunization coverage. Due to importation risks, the US maintains two doses of both vaccines in its routine immunization schedule. Results: This analysis estimates total US costs of 8.1 billion (economics reported in 2023 US dollars) for measles immunization for 1963-2023 and 14.1 billion for rubella immunization for 1969-2023. The analysis estimates an additional approximately 1.2 billion for measles immunization and 1.5 billion for rubella immunization expected for 2024-2030. Historical and future US investments prevented an estimated approximately 237 million measles infections, 228,000 measles deaths, 193 million rubella infections, and 166,000 CRS cases. These investments imply net benefits (from avoided treatment costs minus immunization costs) of approximately 310 billion for measles and 430 billion for rubella and CRS, even without incorporating avoided productivity losses and intangible costs. Conclusions: US investments in measles and rubella immunization continue to provide enormous savings of human and financial costs and to prevent substantial mortality and morbidity.

Hedging political risk in international portfolios

We show that internationally diversified portfolios carry sizeable political risk premia and expose investors to tail risk. We obtain political efficient frontiers with and without hedging political risk using a portfolio selection model for skewed distributions and develop a new asymptotic inference test to compare portfolio performance. Politically hedged portfolios outperform a broad market index and the equally weighted portfolio for US, Eurozone, and Japanese investors. Political risk hedging is not subsumed by currency hedging, and the diversification gains of politically hedged portfolios persist under currency hedging and transaction cost frictions. Hedging political risk induces equity home bias but does not fully explain the puzzle.

Vulnerable funding in the global economy

This study builds on the conceptual framework of vulnerable growth to examine how US financial shocks influence the conditional distribution of real credit growth across a diverse set of countries, a phenomenon we term vulnerable funding. We show that deteriorating US financial conditions are linked to a reduction in real credit growth abroad, with particularly pronounced effects at the lower quantiles of real credit growth abroad. This suggests that, in common with the episodes of vulnerable growth discussed in the extant literature, episodes of vulnerable funding are also triggered globally by financial weakness in the US. However, our analysis reveals significant variation in the impact of US financial shocks across the quantiles of credit growth in countries worldwide. Specifically, countries with lower credit-to-GDP ratios or with higher levels of US investment relative to their GDP exhibit greater real credit growth vulnerability.

Firms Entangled in Geopolitical Conflicts: Evidence from the Russia-Ukraine War

We examine the reactions of US-based multinationals and subsequent financial market reactions to Russia’s invasion of Ukraine in February 2022. The multinationals’ firm-level decisions range from clean exits from the Russian market, all the way to ‘digging in’ as if the war never happened. Findings show that, in the short-term, markets favour ‘middle ground’ decisions which balance shareholder interests with regulatory and ethical concerns. This is manifest through those firms taking extreme decisions, on either end of the spectrum, experiencing more negative returns. In the longer term, however, investor ethical concerns and other considerations dominate such that firms announcing clean breaks incur lower losses compared to their peers. In other words, sitting on the fence and playing both sides does not pay off for long. We also show interesting differences in investor reactions between two major non-US markets: China − a Russia-leaning country − vs India − a neutral country. While Indian investors behave largely similar to US investors, Chinese investors do not significantly punish firms that stay put in Russia. We re-examine the situation one year into the war and show that markets reward a Russia-opposing corporate position in the longer term.

Institutional quality and US FDI outflows: Do political regimes matter?

To what extent are the locational decisions for US FDI outflows affected by the nature of the political regimes along with the quality of institutions in the host countries? Using property rights protection as an indicator of institutional quality, this study analyses how sensitive US FDI outflows are to institutional factors and to the nature of the hosting countries’ political regimes. In other words, whether a democratic or an autocratic regime makes any difference in terms of attracting US FDI. A joint effect between democracy and the protection of property rights on US FDI flows is examined using a panel data fixed effect technique for forty-one countries during the period 1984–2021. The instrumental variable method is used to check the endogeneity concerns. The results predict that the protection of property rights can have a positive impact in attracting US FDI, provided the countries in question become more democratic in nature. The findings suggest that partial reform to enhance the institutional quality or unconsolidated democratization are insufficient to attract US FDI rather than complementing each other in bringing FDI. The implication of the findings reveals that a democratic country such as India can be a good location for US investment if its protection of property rights becomes stronger. Moreover, some highly democratic countries with strong institutions should be more market oriented and improve their quality of infrastructure to receive the maximum benefit. Our results are robust to alternate measures of institutional quality/democracy and endogeneity concerns.

Decarbonization, critical minerals, and tribal sovereignty: Pathways towards conflict transformation

The Inflation Reduction Act, the largest US investment in renewable energy development and climate mitigation, provides incentives for critical minerals to be mined in North America. The rise in domestic mineral procurement is already reigniting historic conflicts between the Federal Government and Indigenous peoples over Tribal sovereignty. This study utilizes a Conflict Transformation framework to investigate the structural roots of mining conflicts and their impacts on Tribal Nations through two parts. Part One examines the extent to which Tribes were engaged in the formulation of the Inflation Reduction Act. Part Two presents three case studies of the local impacts of mining conflicts and includes the perspectives of a range of stakeholders involved in mining conflicts. The study finds that Tribal Nations were not sufficiently included in the formulation of the Inflation Reduction Act and that local conflicts are rooted in patterns of environmental degradation, colonialism, and broken promises to Tribal communities. Recommendations for transforming this conflict include strengthening environmental regulations, improving Tribal consultation, and commencing a long-term Truth and Reconciliation process between the Federal government and Tribal Nations.

Gender Diversity: An Empirical Study on 4.151 US Investment Funds

The aim of this paper is to explore the issue of gender diversity (GD) in relation to the world of investment funds. In recent times, in fact, savers’ choice does not only converge on the mere pursuit of profit. Investment funds, in this scenario, are increasingly judged according to their environmental and ethical actions, and not just by the promised rewards. Individual and institutional investors, on this wake, are aligning their behavior with their values by taking responsibility for the investments they select. It is central, therefore, to understand and observe how issues such as GD are evaluated, managed and converted into rating values by funds. This paper is supported by a mixed research methodology involving, on the one hand, an in-depth literature review on the aforementioned topic and, on the other hand, a statistical study developed with the “R-Studio” program. Through the statistical derivation, this study proposes an analysis of histograms and scatter plots on a sample of 4.151 investment funds and the GD-related rating judgments compared with their net assets and longevity. Based on our findings, funds with higher net assets achieve high rating classes but not excellence. In fact, larger funds reside in lower rating classes. Similarly, it is also valid for the amount of capital managed by the funds. From the empirical evidence we provide, it can also be seen that, there is no evidence between GD rating category and youngest funds longevity. Filling a gap that exists in the literature on GD-related rating assessment in investment funds, the originality of this paper concerns the descriptive statistics proposed. In fact, the paper contributes to the literature on GD by enriching the analysis of the factors surveyed for its measurement and rating judgment. This study may have both theoretical and practical implications. From a practical perspective, the statistical evidence in this paper could be a guideline for practitioners oriented toward ethical and profitable investment choices. From a theoretical point of view, instead, GD evaluation and monitoring could be a tool to reduce problems related to transparency and legitimacy theory, mitigating information asymmetry between parties and aligning them on potential risks.

How would legal systems affect US and Chinese foreign direct investment in Africa? An exploration of the roles of origins, customary law, and legal integration

ABSTRACT As the first and second largest economies, the United States and China are among leading investors in Africa. Given their differences in economic systems and political institutions, a natural inquiry would be what drives both countries’ continuous investment in this continent. Previous scholars focused on macroeconomic, resources, and political factors. From our perspective, the legal system is deep-rooted and align with the lasing-interest character of FDI, which might unlock a promising space to understand the determinants of FDI in Africa. We proposed that legal systems would impact FDI through property protection, dispute settlement, and cross-border transactions cost reduction, which would take effect through general legal origins, customary law, and legal integration, respectively. Based on our sample containing 43 countries between 2007-19, we find that African’ legal heritage tends to play important roles in affecting U.S. and Chinese investors’ economic engagement with the continent.

Role of China-Pak Economic Corridor (CPEC) in Logistic System of Pakistan's and China's

This study will explain the impact of China-Pak Economic Corridor (CPEC) on logistic system of China and Pakistan. This project is estimated investment of US $90 billion, CPEC project is consists of various sub-projects including energy, road, railway and fiber optic cable but major portion will be spent on energy. This project will start from Kashgar port of china to Gwadar port of Pakistan. Transportation is sub-function of logistic that consists of 44% total cost of logistic system and 20% total cost of production of manufacturing and mainly shipping cost and transit/delivery time are critical for logistic system. According to OEC (The Observing Economic Complexity) currently, china is importing crude oil which 13.4% from Persian Gulf. CPEC will china for lead time that will be reduced from 45 days to 10 days and distance from 2500km to 1300km. This new route will help to china for less transit/deliver time and shipping cost in terms of logistic of china. Pakistan’s transportation will also improve through road, railway and fiber optic cabal projects from Karachi-Peshawar it will have speed 160km per hour and with help of pipeline between Gwadar to Nawabshah gas will be transported from Iran. According to (www.cpec.inf.com) Pakistan logistic industry will grow by US $30.77 billion in the end of 2020.

Article: The Systemic Importance of Asset Managers: A Case Study for the Future of SIFI Regulation

The nexus between financial stability and the asset management industry remains understudied. I question whether asset managers and/or investment funds could be systemically important, and if so, how financial regulation in the EU and US should cope with this. From a review of the available economic literature and policy standpoints, it emerges that asset managers and the funds that they manage can create systemic risk through fire sales. While in some cases nonbanks can be designated as systemically important under EU and US law, asset managers and investment funds do not fit well in this framework. Consequently, the current rules, concerning both designation and subsequent regulation, fall short. Instead, a simple designation rule could directly address the way in which asset managers can cause or amplify systemic risk. Regulation and supervision should equally address this fire sale risk. I propose a market-based prudential measure, complemented by centralised supervision, that does so. The case of systemically important asset managers shows that current SIFI regulation does not sufficiently account for the systemic risks that can and will be caused by nonbank financial institutions. I therefore advocate a rethink, such that it has a wider institutional scope but more accurately addresses sectoral differences. Financial stability, systemic risk, systemically important financial institutions, nonbank financial institutions, asset management, investment funds, SIFI regulation, fire sales, EU law, US law.

The mediating effect of the COVID-19 pandemic on heuristic techniques and cognitive biases on investment decision-making

US investors’ behavioral finance and investment decision-making approach became a concern during the COVID-19 pandemic era as the capital market crashed. The study used mediation analysis to explain how or why the COVID-19 pandemic intervened in the causal association of behavioral finance concepts of heuristic techniques and cognitive biases on their investment decision-making. This causal research design study was based on 500 snowball-sampled US investors who answered self-constructed, validated, and reliability-tested Likert-scale quantitative variables measured through a first-party data collection approach. The results showed that the COVID-19 pandemic was a specific moderate to partial significant mediator on the low positive significant relationships between heuristic techniques and investment decision-making, and the COVID-19 pandemic was a specific moderate to full significant mediator on the low positive not significant relationships between cognitive biases and investment decision-making among US investors. From the point of view of behavioral finance, the COVID-19 pandemic situation clearly and significantly demonstrated how US investors used 75.6% heuristics techniques (calculated guesses based on prior knowledge) and 87.5% cognitive biases (unintentional errors in their worldview) to cause the crash of the capital market. These findings confirm the rational expectations theory.

The consequences of the 2017 US international tax reform: a survey of the evidence

The 2017 US tax legislation—widely referred to as the Tax Cut and Jobs Act (TCJA)—fundamentally transformed the US system of international taxation. It ostensibly ended worldwide taxation but introduced, for instance, a new tax on “Global Intangible Low-Taxed Income”. This paper surveys the emerging empirical literature on the impact of the TCJA’s international provisions. It documents five robust findings in this empirical literature. First, the TCJA led to a general decline in US MNCs’ foreign acquisitions. Second, the TCJA increased US MNCs’ investment in routine foreign tangible assets. Third, the reform did not lead to any change in profit shifting by US MNCs beyond the magnitude that would be expected based on the TCJA’s tax rate reduction. Fourth, The TCJA appears to have reduced the market value of US MNCs relative to domestic US firms. Fifth, the TCJA does not appear to have had any detectable impact on domestic US investment and wages (although there are some contrary results for capital expenditures). The welfare implications of these findings depend crucially on whether US MNCs’ are viewed as having engaged in too much or too little foreign activity prior to the TCJA. This depends on the choice of theoretical framework and the relevant normative benchmark, and cannot readily be resolved empirically.