Globalization

The research for which George Akerlof, Mike Spence, and I are being recognized is part of a larger research program which, today, embraces hundreds, perhaps thousands, of researchers around the world. In this lecture, I want to set the particular work which was sited within this broader agenda, and that agenda within the broader perspective of the history of economic thought. I hope to show that Information Economics represents a fundamental change in the prevailing paradigm within economices.

We propose an exogenous measure of a country's growth opportunities by interacting the country's local industry mix with global price to earnings (PE) ratios. First, we find that these exogenous growth opportunities strongly predict future changes in real GDP and investment in a large panel of countries. This relation is strongest in countries that have liberalized their capital accounts, equity markets, and banking systems. Second, we re-examine the link between financial development, external finance dependence, investor protection, capital allocation, and growth.

We examine the effects of both equity market liberalization and capital account openness on real consumption growth variability. We show that financial liberalization is mostly associated with lower consumption growth volatility. Our results are robust, surviving controls for business-cycle effects, economic and financial development, the quality of institutions, and other variables. Countries that have more open capital accounts experience a greater reduction in consumption growth volatility after equity market openings.

In this essay, I want to look at certain ethical aspects of the way that globalization has proceeded in recent years. I shall argue that in the way that they have sought to shape globalization, the advanced industrial countries have violated some basic ethical norms.

While today it is recognized that globalization may have adverse effects on particular groups, in this essay, I want to set forth some of the reasons why globalization, when not managed well, may actually be adverse to overall economic growth, and the ability of countries to take advantage of the advances associated with the New Economy. Not just the poor may suffer. There are several channels through which the adverse effects may run.

We investigate the ability of several international asset pricing models to price the returns on 36 FTSE global industry portfolios. The models are the international capital asset pricing model (ICAPM) the ICAPM with exchange risks, and global two-factor and three-factor Fama-French (1996, 1998) models. We apply the methodology of Hansen and Jagannathan (1997).

This paper analyzes the effects of tax policy on the strategic choices of multinationals and on national welfare. Contrary to existing theory, in the absence of foreign taxation, deferral of home-country taxation until earnings on outbound FDI are repatriated is generally superior to including those earnings in current income. This holds even if the home country taxes domestic investment less generously. This is also generally superior to exempting foreign income.

In recent years, there has been a wealth of research examining the relevance of culture to consumer behavior. This chapter reviews a particular line of work within this larger body of research: work investigating the unique relevance of language. Our review finds that both structural features of language (properties of grammar) and lexical-semantic and phonological features of language (related to writing systems) are important.

This paper analyzes the issue costs and initial pricing of bonds in the international market. In particular, we investigate the determinants of three components of issue costs: underwriter fee, underwriter spread (the difference between the offering price and the guaranteed price to the issuer), and underpricing (the difference between the market price and the offering price). Total underwriter compensation increases with the bonds’ credit risk and maturity, but it is insignificantly related to issue size.