Investments in Response to Trade Policy: The Case of Japanese Firms during Voluntary Export Restraints (Job-Market Paper)
This paper develops a dynamic structural model of a single agent decision in order to analyze the effect of voluntary export restraints (VERs) on quality-upgrade and foreign direct investment (FDI) behavior. I estimate the model parameters using a variant of the two-step estimator developed by Bajari, Benkard and Levin (2007). Using panel data of Japanese firms in the U.S. automobile industry, both activities are found to have significant sunk costs, which introduces intertemporal interactions in decisions, and I also find that the entry costs for FDI are larger than fixed adjustment costs for quality-upgrade. This paper also simulates counterfactuals based on the estimation of the structural model. The first simulation is shown to decrease both quality-upgrade and the probability of undertaking FDI in the absence of the VERs. The second simulation examines the substitution effect between the two investment activities. The proposal to restrict FDI policy causes a dramatic increase in the level of quality-upgrades. Similarly, the proposal to restrict quality-upgrade policy results in an increase in the probability of FDI.
Strategic Investments of Multinational Firms: Brands as Intangible Assets (Second Revision requested by Global Business Review)
This paper investigates the trade-off of developing a brand facing a firm. Establishing the brand on the one hand reduces liquidity (subjective) risk perceived by investors through effective marketing, but on the other hand increases market (objective) risk through incurring a substantial advertising expenditure to accumulate intangible assets. I estimate the model parameters using a new liquidity-augmented Capital Asset Pricing Model developed by Liu (2006). I find that as advertising expenditure increases, the brand lowers liquidity risk associated with perceived risk by consumers and investors, but increases market risk associated with asset-market structure. Although the impact through which the role of brands operated differed somewhat across industry characteristics, I find that the general impact of brand contribution is empirically plausible across the multinational firm products.
Negligence and Two-Sided Causation (Under Review)
(with Keith Hylton): It will be posted soon!!
A Model of Price Volatility in Insurance Markets (Under Review)
(with Keith Hylton): It will be posted soon!!
Works in Progress
A Dynamic Pricing Competition: The Case of Korean Steel Industry (with Dong-Jae Eun)
Do Higher Productivity Firms Generate Exports or FDI? Evidence from the Korean Steel Industry
Product Selection Decision