Student Number : 0300191P - PhD thesis - School of Accountancy - Faculty of Commerce, Law and Management / The main objective of the study has been to provide new insights into ongoing recent studies examining the impact of stock market liberalization at both macro and micro (firm) levels. The study focused on a single country, South Africa, whose exchange, the Johannesburg Stock Exchange (JSE), liberalized in the 1990s. Consistent with empirical evidence from other studies the study finds support at market, firm and sectoral level for the prediction by international asset pricing models that stock market liberalization reduces the cost of capital. More important, the study makes five major contributions to the literature on the impact of stock market liberalization in emerging markets. First, it demonstrates that some emerging market specific risks such as political and economic risks can act stronger binding constraints to foreign investment than direct legal barriers which foreign investors are frequently able to circumvent. The second contribution is the observation that there are some firms (in the minority however) that will experience a significant increase in the cost of capital following liberalization, a situation where the local price of risk is higher than the global price of risk, contrary to international asset pricing theory. The third contribution is that it has been empirically proved that the reduction in firms’ cost of capital following stock market liberalization is permanent. It is not a transitory phenomenon. The fourth contribution of the study highlights the influence of firm specific characteristics such as size of the firm, book-to-market ratios and leverage ratios on firms’ response to impact of stock market liberalization. The preference for large firms by foreign investors is supported, contrary to Merton’s (1987) recognition hypothesis, and hence highlights the inconclusiveness of the debate on whether stock market liberalization benefits both large firms and small firms. The fifth contribution is the observation that the effective liberalization date is not the same for all firms but varies from firm to firm.

Thesis advisor: Fabio Ghironi / Chapter 1: Foreign Direct Investment and Contract Enforcement Many developing countries are financially constrained and therefore have to rely on international capital flows to finance economic activity. Empirical evidence shows that Foreign Direct Investment (FDI) as a percentage of total capital flows is higher for less developed countries compared to more developed countries. This chapteruses a dynamic contracting model with human capital to explain why less developed countries receive a greater percentage of capital flows as FDI. I analytically show that countries that are financially constrained have a higher share of FDI in total capital flows, and that the share of FDI in total capital flows is increasing in human capital flows. In addition, the positive association between the share of FDI in total capital flows and human capital flows is decreasing in the degree of financial constraints. I construct a measure of intangible assets of FDI and find empirical support for the analytical results. Chapter 2: Trade Liberalization, Firm Heterogeneity, and Unemployment: An Empirical Investigation This chapter is a joint work with Yoto V. Yotov. We provide empirical evidence for the interaction between firm-level total factor productivity and trade liberalization as key determinants of firm-level job destruction caused by trade. Employing US firm-level data, we find strong empirical support for the following: a) All else equal, a one percent increase in total factor firm productivity decreases trade-induced layoffs by 32%; b) An additional percent of trade liberalization increases the number of firm-level trade-induced layoffs by 2%; c) Trade liberalization results in an increase in the minimum level of productivity required for domestic production; d) Trade liberalization lowers the minimum productivity threshold required for exporting; e) The increase due to trade liberalization in the minimum productivity threshold for domestic production is larger than the absolute decrease in the export productivity threshold. Chapter 3: Do Audit Fees Influence Credit Risk and Asymmetric Information Problems? Evidence from the Syndicated Loan Market This chapter is a joint work with Lewis W. Gaul. We examine whether an increase in the demand for auditing services is associated with a decrease in borrowers' credit risk and asymmetric information problems in the syndicated loan market. In the syndicated loan market, potential accounting errors exacerbate credit risk and asymmetric information problems. The purpose of financial statement audits is to provide reasonable assurance that accounting records are free from material errors. We hypothesize that if audit fees face an upward sloping supply curve for auditing services, an increase in the demand for auditing services increases both the equilibrium price and quantity of auditing services purchased. We interpret the equilibrium quantity of auditing services as the number of auditing hours billed and the price of auditing services as the hourly fee. We assert that an increase in the quantity of auditing services purchased reduces the likelihood of an accounting error because auditors exert more effort verifying the accuracy of accounting records. We present empirical evidence that a demand-induced increase in audit fees is associated with syndicated loans with lower interest rate spreads and shorter maturity lengths, which we interpret as evidence consistent with the assertion that these audit fee increases reduce credit-risk and asymmetric information problems. We empirically identify an increase in the demand for auditing services with instrumental variables that are intended to capture shifts in the demand curve for auditing services, rather than shifts in the supply curve for auditing services. In addition, we find that audit fees are positively associated with the number of lenders in loan syndicates, but are unable to attribute this association to an increase in the demand for auditing services. / Thesis (PhD) — Boston College, 2009. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

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TaiPower is the only power company in Taiwan engaged in the businesses of power generation, transmission, and distribution, and it has been operated as a state monopoly. However, under the impact of liberalization of power industry, it is losing its competitive edge as a state monopoly. A great challenge facing TaiPower is how to bolster its customer service within a short timeframe in order to safeguard its customer base and market share. Since TaiPower¡¦s Branch Offices are in the forefront of serving customers and generating new revenues, it is the main purpose of this thesis to find ways to strengthen their sales and marketing. To this aim, the thesis first explores the impact and influence of power industry liberalization on TaiPower, followed by an analysis of the marketing challenges facing the TaiPower¡¦s Branch Offices versus their competitive advantage. Finally, this thesis proposes a marketing strategy in response to the power industry¡¦s liberalization. The research on ¡§Marketing Strategy for TaiPower¡¦s Branch Offices¡¨ resulted in the following recommendations: 1.The Branch Offices should adapt and follow the business principles of ¡§Integrity, Caring, Innovation, and Service¡¨ in concert with Headquarters. 2.The Branch Offices should work with Headquarters to restructure the corporate culture to transform from a ¡§producer culture¡¨ to a ¡§service culture¡¨. 3.The Branch Offices should fortify service-based marketing to preserve their market advantages. a.Simplify all application workflows for customers. b.Segregate target markets into groups to provide customized service for each group. c.Set competitive pricing and strengthen integrated marketing. d.Open up communication channels, and protect customers¡¦ rights and interest. 4.Each Branch Office should enhance its power distribution network, and improve the quality of the power. a.Expand power distribution network and equipment. b.Revamp antiquated power distribution lines. c.Improve the quality of power. 5.Each Branch Office should strengthen its core competencies, and improve its business efficiency and effectiveness. a.Advance core technologies in power distribution. b.Advance core technologies in power sales. c.Pay close attention to the quality of internal services and boost employees¡¦ satisfaction with the company. d.Improve knowledge management and promote e-services. 6.Each Branch Office should fulfill its duties as a corporate citizen, and establish a good corporate image. a.Put into practice the culture of safety and improve environmental protection. b.Take good care of employees and pay attention to the needs of the society to project a good corporate image.

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This paper examines trade openness and economic growth. What has been the effect of openness to trade on economic growth in Kenya? Kenya’s trade policies have emerged since independence, it has improved from import substitution to progressive liberalization through emergence of export processing zones, reduction of tariffs levels, eliminated price controls and licensing requirements leading to modest growth in trade Republic of Kenya (2005). Although the country has improved in it’s trade policies, it is still counted as mostly unfree. Empirical evidence suggests that free trade leads to a better economic performance in different channels, however the evidence has been questioned because of the doubts on how trade openness of a country should be measured and methodology estimation. The study uses trade intensity as a measure of trade openness. Applying Ordinary least squares using a time series data obtained from the World Development Indicators a negative relationship is seen between trade openness measure and Gross domestic product in Kenya. A Granger causality test is done also to determine whether trade liberalization can be used to give significant information about the economic growth of Kenya or vice versa. Vector Auto regression model (VAR) is used to determine the Granger causality. In the OLS regression model measures of openness, labor and capital are significant.

The first chapter studies the effects of financial obstacles to productivity improvement in the context of trade reforms, by constructing a dynamic heterogeneous firms model with financial frictions. Trade reforms are considered beneficial because they confront the liberalized country’s firms with more competition from abroad and increase their incentives to become more efficient. This implies that if poor countries do not improve their productivities they might lose the intended gains from liberalization. Financial frictions however have been quoted an important obstacle for firms to improve their productivities. To address these issues, first, using data on 15 trade liberalization episodes, I document that more financially developed countries experienced more productivity growth after their trade liberalization. Second, I construct a dynamic heterogeneous firms model with financial frictions in financing costs for productivity improvement. Calibrated numerical exercises show that if a country does not improve its financial intermediaries at the outset of trade liberalization it may lose as much as %40 of potential output gains and productivity improvements. The result has policy implications regarding the simultaneous reforms in trade and financial intermediaries. The Second chapter is a cross country empirical analysis aiming to provide evidence for the effects of trade openness and financial development on firms decision to upgrade their technology and the impact on the distribution of firm size across countries. The idea is that reduction of trade barriers is likely to affect incentives of bigger firms to grow to export markets as well as incentives of smaller firms to innovate due to increased competition. Financial frictions, however are likely to limit the scope of these decisions and more so for smaller firms and capital intensive industries. This is likely to have heterogeneous effects on firms leading to changes in firm size distribution. I hypothesize that a combination of trade openness and low financial development increases the relative size of big to smaller firms. To test this hypothesis, I take advantage of cross country/industry differences in trade protection and financial development/needs to provide enough variation for identifying these effects. Using establishment level data from OECD countries, I provide evidence for this hypothesis, by performing double difference estimations. In addition using firm level data on 20,000 firms from World Bank’s enterprise survey, I provide more evidence that trade openness promotes productivity growth particularly for bigger firms in less financially developed countries. The finding contributes to the literature on importance of finance for firm growth by focusing on the channel of heightened competition due to trade. It highlights the importance of incorporating financial aspects of a country in trade analysis. The third chapter is an exercise exploring the welfare gains of trade in a North-South trade where counties are asymmetric in their ability to produce more sophisticated goods. The exercise is based on the model by Matsuyama (JPE 2000), where the world is a static Ricardian model with a continuum of goods and unit demand non-homothetic preferences. One country (the south) has comparative advantage in production of goods with lower income elasticity of demand. As a result, over time with uniform global improvement in technology in the form of smaller unit labor requirements, the terms of trade moves against south. The numerical exercise, calibrates stochastic interpretation of the model to for a specific choice of countries and provides evidence that over time, if the patterns of specializations are not changed drastically, the country specialized in production of less sophisticated goods disproportionately grows less than the other one and has the terms of trade moving against it. / text

AN ABSTRACT OF THE THESIS OF Tsenolo Leche, for the Master of Science degree in Agribusiness Economics, presented on October 29, 2009, at Southern Illinois University Carbondale. TITLE: AGRICULTURAL TRADE: PROSPECTS FOR LIBERALIZATION AFTER URUGUAY AND DOHA ROUNDS MAJOR PROFESSOR: Dr. Wanki Moon Chapter 1 outlines the goal of the project by evaluating the prospects for agricultural trade liberalization by analyzing the progress and setbacks of the Uruguay and Doha Rounds. The international trade framework is analyzed with consideration of standard trade theory, agricultural protectionism, agricultural trade liberalization efforts and assessment of the prospects for liberalizing agricultural trade in the future. Chapter 2 deals with two issues of standard trade theory: economic rationales for trade and efforts to liberalize trade in industrial goods after World War II. Evidence suggests free trade is a stimulus for growth and development. Empirical evidence suggests liberalization of trade increases economic growth, decreases poverty, increases productivity and increases technology transfer. Global efforts to liberalize trade in industrial goods after World War II are summarized. Efforts to liberalize trade in industrial goods started in 1947 with the formation of the General Agreement of Tariff and Trade (GATT), a multilateral body. Subsequently, the chapter briefly discusses the GATT's accomplishments through its various rounds of multilateral trade talks. It also looks into other channels that the international community pursued to liberalize trade such as regional trade liberalization, one-way trade to developing countries and unilateral trade liberalization. Chapter 3 examines the history of agricultural protectionism in general and in developed countries. Furthermore, it explains theories behind agricultural protectionism. It identifies instruments countries used to protect their agricultural sector before the Uruguay Round Agreement on Agriculture (URAA) and in the post-Uruguay period. Chapter 4 examines efforts to liberalize agricultural trade beginning with the Uruguay Round, and including the GATT multilateral trade talks that brought agriculture under the discipline. It examines the commitments and limitations of the round in agriculture trade liberalization under three pillars of trade namely market access, export competition and domestic support. Subsequently, ongoing Doha Development Agenda Rounds are analyzed. Further, it examines the July 2004 framework and proposals from member countries for advancing agricultural trade liberalization. Chapter 5 measures the influence of the European Union's Common Agricultural Policy (CAP) and the U.S.'s Farm Bills on multilateral agricultural trade liberalization negotiations and their influence on the agricultural policies of both the European Union and the U.S. The impact of multifunctionality of agriculture on multilateral agricultural trade liberalization negotiations is discussed. Finally, the chapter focuses on the various perspectives by examining the roles of developing countries in the evolution of the Doha Development Agenda. Chapter 6 assesses the prospects for agricultural trade liberalization by examining agricultural trade following World War II, the WTO's Uruguay and Doha Rounds and the impact of four members of the WTO on international trade. Chapter 7 concludes that agricultural trade liberalization after the Uruguay and Doha Rounds is not likely to be as free as industrial trade liberalization because of some unique characteristics of agriculture. Based on both the Uruguay and Doha Rounds, the main goal seems to be reduction of trade-distorting domestic supports, improvement of market access and phasing out and eventual elimination of export subsidies.

Chapter 1 develops a two-period general equilibrium trade-theoretic model to examine if foreign aid discourages the recipient countries from pursuing trade liberalization. In the model, foreign aid is given to the recipient in period two and its amount is negatively related to the period-one real income. The recipient optimally chooses a tariff on imports. It can also choose domestic investment endogenously in period one, and this choice has an important bearing on our main result. We consider two variants of the model depending upon whether the recipient can or cannot have access to international borrowing. In the case without international borrowing, when domestic investment is exogenous, optimal tariff is zero. In contrast, when domestic investment is endogenous, optimal tariff is positive. This positive optimal tariff is induced by the link of aid negatively to the period-one real income. In the case with international borrowing, even though domestic investment is exogenous, optimal tariff is positive. But the reason for the positive tariff is its beneficial effect on an improvement in the terms-of-trade of international borrowing. When, in addition, domestic investment is endogenous, the tying of aid increases positive optimal tariffs further. Chapter 2 develops a microeconomic model of health policies and the optimal allocation of health aid in a poor recipient country. In the model, each poor household in the country chooses the optimal number of sick children taken to hospitals to maximize its lifetime utility. There are three policy options for policymakers to improve public health: raising the quality of health care, providing more preventive care and reducing the cost of health care. We examine how three policy options influence the optimal number of sick children who are medically treated. Also, the country's health authority allocates health aid for three policy options to support poor households' lifetime utility maximization. We find that more health aid should be allocated for cost reduction in health care so as to help poor households maximize their lifetime utility. Chapter 3 primarily examines the hypothesis that there is heterogeneity in health aid, that is, different types of health aid work differently for health outcomes in aid-recipient countries. In order to test our hypothesis, we first disaggregate health aid per capita data into three policy options: health aid per capita for improving the quality of health care, health aid per capita for providing preventive care and health aid per capita for reducing the cost of health care. Then, we empirically examine the effects of disaggregated health aid on three different health indicators: child mortality, life expectancy and death rate. Using a panel data set of 119 aid-recipient countries from 1975 and 2010, we find supporting evidence for the hypothesis of heterogeneity in health aid. We find no empirical evidence of the beneficial effects of health aid on reducing child mortality. In contrast, we find that an improvement in life expectancy and a reduction in death rate are driven mostly by health aid for reducing the cost of health care. We also find that there is heterogeneity in the allocation of health aid. Health aid for preventive care and the cost reduction of health care is allocated by the needs of the recipients. However, more health aid for the quality of health care flows to countries with better health status.