The effect of capital controls on interest rate differentials

Article Abstract:

In this paper we present a model of international interest rate arbitrage under conditions of entry and exit costs to and from the domestic capital market. We seek to measure the maximum potential effect of capital controls, such as non-interest paying reserve requirements, on interest rate differentials. We quantify the effect of such taxes using a dynamic optimization model with uncertainty and transactions costs. An optimal (S, s) rule gives the limits for interest rate differentials that trigger capital inflows and outflows. We also calculate maximum interest rate differentials for various maturities and study the effect of parameter changes. Using parameters estimated for the Chilean economy, the model shows that the effect of capital controls on interest rate differentials is considerably smaller than what static calculations suggest. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Interest rate differentials; Capital controls JEL classification: E43; F21; F33

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Contracts, intellectual property rights, and multinational investment in developing countries

Article Abstract:

The policy debate between multinational firms favoring strong contract law, and host-country governments who often oppose such protection motivates the paper. Local agents (managers) learn the multinational's technology and can defect to start a rival firm. Contract enforcement, including binding the multinational itself, makes the multinational better off. Outcomes for the host country are more complex, depending on mode switches induced by enforcement. If enforcement induces the multinational to switch from exporting to local production, welfare improves. If local production was occurring anyway, enforcement may result in the loss of rents to local agents and lower welfare. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Contracts; Intellectual property rights; Multinational investment; Developing countries JEL classification: F12; F23

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Intellectual property rights, licensing, and innovation in an endogenous product-cycle model

Article Abstract:

We develop a dynamic general-equilibrium model of the product cycle to study the effects of stronger intellectual property rights (IPRs) in the South on the incentives of firms in the North to innovate and to license advanced technologies. Innovation and licensing are random processes requiring resources. Stronger IPRs increase the licensor's share of rents and reduce the costs of licensing contracts. Thus, the returns to both licensing and innovation would rise while additional resources would be available for R&D. In consequence, innovation and technology transfer would rise. However, the effect of stronger IPRs on relative wages between regions is ambiguous. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Licensing; Innovation; Intellectual property rights JEL classification: F12; O34; D82

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