Degree of Innovativeness and Market Structure : A Model

-- Daniela Grieco

A stylized fact shows that firms rarely seek for radical breakthroughs and more frequently invest in small improvements of the existing technology. This paper proposes a model that compares firms' value when firms can invest in strategies implying different degrees of innovativeness. The model shows that incremental strategies emerge as a dominant strategy for oligopolists when imitation of incremental innovation is sufficiently slow and firms are not too asymmetric in their access to knowledge. If these conditions are not respected, the model exhibits an additional symmetric Nash equilibrium where firms select radical innovations.

© 2007 IUP . All Rights Reserved.

The Governmental Activity and Private Capital Investment

-- Ingrid Ott and Susanne Soretz

This paper analyzes in the context of a dynamic model, how firms decide on capital investment if the accompanying adjustment costs are a function of the governmental activity. The government provides the public input and decides on the degree of rivalry. The productive public input enhances private capital productivity and reduces the adjustment costs. An equilibrium in which capital and investment ratio are both constant is derived; comparative dynamic analysis is carried out; and policy implications of the model are discussed. Increasing the amount of the public input unequivocally spurs the capital investment, whereas the result becomes ambiguous with respect to the impact of rivalry. Since a reduction in congestion increases the individually available amount of public input, crowding out effects may lead to a reduction in the equilibrium capital stock. Although most of the analysis is conducted in the context of general production functions, the case of Constant Elasticity of Substitution (CES) production function is exclusively considered.

© 2007 IUP . All Rights Reserved.

The Determinants of Foreign Direct Investment in China: A Survey

-- Chee-Keong Choong and Siew-Yong Lam

The increasing trend of Foreign Direct Investment (FDI) in China has made it attractive and lucrative. China's main attraction is its huge market, workforce, resources and liberalization of trade by the state government. The study, therefore, aims to identify the key determinants of FDI in China. The three main factors identified through the Analytic Hierarchy Process (AHP) approach, are political, economic and cultural factors and their sub-factors . Further detailed analyses were done through development of hypothesis and weighted priority technique. Results indicate that political factors are most important followed by economic and cultural factors. Considering the importance and priorities of each factor, recommendations are made to Government of China, and also to the current and prospective investors. The policy makers have to implement consistent policies and be able to respond flexibly to potential investors, through continuous improvement of policies, and establishment of research institutes. In addition, it is recommended to the investors to make periodic risk assessment, to understand the market conditions and policies and to develop `guanxi' with the respective parties. Flexibility of both government and investors are thus crucial to ensure success of FDI in China. Ultimately, it could ensure a higher degree of success, if substantial attention is given to fulfill the requirements of each of the key success factors, while investing in China.

© 2007 IUP . All Rights Reserved.

Industrial Sickness in India: Dimensions, Threats, and Remedies

-- B K Singh

Industrial sickness is one of the most complex problems of the Indian economy. Inspite of the different measures taken by the Government the problem persists. The rise has remained unabated, even in the years after the passage of the Sick Industrial Companies Act (SICA) and the creation of the Board for Industrial and Financial Reconstruction (BIFR). The study reveals that sick units have not only lost their net worth, but they have also lost capital raised from sources other than ownership. The extent of accumulated losses of sick units in India, is about two times that of the net worth of the sick units. The study reveals the failure of the policies in controlling industrial sickness in India, and puts forward certain suggestions to revamp the policy framework so as to effectively tackle the problem.

© 2007 IUP . All Rights Reserved.