Market Size, International Trade, and Institutional Quality

2019 ◽  
Author(s):  
Xuan Luo
Keyword(s):  
International Trade ◽  
Institutional Quality ◽  
Market Size

Multinational franchise entry and institutional quality: evidence from Mexican cities

2017 ◽  
Vol 15 (3) ◽  
pp. 313-337 ◽  
Author(s):  
Alexandros Fakos ◽  
Maria Merino
Keyword(s):  
Fast Food ◽  
Sample Selection ◽  
National Level ◽  
Institutional Quality ◽  
Foreign Market ◽  
Institutional Factors ◽  
Market Size ◽  
Content Type ◽  
Log Linear ◽  
The City

Purpose The purpose of this paper is to document the extensive heterogeneity in institutions within countries and investigate which institutional factors are the most relevant for international brands. Design/methodology/approach The paper analyzes the entry patterns of three global fast-food franchise networks in 78 Mexican cities using discrete outcome models and ordered probit in particular. To summarize the quantitative importance of the results, the analysis includes also log-linear regressions with Heckman correction for the city observations without franchise presence. Findings Institutional factors are critical for an international franchisor in the decision to enter a new market. The most important institutional quality proxy for franchise entry is the rate of formal employment. The more the informal employment in a city, the lower the number of franchised stores and the lower the probability of brand presence in the city. Research limitations/implications Only three fast-food franchises are included in the paper, which limits the generalization of the results beyond the sector and Mexico. Another limitation of the methodology of this paper is that the authors estimate the effect of institutions on multinational franchise entry conditioning on market size. The issue here is that if institutions increase gross domestic product (GDP) per capita, then the demand for multinational franchises also increases. Such an effect cannot be captured if we condition on market size in our econometric models. This is particularly important for policy-makers aiming to quantify costs and benefits of reforms but not an important consideration for practitioners who might take institutions as given and are mainly interested in entry strategies that maximize profitability. Practical implications Institutional variables, and not only market factors, are critical to understand the entry decision of global franchisors in Mexico. In particular, the extent of informality is relevant in explaining the store location. It is necessary to understand how managers value the quality of institutions and which dimensions are most important for multinationals. In addition, the analysis should be conducted both at the national and sub-national level, given that within-country heterogeneity is prevalent in emerging markets. Social implications Cities must reinforce and communicate their institutional quality to attract foreign investment by franchises in particular. Originality/value We test several dimensions of institutional quality at the urban level as determinants of multinationals? decision to enter a city in a foreign market. We use novel administrative data at the municipality level and we employ econometric model that takes into account the discreetness of entry data and the fact that there are cities with no franchise presence. We control for sample selection, which comes from the zero number of stores in some city observations in the regressions.

scholarly journals The Role of Institutional Environment in International Trade. The Case of Spanish Regions

REGION ◽  
2016 ◽  
Vol 3 (2) ◽  
pp. 125
Author(s):  
Laura Márquez-Ramos
Keyword(s):  
International Trade ◽  
Spatial Variation ◽  
Institutional Environment ◽  
Institutional Quality ◽  
Trade Agreements ◽  
Common Trend ◽  
Spanish Regions ◽  
Heterogeneous Effect

We move beyond the nation-state as the unit of analysis and use subnational spatial variation to study the effect of the institutional environment on international trade. Additionally, we address the heterogeneous effect of trade agreements on different regions within a country. Employing a gravity model approach, we use a region-to-country dataset to estimate the determinants of Spanish regional exports and we apply quantile regressions for panel data. We find that better institutional quality of trade agreements leads to an increase in both the intensive and the extensive margins of trade. The institutional quality of trade agreements exerts a differential effect on regional exports at different locations within a country, although differences across Spanish regions seem to be larger for the intensive margin than for the extensive margin. We do, however, find a common trend: for the relatively more important exporting regions, the institutional quality of TAs is less relevant for trade margins. Therefore, our results posit that subnational spatial variation should be added to the analysis of the determinants of international trade flows.

scholarly journals Institutional Quality and International Trade

2004 ◽  
Vol 04 (231) ◽  
pp. 1 ◽  
Author(s):  
Andrei A. Levchenko ◽  
Keyword(s):  
International Trade ◽  
Institutional Quality

scholarly journals Transaction Costs and Institutions: Investments in Exchange

2015 ◽  
Vol 15 (2) ◽  
Author(s):  
Charles Nolan ◽  
Alex Trew
Keyword(s):  
Simple Model ◽  
Transaction Costs ◽  
Institutional Quality ◽  
Policy Implications ◽  
Market Size ◽  
Efficient Allocation ◽  
Measurement Issues ◽  
The Cost

AbstractThis paper proposes a simple model for understanding transaction costs – their composition, size and policy implications. We distinguish between investments in institutions that facilitate exchange and the cost of conducting exchange itself. Institutional quality and market size are determined by the decisions of risk adverse agents and conditions are discussed under which the efficient allocation may be decentralized. We highlight a number of differences with models where transaction costs are exogenous, including the implications for taxation and measurement issues.

scholarly journals Trade and Variety in a Model of Endogenous Product Differentiation

2009 ◽  
Vol 9 (1) ◽  
Author(s):  
Oliver Lorz ◽  
Matthias Wrede
Keyword(s):  
International Trade ◽  
Product Differentiation ◽  
Market Size ◽  
Fixed Costs ◽  
Trade Integration ◽  
Horizontal Differentiation ◽  
Degree Of Differentiation ◽  
Number Of Firms

Abstract This paper sets up a model of endogenous product differentiation to analyze the variety effects of international trade. In our model multi-product firms decide not only about the number of varieties they will supply but also about the degree of horizontal differentiation between these varieties. Firms can raise the degree of differentiation by investing variety-specific fixed costs. In this setting, we analyze how trade integration, i.e. an increase in market size, influences the number of firms in the market, the number of product varieties supplied by each firm, and the degree of differentiation between these varieties.

scholarly journals Comparative Advantage in Innovation and Production

2021 ◽  
Vol 13 (3) ◽  
pp. 357-396
Author(s):  
Mariano Somale
Keyword(s):  
International Trade ◽  
Dynamic Model ◽  
Comparative Advantage ◽  
Real Income ◽  
Trade Costs ◽  
Manufacturing Industries ◽  
Market Size

This paper develops a dynamic model of innovation and international trade in which agents can direct their research efforts to specific goods in the economy. Trade affects the direction of innovation through its impact on the expected market size for an invention, leading to a two-way relationship between trade and technology absent in standard quantitative Ricardian models. Following a theory-consistent strategy to estimate the extent of endogenous adjustments in technology, I find that they can account for about half of the observed variance in comparative advantage in production in a sample of 29 countries and 18 manufacturing industries. In addition, the model suggests that standard Ricardian models overestimate the reductions in real income from increases in trade costs and underestimate the rise in real income due to trade liberalizations. (JEL F11, F14, L60, O31, O32)

Sign in / Sign up

Export Citation Format

Share Document