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Topics in International Trade & Finance, R&D Investment, and Trade & Financial Sanctions Against Iran

Paper Session

Saturday, Jan. 4, 2020 12:30 PM - 2:15 PM (PDT)

Manchester Grand Hyatt, Harbor E
Hosted By: International Trade and Finance Association
  • Chair: Joseph Pelzman, George Washington University

R&D Tax Credit Effectiveness: Evidence from South African Manufacturing Firms

Marta Bengoa
,
City University of New York and University of Johannesburg
Erika Kraemer-Mbula
,
University of Johannesburg
Fiona Tregenna
,
University of Johannesburg

Abstract

We measure R&D activity in terms of in-house investment on R&D and investment on royalties. We use regression-based analysis -2SLS and GMM estimations- and also explore causal links using coarsened exact matching and propensity score models. Our results indicate that firms that undertake one of these R&D activities typically do not undertake the other, suggesting that firms may regard these as alternative strategies. In baseline regressions on the determinants of R&D, we find receipt of a R&D tax credit to be a positive and highly significant influence on expenditure on in-house R&D, but a negative and mostly insignificant influence on royalties; this is likely to be related to the apparent substitutability between these two forms of R&D investment. The causal analysis reveals that the R&D tax incentive is highly effective in incentivizing innovation and R&D, across a range of measures, with the notable exception of expenditure on royalties where the effect is negative and insignificant. We also find the R&D tax policy to have a positive and highly significant effect on firms’ export performance. The results are valid to sensitivity testing, and robust and consistent across alternative specifications and estimation methods. The findings show that South Africa’s R&D tax credit is highly effective in promoting investment on R&D in manufacturing firms, and positively affects firms’ export performance. The limited take-up of the tax credit despite this effectiveness, points to the importance of policy measures to encourage take-up. The results are of particular interest for developing countries, for which the existing literature on effectiveness of R&D tax credits is limited, and where the promotion of R&D is considered important for growth.

The Economic Effects of the Re-Imposed United States Sanctions on Iran and Its Spillover on MENA, the PRC, Russia and Turkey

Joseph Pelzman
,
George Washington University

Abstract

The focus of this paper is designed to identify the alternative countries within MENA that could potentially replace Iranian exports, and those that could replace Iran as an import market as sanctions are re-imposed. In addition to identifying potential substitute suppliers within MENA, the paper also examines the unintentional consequences of re-imposing sanctions in a world where the USG does not have complete compliance from its partners, and/or may encounter active challenge from non-allied countries. Specifically, the paper finds that China looms as the overwhelming unintended beneficiary of the re-imposition of the Iranian sanctions. The other countries that share benefits are Turkey and Russia. None of these countries are expected to comply with the re-imposition of sanctions.
The paper also presents the econometric simulations of the magnitude of the potential trade displacement impacts arising from further sanctions on Iran, and presents the projected alternative trade channels both within and outside of MENA through which the sanction’s impacts on third countries could be mitigated

The Nexus between Remittances, Institutional Quality and Financial Inclusion

Murat Issabayev
,
Narxoz University
Hayot Berk Saydaliyev
,
Suleyman Demirel University
Veysel Avsar
,
Texas A&M University

Abstract

This paper uses dynamic panel data method to investigate the nonlinear effect of remittance inflows on financial inclusion in high remittance-receiving developing countries for the period of 2011-2017. The paper found that initially remittances contribute negatively to financial inclusion which is measured by an opening bank account and then positively at a later stage. In the early periods, the use of remittances seemed to be unproductive. However, with the passage of time increasing remittances associated with better institutional quality, proxied by trust and bureaucracy, were witnessed to lead to more productive utilization. In contrary to the existing literature stating that remittances foster financial inclusion, our evidence show that the effect of remittances on opening bank account is conditional on the level of inflow of remittances and people perception about institutions. The results suggest the impact of remittances on financial inclusion is in the form of U-shape. Policy implications of findings are evaluated.

After a Decade of Turbulence, Do Banks in MENA Sound Sound? A Tale of Two Shocks Oil and Social Unrest

Ahmed Mohamed Tawfick Rostom
,
World Bank and ERF
Leila Aghabarari
,
World Bank

Abstract

This paper examines the effect of economic growth and macroeconomic policies on banks’ soundness in MENA over the past decade period 2007–2017. The one-step system GMM estimator is used to test the persistence of banks’ soundness in Oil-exporters and -importers in the MENA region. The region has been subject to several social and economic shocks that have sever implications on the banking sector soundness and is testing the resilience of the sector in many countries in the region.
The main questions that we ask in this paper is two folds. First, what is the impact of macroeconomic policy and growth on the soundness of the banking sector in oil-importers and -exporters MENA region. Second, how do oil prices affect banking soundness in oil-importers and -exporters in MENA?

Disruptions to World Trade by Recent US Trade Policies

Alexandra Zimmer
,
Newberry College
Sarah K. Bryant
,
Newberry College

Abstract

Trade is crucial to the global economy, which is demonstrated by the overall rise in the fortunes of most countries since the mid-1900s. However, just over the past year, the United States government has disrupted the patterns of US trade by threatening or imposing trade barriers on its long-term trading partners. International companies are caught in the trade disputes between governments. Trade barriers disrupt supply chains, increase costs, and increase risk through uncertainty. This study examines the effects of trade disruptions on companies that trade from and with the United States. Results demonstrate the folly of the latest political disorder to the US and world economies.
Discussant(s)
Joseph Pelzman
,
George Washington University
Maria E. de Boyrie
,
New Mexico State University
JEL Classifications
  • F6 - Economic Impacts of Globalization
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights