Manufacturing employment in the United States trended downward between 1979 and 1993. Geographically, the Northeast and Mideast regions incurred the brunt of this decline and, except in the Southwest region, urban counties tended to fare worse than rural counties. Meanwhile, foreign-owned manufacturing associated with new plants has been playing a larger role in the U.S. economy, especially in the Southeast region. The current research explains the pattern at the county level of new foreign plant location. Economic size, labor force quality, agglomeration and urbanization economies, and transportation infrastructure are found to affect positively the location of new foreign-owned plants, while unit labor costs and taxes are found to deter new plants. Comparing regions, our results reveal that the key advantages of the Southeast region stem from relatively high manufacturing density and low taxes. Comparing urban with rural counties, we found that nearly all the explanatory variables possess average values for urban counties that are more favorable to foreign direct investment. For example, the labor force is relatively more productive and skilled in urban than in rural counties.

/pdf/location-determinants-of-new-foreign-owned-manufacturing-43v244ofz8.pdf

Location Determinants of New Foreign-Owned Manufacturing Plants

This paper examines the impact of operational hedges of US multinational corporations (MNCs) on their exchange rate exposure. The two important contributions of this study are as follows. First, this study documents the importance of operational hedges as significant determinants of exchange rate risk as measured by "breadth" and "depth" dimensions of the MNC foreign subsidiary network. Second, this finding remains robust even after examining the impact of operational hedges on exposure separately for net exporting and net importing MNCs.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID250045_code001210580.pdf?abstractid=250045&mirid=4

Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations

This paper analyzes the determinants of currency substitution in Bolivia in the period following the 1984/85 hyperinflation. We find that expected exchange rate depreciation and actual interest rate differentials between boliviano and dollar deposits in the Bolivian banking system are statistically significant determinants of the degree of currency substitution. However, the explanatory power of these variables is low compared to variables that measure the degree of inertia in the currency substitution process. Thus, further reductions in inflation or higher interest rates for boliviano bank deposits are likely to have but a small effect on dollarization.

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=884913

Currency Substitution: The Recent Experience of Bolivia

REAL EXCHANGE rate is defined as the foreign currency price of a unit of domestic currency (that is, the nominal exchange rate) multiplied by the ratio of the domestic to the foreign price level. The real exchange rate has been at the center of economic policy discussions in the 1980s for at least two reasons. First, this relative price has been more variable in the floating-rate period than in the preceding era of fixed (nominal) exchange rates.’ Second, this price is related to international trade patterns because the competitive position of an individual exporting (import-competing) firm in a country is affected adversely by an appreciating (depreciating) real exchange rate.’

/pdf/what-do-we-know-about-the-long-run-real-exchange-rate-3p2djy0gwq.pdf

What Do We Know About the Long-Run Real Exchange Rate?

The real exchange rate is an important concept in economic theory, but it is not directly observable and must be constructed, usually as an index. The construction of such indices requires a number of decisions – which currencies to include, the appropriate weighting scheme and the price measures to use – which materially alter the results. Unfortunately, theory often gives very little guidance on the appropriate assumptions to make when constructing an exchange rate index. This paper discusses the various choices, highlighting their differing implications. Some of the practical issues of calculation are also reviewed. Several exchange rate indices that have been used in analytical work in the Reserve Bank are presented. These will be updated quarterly on the Reserve Bank website at .

/pdf/measuring-the-real-exchange-rate-pitfalls-and-practicalities-1jhwixgqii.pdf

Measuring the Real Exchange Rate: Pitfalls and Practicalities

A new alternative trade-weighted dollar exchange rate index

A comprehensive new real dollar exchange rate index

Effects of the lower dollar on U.S. manufacturing: industry and state comparisons

Money and inflation in a deregulated financial environment

This article shows the equivalence between tariffs on international trade and income taxation. Traditionally, income taxes have been seen as lowering society's output through the household's labor-leisure trade-off. Income taxes also reduce the degree to which individuals specialize in market activity, which is similar to the way countries respond to tariffs in international trade. Income taxes discourage individuals from specializing in activities that reflect their comparative advantage. In so doing, income taxes may have their most distorting effects, not by encouraging individuals to work less but by causing them to spend more time working at endeavors for which their talent is limited. Using a general model of interpersonal exchange, the authors demonstrate parallels between income taxes and tariffs. Over a range of income taxes, raising taxes can benefit large groups of similarly skilled individuals and hurt small groups. As in tariff theory, the costs of income taxes are small only if they succeed in raising revenue. Thus, it is very costly for an economy to be on the downward portion of its tax revenue (Laffer) curve. The more heterogeneous the society, the higher the income tax rate that will maximize tax revenues. By overlooking the effects of heterogeneity in the workforce and the potential for workers to flee to home production, policymakers may under- or overestimate the effects of income taxes on various sectors of the economy and tax with unintended consequences.

Income taxes as reciprocal tariffs

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