Q2. What have the authors stated for future works in "Does foreign direct investment promote growth? exploring the role of financial markets on linkages" ?
Furthermore, the possibility of imported intermediate inputs would hinder the extent of backward linkages. Future research should allow for tradability of intermediate inputs, and for differential use of alternative sources of intermediate inputs across domestic and foreign firms.
Q3. What is the evidence that is closest to the spirit of their model?
The evidence that is closest to the spirit of their model is from the consumption literature that uses a constant elasticity of substitution utility function between varieties of domestic and foreign goods, or between tradable and non-tradable goods.
Q4. What are the main factors that can lead to the decision to invest in a country?
domestic factors, such as opportunities to tap into local resources, access to lowcost inputs or low-wage labor, or bypass tariffs that protect a market from imported goods can also lead to the decision to invest in a country rather than serve the foreign market through exports.
Q5. What is the value of the reciprocal of (1+mark-up)?
Intermediate input sector: Based on the work of Basu (1996), the mark-up is assumed to be 10%, and hence the value of the reciprocal of (1+mark-up) is given by α=0.91.
Q6. What is the corollary of assuming the same total labor share?
A corollary of assuming the same total labor share is,γf−γd = βd−βf : ð8ÞFollowing Ethier (1982), the authors assume that, for a given aggregate quantity of intermediate inputs used in the final good production, output is higher when the diversity in the set of inputs used is greater.
Q7. What is the way to measure the development of the financial markets?
Given that the spread between the lending and borrowing rates better captures the spirit of their model, the authors prefer it as the measure for the development of the financial markets.
Q8. What is the reason why multinationals in the Czech Republic do not source higher percentage of inputs?
Their survey evidence reveals that one of the reasons multinationals in the Czech Republic, for example, do not source higher percentage of inputs domestically is the fact that local firms lack funding for investment necessary to become suppliers.
Q9. What is the reason why the authors argue that there is an aggregation bias?
The authors argue that there is an aggregation bias caused by differences in terms of efficiency units of the different types of labor.
Q10. How many countries have the ratio of unskilled labor to skilled labor?
the authors set the ratio of unskilled labor to skilled labor equal to 12 for the poor countries, 9 for the middle income countries, and 5 for the rich countries.
Q11. How does Ruhl (2005) find that is an appropriate value?
Ruhl (2005) provides a detailed overview of the Armington elasticity, i.e., the elasticity of substitution between foreign and home goods, and finds that an appropriate value for ρ is around 0.2.30
Q12. How do the authors rule out the possibility of a fixed fraction of the current income?
To rule out these possibilities, the authors assume that households are credit constrained and can borrow at most a fixed fraction of their current income.