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Developing the Guts of a GUT (Grand Unified Theory): Elite Commitment and Inclusive Growth

Lant Pritchett and Eric D. Werker

Why do some countries successfully initiate episodes of rapid growth while others suffer extended stagnation? Furthermore, why are some countries able to sustain growth episodes over many decades of rapid or steady growth, while other growth episodes end in reversion to stagnation or collapse? This paper represents an initial step in a research agenda aiming to build a unified theory of growth that considers the complex dynamics and varied roles of elites. The analytical model suggested here is capable of generating both transitory and sustained episodes of accelerated growth. As Pritchett and Werker argue, progress on a unified theory of growth would explain, better than current long-run growth theories, the onset of growth episodes. It would also examine how the dynamics of growth interact with existing political and institutional configurations to produce feedback effects on policy and institutions such that some growth episodes end in bust or stagnation while others are continued. Read More

Dollar Funding and the Lending Behavior of Global Banks

Victoria Ivashina, David S. Scharfstein, and Jeremy C. Stein

A striking fact about international financial markets is the large share of dollar-denominated intermediation done by non-US banks. The large footprint of global banks in dollar funding and lending markets raises several important questions. This paper takes the presence of global banks in dollar loan markets as a given, and explores the consequences of this arrangement for cyclical variation in credit supply across countries. In particular, the authors show how shocks to the ability of a foreign bank to raise dollar funding translate into changes in its lending behavior, both in the US and in its home market. Overall, the authors identify a channel through which shocks outside the US can affect the ability of American firms to borrow. Although dollar lending by foreign banks increases the supply of credit to US firms during normal times, it may also prove to be a more fragile source of funding that transmits overseas shocks to the US economy. Read More

Funding the Design of Livable Cities

As a burgeoning global population migrates to the world's urban centers, it's crucial to design livable cities that function with scarce natural resources. John Macomber discusses the critical connection between real estate financing and innovative design in the built environment. Open for comment; 4 Comments posted.

Developing the Global Leader

The shift from a country-centric company to one more global in its outlook will have a radical impact on leadership development, says Professor of Management Practice William George. Open for comment; 14 Comments posted.

Unobserved State Fragility and the Political Transfer Problem

Faisal Z. Ahmed and Eric Werker

This paper describes how the dynamics of unobserved state fragility may generate negative consequences for other countries. Ahmed and Werker argue for the theoretical possibility that autocrats experiencing a windfall in unearned income may find it optimal to donate some of the windfall away in order to make the state less attractive a prize to a potential insurgent. Additionally, recipients of the aid may themselves become more repressive with high aid and fall into conflict with lower levels of aid. These joint phenomena make up what the authors term the political transfer problem. The largest windfall in unearned income of the 20th century, the period from 1973-85 during which oil prices were at all-time highs, produced political dynamics consistent with this model. Read More

Off and Running: Professors Comment on Olympics

The most difficult challenge at The Olympics is the behind-the-scenes efforts to actually get them up and running. Is it worth it? HBS professors Stephen A. Greyser, John D. Macomber, and John T. Gourville offer insights into the business behind the games. Open for comment; 5 Comments posted.

How Technology Adoption Affects Global Economies

In a series of research papers, Associate Professor Diego A. Comin and colleagues investigated the relationship between technology adoption and per capita income. They found that the rate at which nations adopted new tools hundreds of years ago strongly affects whether those nations are rich or poor today. Open for comment; 11 Comments posted.

Collaborating Across Cultures

Learning to collaborate creatively with people from other cultures is a vital skill in today's business environment, says professor Roy Y.J. Chua, whose research focuses on a key measure psychologists have dubbed "cultural metacognition." Open for comment; 24 Comments posted.

Location Choices Under Strategic Interactions

Juan Alcacer

How do firms decide their location when expanding geographically? This paper explores how strategic interaction among competitors affects firms' geographic expansion across time and markets. HBS professor Juan Alcacer builds a model in which two firms that differ in their capabilities enter sequentially into two markets with different potentials for profit. The model is solved using game theory under three learning scenarios that capture the ability of a firm to transfer its capabilities across markets: no learning, local learning, and global learning. Three equilibrium strategies emerge: accommodate, marginalize, and collocate. Alcacer identifies how these strategies are more or less likely to emerge depending on three parameters: initial relative firm capabilities, relative market profitability, and learning rates. For managers, the paper illustrates different ways that firms can use location choices across time and geographic markets as a tool to enhance or preserve their competitive position within an industry. Read More

HBS Cases: Overcoming the Stress of ‘Englishnization’

CEOs of global companies increasingly mandate that their employees learn English. The problem: these workers can experience a loss of status and believe they aren't as effective in their learned language, says Assistant Professor Tsedal Neeley. Open for comment; 18 Comments posted.

Measuring the Efficacy of the World’s Managers

Over the past seven years, Harvard Business School's Raffaella Sadun and a team of researchers have interviewed managers at some 10,000 organizations in 20 countries. The goal: to determine how and why management practices differ vastly in style and quality not only across nations, but also across various organizations and industries. Open for comment; 19 Comments posted.

The Evolving Basis for Legitimacy of the World Trade Organization: Dispute Settlement and the Rebalancing of Global Interests

Arthur Daemmrich

The WTO is reconfiguring people's relationships to goods and services by facilitating trade and the consequent conversion of goods and ideas into property, including ones previously gifted or kept local. Unsurprisingly, there has been considerable opposition from the losers in the free trade system and attendant challenges to the legitimacy of the WTO. Arthur Daemmrich argues that understandings of legitimacy change over time, especially as organizations like the WTO interact with organized interests, including member countries and outside NGOs. He provides a brief history of the WTO as an organizational entity managing the institution of free trade, and a case study of a lengthy international trade dispute between Brazil and the United States over agricultural subsidies generally and cotton subsidies in particular. At the WTO, he writes, an important shift has taken place from the strategy of building organizational legitimacy through expanding membership to institutional deepening via the dispute process. Thus the WTO has become one of a few key sites for working out how knowledge claims will be formulated, framed, and validated on the international level. Read More

Climbing the Great Wall of Trust

New research from Assistant Professor Roy Y.J. Chua investigates the difficulties for foreigners doing business in China, and what they can do to overcome the challenge. Open for comment; 20 Comments posted.

The Organization of Firms Across Countries

Nicholas Bloom, Rafaella Sadun, and and John Van Reenen

Economists have been paying increasing attention to the role that culture plays in a firm's overall performance. This paper focuses on how trust—a key cultural factor—affects firms' decision-making process, size, and productivity. Research was conducted by Nicholas Bloom of Stanford University, Rafaella Sadun of the Harvard Business School, and John Van Reenen of the London School of Economics. Read More

Creating a Global Business Code

In the wake of corporate scandals, many companies are looking more closely at how to manage business conduct worldwide. Realizing the complexity of this issue, Harvard Business School professors Rohit Deshpandé, Lynn S. Paine, and Joshua D. Margolis decided to evaluate standards of corporate conduct around the world—one of the most daunting research projects the three faculty have undertaken. Open for comment; 9 Comments posted.

Designing Cities for a Sustainable Future

The city of the past is likely not the city of the future—climate change is bringing an end to the traditional model. Harvard Business School faculty are thinking along with government leaders and business practitioners about how to create sustainable places to live and work. From HBS Alumni Bulletin. Open for comment; 8 Comments posted.

The Untold Story of ‘Green’ Entrepreneurs

The history of entrepreneurs in green industries is largely unwritten, a fact that Harvard Business School business historian Geoffrey Jones is trying to remedy. In a new paper, Jones explores the edge-of-society pioneers who created the wind turbine industry. Open for comment; 16 Comments posted.

The Globalization of Corporate Environmental Disclosure: Accountability or Greenwashing?

Christopher Marquis and Michael W. Toffel

Between 2005 and 2008, the world saw a dramatic increase in corporate environmental reporting. Yet this transition toward greater transparency and accountability has occurred unevenly across countries and industries. Findings by professors Christopher Marquis and Michael W. Toffel provide the first systematic evidence of how the global environmental movement affects corporations' environmental management practices. Firms' use of symbolic compliance strategies, for instance, is affected by specific corporate characteristics and by institutional context. This study contributes to a larger body of research on the effects of global social movements and environmental reporting. Read More

The International Politics of IFRS Harmonization

Karthik Ramanna

Contrary to its staid image in popular culture, accounting has reigned at the forefront of globalization over the last decade. As of 2010, about 100 countries, including all of the world's major economies, either have adopted a common set of accounting principles known as International Financial Reporting Standards, have initiated an IFRS harmonization program, or have in place a national strategy to respond to IFRS. In fact, the proliferation of IFRS worldwide is one of the most important developments in corporate governance today. Through a series of case studies on Canada, China, and India, Assistant Professor Karthik Ramanna analyzes key similarities and differences in the international political dynamics that contribute to countries' responses to IFRS. His framework helps explain and predict countries' decisions on IFRS harmonization, as well as the potential structure and impact of IFRS in the future. Read More

The Death of the Global Manager

The "global manager" was a coveted job description sought by many leaders for many years, but times have changed—now we are all global managers, says Harvard Business School professor emeritus Christopher A. Bartlett, coauthor of the classic business book Transnational Management. He reexamines the ever-changing nature of running multinational corporations while confirming that, six editions and 20 years later, some challenges remain the same. Open for comment; 18 Comments posted.

Twenty-first Century Skill: Trading Carbon Credits

As cap and trade becomes an increasingly popular mechanism for governments to cut corporate pollution, students at Harvard Business School use a simulation to learn how it works. An interview with professor Peter Coles. Open for comment; 7 Comments posted.

Is it Time for a National Bankruptcy?

Summing Up Is a national bankruptcy a tragedy or a needed lesson in fiscal reform? Jim Heskett's readers ponder the implications of a country going insolvent. Closed for comment; 47 Comments posted.

Leading and Lagging Countries in Contributing to a Sustainable Society

To determine the extent to which corporate and investor behavior is changing to contribute to a more sustainable society, researchers Robert Eccles and George Serafeim analyzed data involving over 2,000 companies in 23 countries. One result: a ranking of countries based on the degree to which their companies integrate environmental and social discussions and metrics in their financial disclosures. Open for comment; 11 Comments posted.

Corporate Sustainability Reporting: It’s Effective

In a growing trend, countries have begun requiring companies to report their environmental, social, and governance performance. George Serafeim of HBS and Ioannis Ioannou of London Business School set out to find whether this reporting actually induces companies to improve their nonfinancial performance and contribute toward a sustainable society. Open for comment; 12 Comments posted.

The Consequences of Mandatory Corporate Sustainability Reporting

Ioannis Ioannou and George Serafeim

The number of firms reporting sustainability information has grown significantly in the past decade, both due to voluntary actions and to mandates from several national governments and stock exchange authorities. In this paper, London Business School's Ioannis Ioannou and Harvard Business School's George Serafeim investigate whether mandatory sustainability reporting has any effect on a company's tendency to engage in socially responsible management practices. Read More

HBS Faculty Comment on Environmental Issues for Earth Day

Harvard Business School faculty members offer their views on the many business facets of "going green." Open for comment; 4 Comments posted.

When Should the Public Sector Take Over in a Meltdown?

Summing Up Jim Heskett's readers have wildly differing opinions as to what extent governments should step in to remedy public sector "meltdowns." Closed for comment; 39 Comments posted.

Water, Electricity, and Transportation: Preparing for the Population Boom

By 2050, the world's cities will have to support 3 billion more inhabitants, mostly in developing countries, with crucial investments needed in three areas: water, energy, and transportation. Several of the planet's top city planning and environmental business experts gathered at Harvard Business School earlier this month to discuss available options. Open for comment; 18 Comments posted.

The Most Important Management Trends of the (Still Young) Twenty-First Century

HBS Dean Nitin Nohria and faculty look backward and forward at the most important business trends of the young twenty-first century. Read More

New Dean Sets Five Priorities for HBS

Harvard Business School's new Dean Nitin Nohria outlines five priorities that will shape the agenda for the School during his tenure: curriculum innovation, intellectual ambition, internationalization, inclusion, and closer ties to the University. Read More

Sharpening Your Skills: Doing Business in Emerging Markets

Going global is one thing, targeting emerging economies quite another. In this collection from our archives, HBS faculty discuss strategy development, government relations, exploiting local opportunities, and risk management when dealing in emerging economies. Read More

Network Effects in Countries’ Adoption of IFRS

Karthik Ramanna and Ewa Sletten

Between 2003 and 2008, 75 countries adopted, to various degrees, International Financial Reporting Standards (IFRS) developed by the International Accounting Standards Board. More countries, including the United States and China, are currently engaged in convergence projects. Researchers Karthik Ramanna (Harvard Business School) and Ewa Sletten (MIT Sloan School of Management) report on the role that perceived network benefits play in convincing some countries to shift from local accounting standards to IFRS. Read More

HBS Workshop Encourages Corporate Reporting on Environmental and Social Sustainability

The concept of integrated reporting could help mend the lack of trust between business and the public, Harvard Business School Dean Nitin Nohria tells attendees at a seminal workshop. Closed for comment; 7 Comments posted.

Export Competitiveness: Reversing the Logic

While the economic crisis has caused countries to revisit growth strategies, it has also raised serious concerns about whether the traditional strategy of export-led growth is producing the right answer. Harvard Business School's Christian Ketels argues that the focus of debate now needs to be on the actual policies that can increase competitiveness rather than exports per se. Read More

Surviving the Global Financial Crisis: Foreign Direct Investment and Establishment Performance

Laura Alfaro and Maggie Chen

In 2008 and 2009 the world economy suffered the deepest global financial crisis since World War II. Countries around the globe witnessed major declines in output, employment, and trade, and world trade volume plummeted by more than 40 percent in the second half of 2008. Using a new dataset that reports operational activities of over 12 million establishments worldwide before and after 2008, HBS professor Laura Alfaro and George Washington University professor Maggie Chen study how multinationals around the world responded to the crisis relative to local firms, and the underlying mechanisms of those differential responses. By taking into account establishments both at the epicenter and on the periphery of the crisis, their analysis also considers multinationals' role as an international linkage in transmitting economic shocks. Read More

Earth Day Reflections

On the 40th anniversary of Earth Day, April 22, Harvard Business School professors Robert G. Eccles, Rebecca Henderson, and Richard H.K. Vietor shared their views on the sustainability-related challenges and opportunities facing today's business leaders. Read More

Multinational Strategies and Developing Countries in Historical Perspective

Geoffrey Jones

HBS professor Geoffrey Jones offers a historical analysis of the strategies of multinationals from developed countries in developing countries. His central argument, that strategies were shaped by the trade-off between opportunity and risk, highlights how three broad environmental factors determined the trade-off. The first was the prevailing political economy, including the policies of both host and home governments, and the international legal framework. The second was the market and resources of the host country. The third was competition from local firms. Jones explores the impact of these factors on corporate strategies during the three eras in the modern history of globalization from the nineteenth century until the present day. He argues that the performance of specific multinationals depended on the extent to which their internal capabilities enabled them to respond to these external opportunities and threats. The paper highlights in particular the changing nature of political risk faced by multinationals. The era of expropriation has, for the moment, largely passed, but multinationals now experience new kinds of policy risk, and new forms of home country political risk also, such as the Alien Tort Claims Act in the United States. Read More

International Differences in the Size and Roles of Corporate Headquarters: An Empirical Examination

David Collis, David Young, and Michael Goold

Are small headquarters more nimble and efficient than large ones? Not necessarily, according to HBS adjunct professor David Collis and coauthors David Young and Michael Goold. Even within a single industry in one country, the variance can be enormous: In Germany in the late 1990s, for instance, Hoechst, the chemical and pharmaceutical manufacturer, had only 180 people in the headquarters function at the same time that Bayer had several thousand. This paper seeks to fill gaps in the research by using a unique database of over 600 companies in seven countries to determine whether systematic differences in the size and roles of corporate headquarters between countries actually exist, and if so, how they differ. In particular, the authors examine whether there is a systematic difference between market- and bank-centered economies, and between developed and developing countries. Read More

Is a Stringent Climate Change Agreement a Pot of Gold?

Reading this month's comments, HBS professor Jim Heskett wonders if we even need a climate change agreement as a catalyst to foster innovation and the VC investment required to support it. (Online forum has closed; next forum opens February 4.) Closed for comment; 19 Comments posted.

The Global Agglomeration of Multinational Firms

Laura Alfaro and Maggie Chen

(Paper formerly titled "The Global Networks of Multinational Firms.") When and why do multinationals group together overseas? Do they agglomerate in the same fashion abroad as they do at home? An answer to these questions is central to the long-standing debate over the consequences of foreign direct investment (FDI). It is critical to understand interdependencies of multinational networks and how multinationals influence one another in their activities at home and overseas. HBS professor Laura Alfaro and George Washington University professor Maggie Chen examine the global network of multinationals and study the significance and causes of multinational agglomeration. Their results provide further evidence of the increasing separation of headquarters services and production activities within multinational firms. The differential specialization of headquarters and subsidiaries leads to distinct patterns of agglomeration. Read More

Mental Health in the Aftermath of Conflict

Quy-Toan Do and Lakshmi Iyer

Wars are detrimental to the populations and the economy of affected countries. Over and above the human cost caused by deaths and suffering during a time of conflict, survivors of conflict are often left in poor economic circumstances and mental-health distress even after the conflict ends. How large are these costs? How long does it take for conflict-affected populations to recover from the mental stress of conflict? What policies are appropriate to assist mental health recovery? While considerable attention has been paid to post-war policies with regard to recovery in physical and human capital, mental health has received relatively less attention. The World Bank's Quy-Toan Do and HBS professor Lakshmi Iyer review the nascent literature on mental health in the aftermath of conflict, discuss the potential mechanisms through which conflict might affect mental health, and illustrate the findings from their study of mental health in a specific post-conflict setting: Bosnia and Herzegovina. Read More

Walking Through Jelly: Language Proficiency, Emotions, and Disrupted Collaboration in Global Work

Tsedal Neeley, Pamela J. Hinds, and Catherine Durnell Cramton

As organizations increasingly globalize, individuals are required to collaborate with coworkers across international borders. Many organizations are mandating English as the lingua franca, or common language, regardless of the location of their headquarters, to facilitate collaboration across national and linguistic boundaries. What is the emotional impact of lingua franca adoption on native and nonnative speakers who work closely together and often across national boundaries? This study examines the communication experience for native and nonnative English speakers in an organization that mandates English as the lingua franca for everyday use, and the impact of the lingua franca on collaboration among globally distributed coworkers. HBS professor Tsedal Neeley and coauthors describe in detail how emotions and actions were intertwined and evolved recursively as coworkers attempted to release themselves from unwanted negative emotions and inadvertently acted in ways that transferred negative experiences to their distant coworkers. Their findings have implications for managers who are charged with overseeing internationally distributed projects. Read More

Improving Accountability at the World Bank

Its legitimacy and effectiveness on the line, the World Bank faces criticism from its constituents and the civil society organizations that serve them. What options and arguments for accountability make the most sense for global governance institutions like the World Bank? HBS professor Alnoor Ebrahim testified before the U.S. House of Representatives on paths to change. Read More

Firsthand Experience and the Subsequent Role of Reflected Knowledge in Cultivating Trust in Global Collaboration

Mark Mortensen and Tsedal Neeley

How can workers better collaborate across vast geographical distances? Distributed collaboration—in which employees work with, and meaningfully depend on, distant colleagues on a day-to-day basis—allows firms to leverage their intellectual capital, enhance work unit performance, face ever-changing customer demands more fluidly, and gain competitive advantage in a dynamic marketplace. Research over the last decade, however, has provided mounting evidence that while global collaboration is a necessary strategic choice for an ever-increasing number of organizations, socio-demographic, contextual, and temporal barriers engender many interpersonal challenges for distant coworkers and are likely to adversely affect trust between and among workers across sites. In this paper that examines employee relations at a multinational organization, HBS professor Tsedal Beyene and MIT Sloan School of Management professor Mark Mortensen find that firsthand experience in global collaborations is a crucial means of engendering trust from shared knowledge among coworkers. Their findings reinforce the important role of others' perceptions in our own self-definition, and suggest a means of addressing some of the problems that arise in cross-cultural global collaborations. Read More

Business Summit: Real Estate

Experts discuss the global real estate crisis, the future of securitization, and predictions for the future of the U.S. real estate market. Read More

Business Summit: Managing Human Capital—Global Trends and Challenges

Human capital needed for globalization is lacking. Progress is required in important areas such as elevating more women to leadership positions, according to panelists at the HBS Business Summit. Read More

Business Summit: Ethics in Globalization

It is impossible to regulate against greed and ethical shortcomings. What can be done is to force greater transparency and accountability. Read More

Business Summit: The Coming World Oil Crisis

Without enormous changes the world faces an imminent oil crisis—and there are no silver bullet solutions. People must wake up to the sobering ramifications of peak oil, which may be the defining issue of this century. Read More

Business Summit: Historical Roots of Globalization

In this breakout session, panelists shared insights, informed by history, of the convergence that globalization promotes. Read More

Business Summit: The Role of Business Leaders in Sustaining Market Capitalism

Business leaders at the HBS Business Summit agreed on the threats to capitalism, but offered different opinions on the way forward. Read More

Why Do Countries Adopt International Financial Reporting Standards?

Karthik Ramanna and Ewa Sletten

Why do some countries adopt the European Union (EU)-based International Financial Reporting Standards (IFRS) when others do not? To expand our understanding of the determinants and consequences of IFRS adoption on a global sample, HBS professor Karthik Ramanna and MIT Sloan School of Management coauthor Ewa Sletten studied variations over time in the decision to adopt these standards in more than a hundred non-EU countries. Understanding countries' adoption decisions can provide insights into the benefits and costs of IFRS adoption. Read More

Business Summit: Global Environment-Transformed Organization

According to two panel sessions led by HBS professor Clayton M. Christensen, successful organizations must continually transform themselves in today's dynamic world. Read More

Business Summit: Niall Ferguson and the Certainty of Uncertainty

The economic crisis should not have been unexpected, says professor Niall Ferguson. Business leaders should consider history when developing their strategies, plans, and models, and should keep in mind that outlier events occur. Read More

Business Summit: Introduction to the Future of Market Capitalism

Professor Joseph L. Bower discusses a two-year research project exploring the views of global business leaders and HBS faculty on what might threaten the world's economic progress. Read More

Where is the Pharmacy to the World? International Regulatory Variation and Pharmaceutical Industry Location

Arthur Daemmrich

The era of paternalistic medicine has passed, but the notion that patients can act as consumers and make appropriate decisions concerning medical treatment poses countervailing risks of its own. A better accommodation among key players needs to be struck to foster the safe use of pharmaceuticals, according to HBS professor Arthur Daemmrich. The "pharmacy to the world," once located at the intersection of Germany, Switzerland, and France, today is found in the United States. Studies of the industry have attributed this sustained competitive advantage to a variety of factors, including U.S. intellectual property policies, funding for biomedical research through the National Institutes of Health, the absence of government controls on drug prices, and the availability of venture capital and other factors that fostered the growth of the biotechnology industry. The data and analysis presented in this working paper, however speculative, are an initial step toward deepening the understanding of interrelationships between government regulation, patients' mobilization both as regulators and as consumers, and the functioning of the pharmaceutical industry. Read More

Misgovernance at the World Bank

Eric D. Werker

Board members may be inclined to advance their own interests at voting time. This appears true for the World Bank's Board of Executive Directors, too. The problem? Many countries are being shut out of development funding. New research by Harvard Law School student Ashwin Kaja and HBS professor Eric Werker tells why misgovernance at the World Bank should be corrected. Read More

Corporate Misgovernance at the World Bank

Ashwin Kaja and Eric Werker

This paper examines the politics of corporate governance at the world's largest appropriations committee, the World Bank's Board of Executive Directors, and exposes a weakness in the design of the World Bank's decision-making structure. Any large public organization faces a challenge of representation and management. Since all decisions cannot be made by all members, founders often grant a more nimble body with decision-making powers. But representatives on the decision-making body may face a temptation to govern in the interests of their own wallet or narrow constituency rather than in the interests of the larger body. In 2008, the Bank's two primary component institutions—the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)—committed nearly $25 billion in loans and grants through some 300 development projects around the globe. Where did it go? By exploring the political dynamics and corporate governance of an international appropriations committee, we not only learn about international organizations but also the nature of the international system itself. Read More

The Investment Strategies of Sovereign Wealth Funds

Shai Bernstein, Josh Lerner, and Antoinette Schoar

The role of sovereign wealth funds (SWFs) in the global financial system has been increasingly recognized in recent years, and many reports suggest that SWFs are often employed to further the geopolitical and strategic economic interests of their governments. The resources controlled by these funds—estimated to be $3.5 trillion in 2008—have grown sharply over the past decade. Projections, while inherently tentative due to the uncertainties about the future path of economic growth and commodity prices, suggest that they will be increasingly important actors in the years to come. Despite this significant and growing role, financial economists have devoted remarkably little attention to these funds. The lack of scrutiny must be largely attributed to the deliberately low profile adopted by many SWFs, which makes systematic analysis challenging. Bernstein, Lerner, and Schoar analyze how SWFs vary in their investment styles and performance across various geographies and governance structures. Taken as a whole, results suggest that high levels of home investments by SWFs, particularly those with the active involvement of political leaders, are associated with trend chasing and worse performance. Read More

Securing Jobs or the New Protectionism? Taxing the Overseas Activities of Multinational Firms

Mihir A. Desai

Popular imagination often links two significant economic developments: the rapid escalation of the foreign activities of American multinational firms over the last 15 years, and rising levels of economic insecurity, particularly among workers in certain sectors. The presumed linkages between these phenomena have led many to call for a reconsideration of the tax treatment of foreign investment. Increasing the tax burden on outbound investment by American multinational firms, it is claimed, offers the promise of alleviating domestic employment losses and insecurity while also raising considerable revenue. HBS professor Mihir A. Desai looks beneath the trends, examining the economic determinants of outbound investment decisions and synthesizing what is known about the relationship between domestic and foreign activities. Read More

Running Out of Numbers: Scarcity of IP Addresses and What To Do About It

Benjamin Edelman

Hidden from view of typical users, every Internet communication relies on an underlying system of numbers to identify data sources and destinations. Users typically specify online destinations by entering domain names (e.g. "congress.gov"). But the Internet's routers forward data according to numeric IP addresses (e.g. 140.147.249.9). To date, the Internet has enjoyed an ample supply of "IPv4" IP addresses, but demand is substantial and growing. Current allocation rates suggest IPv4 exhaustion by approximately 2011. A new numbering system, IPv6, would relieve scarcity, but incentives hinder transition: IPv4 works well for existing networks, and offers easier and simpler access to existing Internet content and services. As a result, to date few networks have begun to support v6. In principle regulators could order networks to implement v6, but the applicable Internet coordinating organizations lack authority or power to force such a transition. In the meantime, a market mechanism for v4 addresses offers important benefits, including allocating scarce v4 addresses to those who need them most, and putting a positive price on v4 space in order to encourage transition to v6. Thus, it seems v4 transfers can help both to mitigate the worst effects of v4 scarcity, and to build the incentives necessary for transition to v6. Read More

When the Internet Runs Out of IP Addresses

Benjamin G. Edelman

Experts predict that within three years we will see the last of new Web addresses. What will happen then? The best solution is to create a market for already assigned but unwanted numbers, says Harvard Business School professor Ben Edelman. Read More

When Does Domestic Saving Matter for Economic Growth?

Philippe Aghion, Diego Comin, Peter Howitt, and Isabel Tecu

The researchers begin with a simply stated question: Can a country grow faster by saving more? Long-run growth theories imply that a country can grow faster by investing more in human or physical capital or in R&D, but that a country with access to international capital markets cannot grow faster by saving more. Domestic saving is therefore not considered an important ingredient in the growth process because investment can be financed by foreign saving. From the point of view of standard growth theory, the positive cross-country correlation between saving and growth that many commentators have noted appears puzzling. HBS professor Diego Comin and colleagues develop a theory of local saving and growth in an open economy with domestic and foreign investors. Read More

Where is Home for the Global Firm?

Mihir A. Desai

Global markets are changing the relationship between firms and nation-states in important ways, says HBS professor Mihir A. Desai. His new working paper, "The Decentering of the Global Firm," offers a practical framework for business leaders to think strategically about where to locate their company's financial and legal homes, and managerial talent. Q&A with Desai. Read More

The Decentering of the Global Firm

Mihir A. Desai

Firms such as Caterpillar are typically considered American companies by virtue of history while Honda, for example, is regarded as a Japanese company. However, the archetypal multinational firm with a particular national identity and a corporate headquarters fixed in one country is becoming obsolete as firms continue to maximize the opportunities created by global markets. The defining characteristics of what makes a firm belong to a country—where it is incorporated, where it is listed, the nationality of its investor base, the location of its headquarters functions—are no longer bound to one country. Why are these changes taking place, and what are their consequences? This paper places the increasing mobility of corporate identities within the broader setting of transformations to the "shape" of global firms over the last half century. Read More

Is the World Really Flat?

A provocative new book, The Venturesome Economy, argues that the world isn't flat at all, says HBS professor Jim Heskett. But in supporting innovation, does flatness even matter? Readers around the world weighed in with a constellation of viewpoints. (Online forum now closed; next forum begins February 5.) Closed for comment; 41 Comments posted.

Global Currency Hedging

John Y. Campbell, Karine Serfaty-de Medeiros, and Luis M. Viceira

This article is forthcoming in the Journal of Finance. How much should investors hedge the currency exposure implicit in their international portfolios? Using a long sample of foreign exchange rates, stock returns, and bond returns that spans the period between 1975 and 2005, this paper studies the correlation of currency excess returns with stock returns and bond returns. These correlations suggest the existence of a typology of currencies. First, the euro, the Swiss franc, and a portfolio simultaneously long U.S. dollars and short Canadian dollars are negatively correlated with world equity markets and in this sense are "safe" or "reserve" currencies. Second, the Japanese yen and the British pound appear to be only mildly correlated with global equity markets. Third, the currencies of commodity producing countries such as Australia and Canada are positively correlated with world equity markets. These results suggest that investors can minimize their equity risk by not hedging their exposure to reserve currencies, and by hedging or overhedging their exposure to all other currencies. The paper shows that such a currency hedging policy dominates other popular hedging policies such as no hedging, full hedging, or partial, uniform hedging across all currencies. All currencies are uncorrelated or only mildly correlated with bonds, suggesting that international bond investors should fully hedge their currency exposures. Read More

Firm-Size Distribution and Cross-Country Income Differences

Laura Alfaro, Andrew Charlton and Fabio Kanczuk

Country-to-country differences in per-worker income are known to be enormous. Per capita income in the richest countries exceeds that in the poorest countries by more than a factor of 50. The consensus view in scholarly literature on development accounting is that two-thirds of these variations can be attributed to differences in efficiency or total factor productivity (TFP). Emerging research, however, suggests other possibilities. Alfaro and coauthors, applied a monopolistic competitive firm model to a new dataset of more than 20 million firms in nearly 80 developing and industrialized countries. They then calculated the extent to which differences in the misallocation of resources (as well as differences in the amount of physical and human capital resources) explain dispersion in income per worker. Their results suggest that misallocation of resources is a crucial determinant of income dispersion. Read More

The Price of Capital: Evidence from Trade Data

Laura Alfaro and Faisal Z. Ahmed

Is the price of capital higher across different countries? Motivated by the fact that most countries import the bulk of machinery and equipment, Alfaro and Ahmed used an alternative trade data to capture differences in the price of capital goods across countries. On this basis they found evidence that capital goods are more expensive in poor countries. Read More

The Business of Global Poverty

Nearly half of the planet's population subsists on $2 a day or less. What role should business play as the world confronts what may be the most explosive socioeconomic challenge of the new century? Read More

What a U.N. Partnership with Big Business Could Accomplish

If the world's large corporations really are the greatest drivers of wealth creation, it only seems reasonable that their capabilities and resources can be focused on global poverty, says professor emeritus George C. Lodge. Here's the case for a partnership between business, the United Nations, and NGOs. Read More

Business and the Global Poor

Companies have more or less ignored 80 percent of the world's population—the global poor. The new book Business Solutions for the Global Poor, created from research and a conference at Harvard Business School, shows how both business and societal interests can be served at the base of the economic pyramid. A Q&A with co-editor V. Kasturi Rangan. Read More

Improving Public Health for the Poor

Michael Chu

Microfinance may offer a window on new methods for widening access to healthcare for the poor, says Harvard Business School's Michael Chu. He and colleagues at the Harvard School of Public Health have embarked on a new project to serve this critical sector. Bringing together public healthcare and market forces "could have huge impact," he says. Read More

A New Framework for Analyzing and Managing Macrofinancial Risks of An Economy

Dale F. Gray, Robert C. Merton and Zvi Bodie

The vulnerability of a national economy to volatility in the global markets for credit, currencies, commodities, and other assets has become a central concern of policymakers, credit analysts, and investors everywhere. This paper describes a new framework for analyzing a country's exposure to macroeconomic risks based on the theory and practice of contingent claims analysis. (A contingent claim is any financial asset for which future payoff depends on the value of another asset.) In this framework, the sectors of a national economy are viewed as interconnected portfolios of assets, liabilities, and guarantees that can be analyzed like puts and calls. The framework makes it transparent how risks are transferred across sectors, and how they can accumulate in the balance sheet of the public sector and ultimately lead to a default by the government. Read More

U.S. Tops Business Competitiveness Index 2006

The United States and Germany continue to top an annual review of the business competitiveness of 121 countries, which is compiled by Professor Michael Porter's Institute for Strategy and Competitiveness at Harvard Business School. While India climbed in the rankings, China fell. Read More

Optimal Reserve Management and Sovereign Debt

Laura Alfaro and Fabio Kanczuk

One of the puzzles in the study of emerging markets is understanding why developing countries accumulate reserves as a means to avoid a financial crisis, rather than work to reduce their sovereign debt. In 2005, for example, reserve accumulation totaled 20 percent of gross domestic product in low- and middle-income countries but only about 5 percent in high-income countries. The costs and benefits of reserve accumulation still aren't clear, nor do economists agree on the optimal level of foreign reserves that sovereign countries should hold. By testing a model of a small, open economy with non-contingent debt and reserve assets, Alfaro and Kanczuk explored the issue in depth. Read More

International Financial Integration and Entrepreneurship

Laura Alfaro and Andrew Charlton

Why does entrepreneurship flourish in some countries and struggle in others? Economists and policymakers are divided on whether the rapid rate of global financial integration, specifically the explosive growth of foreign direct investment, helps or hurts local entrepreneurs and domestic economies. To see the differential effects of restrictions on capital mobility on entrepreneurship, Alfaro of HBS and Charlton of the London School of Economics analyzed data on 24 million firms—listed and unlisted—in nearly 100 countries in 1999 and 2004. Read More

Globalizing the Beauty Business Before 1980

Geoffrey G. Jones

Even six-month-old infants may understand what makes faces "attractive," regardless of ethnicity, but adults vary considerably in how they present themselves through clothes, hairstyles, and physical appearance. Studying the period from 1945 to 1980, this paper examines the drivers of the globalization of beauty; the strategies that firms employed to overcome challenges to globalization; and the outcomes, including the level to which globalization has brought about a homogenization of beauty ideals and practices. Read More

Nationality and Multinationals in Historical Perspective

Geoffrey G. Jones

Many people believe that globalization has caused companies to lose their national identity. This study traces the history of corporations and nationality and finds that multinational companies have always had ambiguities, particularly before World War I. National subsidiaries became stronger in the twentieth century, and companies like Ford, for example, would feel very American in the United States, but have a more local identity in another part of the world. In the twenty-first century, globalization has caused a reemergence of issues concerning corporate nationality. However, this research shows that in many ways corporate affiliation with a country may matter more than ever. Read More

Has Globalization Reached Its Peak?

A new book argues that globalization has led corporations to outsource too much of their work and, more important, their intellectual capital. What with the increasing fluidity of labor markets, is it all too much for global managers to handle? Closed for comment; 26 Comments posted.

The Competitive Advantage of Global Finance

Mihir A. Desai

Relatively few multinational companies truly understand or take advantage of international finance. Professor Mihir A. Desai tackles the subject in a new book, International Finance: A Casebook. Here’s a Q&A. Read More

Global Poverty Needs a Global Answer

George Lodge

A World Development Corporation could help business, government, and non-governmental organizations collaborate more effectively to ease global poverty, believes George C. Lodge, HBS professor emeritus. He discusses recent developments. Read More

Financial Reporting Goes Global

Gregory S. Miller and V.G. Narayanan

Globalization is the key issue in determining the future of financial accounting, says professor Gregory S. Miller. And as more countries consider adopting an international accounting standard, India is positioned to be a strong leader. Read More

The Regional Slice of Your Global Strategy

A regional understanding should be part of your overall global strategy, says Professor Pankaj Ghemawat. One key: Recognize that regions don’t stop at national borders. An excerpt from Harvard Business Review. Read More

What’s the Future of Globally Organized Labor?

There’s an ongoing story of fragmentation in the union movement in North America. Will the concept of cooperation and individual sacrifice for the common good work in a global labor market populated by large multinational employers? Closed for comment; 11 Comments posted.

Bringing History into International Business

Geoffrey G. Jones and Tarun Khanna

International Business scholars often talk about history, but rarely take it seriously. The first generation of International Business scholars placed a high priority on evolutionary and historical perspectives and methodology, but little work these days grapples with the history of International Business or uses historical data to explore an issue. Jones and Khanna discuss new avenues for researching business groups in history and in contemporary emerging markets, resource-based and path-dependent theories of the firm, and foreign direct investment and development over time. Read More