Wednesday, October 30, 2019

There have been many significant inventions that changed the way Essay

There have been many significant inventions that changed the way people live their lives. What, in your opinion, is one signific - Essay Example Thesis Statement - While technological advances such as electricity and the internet improved the lives of people in many ways, they did not really contribute to stopping the continued systematic oppression of more than 50% of the world’s population. The Early Forms of Birth Control In the ancient world, many women and a few men thought seriously about how to create a product that could stop women from conceiving every time they experienced sexual intimacy. It was an understood fact, even then, that continued pregnancies were greatly harmful to the bodies of women. There have been records found to verify that crude forms of condoms were made out of the intestines of animals in ancient Greece. There were also poultices formed from as assortment of strange substances which were used by women. Moreover, most of these methods were unsuccessful in stopping pregnancy. Birth control was viewed as being a taboo subject that ‘respectable’ women would not engage in. ... Birth Control in the Early Days According to Engelman, from 1800 to 1900 in the United States alone, nine out of every 1000 women would lose their lives during childbirth (Engelman, 24). The American government actively discouraged the distribution of any information regarding matters to do with controlling pregnancy or spacing the numbers of children that a woman had. Engaging in such activities was seen as being in support of the propagation of pornographic activities. Moreover, the American government did not say or do much about the many women who were dying on a daily basis during childbirth. As speaking frankly about reproductive matters was something that could be prosecuted under state as well as federal laws of the time, women in the 18th century did not know or understand much as concerning their bodies or reproductive systems. For women’s lives to be improved, they have to be able to control their reproductive lives. In the 18th century, as well as in all centuries prior, there were different methods that some couples resorted to in order to prevent pregnancy. In some families, a married couple would actually visit relatives separately as a way of dealing with the temptation to engage in sexual intercourse. A few couples tried to use abstinence, even when they were living together, to limit the birth of children. Many couples, however, preferred the withdrawal method, or other untested techniques that involved the use of sponges, condoms, cervical caps, and douches. All these methods, though, were not very successful. The majority of sponges and creams even brought serious health-related problems for their users. Abstinence did not work for the most part because it required complete self-denial on the part of the husband. Women, who were well aware of

Monday, October 28, 2019

Production vs Operation Management Essay Example for Free

Production vs Operation Management Essay Production management and operations management are management jargon that needs to be simplified for those who are sitting on the fence or those inside an organization unable to comprehend them clearly. Sometimes it becomes confusing to be talking about production management inside operations management but they are separate and distinct entities in the study of management as ultimately, production is a part of the whole cycle of operations. Read on to clarify the doubts. Operations Management The study of set of activities comprising supervision, planning and designing of business operations in the field of manufacturing of goods and services is termed as operations management. The purpose of operations management is to make certain that the operations of a business are efficient and effective and result in minimum of wastage. Operations management tries to cut down resources involved in operations while at the same time making operations more effective and productive. In fact operations management is more concerned on processes than people or products. Operations management in a nutshell is using physical resources in an optimum manner, converting input into output, so as to supply to the market the desired and finished product. Production Management Production management on the other hand focuses specifically on the production of goods and services and is concentrated upon churning output from input. It is a broad sum of activities that go into turning raw material into final, finished product. One may feel that production management is a subset of operations management, but production management in itself is a broad subject that comprises production planning and control, inventory management, and operations control. Production management includes all management activities spanning selection. Designing, operating, controlling and updating production system. In brief: Operations vs Production Management †¢ Both production management and operations management play an important role in an organization in increasing the efficiency and productivity. †¢ While operations management is focused upon administration, planning and execution of operations involved in production of goods and services and trying to minimize the resources at the same time increasing output, production management is more concerned with input/output and churning out products in the shape of desired finished product.

Saturday, October 26, 2019

Essay --

1. Introduction Globalization has incurred dramatic transformation to commerce practices around the globe. Corporations like Intel, Apple, and IBM have begun to outsource experts from different parts of the globe, reasoning variation in firm’s structures and work shifts (Bernstein, Kripalani and Engardio, 2004). Consolidation between airlines (e.g., sky alliances, on world members and star alliances) is further instances of variations caused due to this phenomenon. According to Jean de la Croix (2011), like many other industries, hospitality and tourism sector has also been affected by the globalization. Hence, this dissertation peruses the impacts of globalization on 5 star luxury hotels in Geneva city, Switzerland with a specific concern on how it impacts the hotels marketing strategy. In this etude, â€Å"globalization† reflects on the procedure of augmenting cultural and social relationship, economic, and political interdependence, market and financial accretion that are due to th e advancements in transportation technologies, communication, and business liberation (Lenway and Eden, 2002) This dissertation contains of 2 relevant etudes. The first study is designed to investigate the impacts of globalization in the marketing strategy of 5 star hotels in Geneva and the second study investigates the link between the impacts of globalization and the scale of corporate marketing and international marketing implementation of the 5 star hotels. As international business and trade expand, there is no doubt that international connections will become more and more significant for the hotel industry. According to Zhang Zhen (2005), in the late decades, many hotels have received foreign customers one day or another. Then, as the sector evolve... ...n indicator was lately developed by collaboration between EDS Corporation and Foreign Policy Magazine (Foreign Policy, 2004). In this dissertation, the impacts of globalization are divided into two broad groups: 1) global market threats, and 2) worldwide market opportunities. These two important impacts are chosen in order to be perused as they are often mentioned in the past literature as one of the most certain and evident impacts of globalization (e.g., Molle & Jones, 2003; Smith & Calantone, 1999; Closs, 1992). Many believe that global market results in increases in market, business and enterprise potential and availability to the resources (Srivatava & Rukert, 1990; Smith & Calantone, 1999). However, some other like Heenan, 1989 and Jones, 2002; believe that global market results in an increase in the number and level of competition, and the degree of doubt.

Thursday, October 24, 2019

Equity Theory and Social exchange theory Essay

In this essay I aim to describe two theories (Equity Theory and Social exchange theory) of relationships and to consider how they might influence the therapist engaged in couples counseling, noting their similarities and differences. Equity theory is a theory about fairness. Its application to close relationships has been primarily advanced by Elaine Hatfield (previously known as Elaine Walster) and her colleagues in the book Equity: Theory and Research (Walster, Walster, and Berscheid 1978). The book outlines four interlocking propositions of equity theory and discusses the application of equity theory to different types of relationships, including intimate ones. The propositions are: 1. Individuals will try to maximize their outcomes (where outcomes equal rewards minus costs). 2a. Groups can maximize collective reward by evolving accepted systems for equitably apportioning resources among members. Thus, groups will evolve such systems of equity, and will attempt to induce members to accept and adhere to these systems. 2b.  Groups will generally reward members who treat others equitably, and generally punish (increase the costs for) members who treat others inequitably. 3. When individuals find themselves participating in inequitable relationships, they become distressed. The more inequitable the relationship, the more distressed the individuals feel. 4. Individuals who discover they are in an inequitable relationship attempt to eliminate their distress by restoring equity. The greater the inequity that exists, the more distress they feel, and the harder they try to restore equity. Equity theory rests on the assumption that people are self-interested and will try to maximize their personal gains. It has sometimes been questioned by researchers who believe that the nature of close relationships differs from other types of relationships. They argue that close relationships should not be based on individual calculations of costs and rewards and a self-interested focus on maintaining relationships solely for the personal profit they may provide. Instead, they argue that relationships should be based on a mutual concern for each others’ welfare or needs (Clark and Chrisman 1994; Clark and Mills 1979). Three primary ways of dealing with challenges to this assumption exist. One is to consider that individuals may vary in â€Å"exchange orientation† or the importance they give to monitoring equity in their relationships (Murstein, Cerreto, and Mac-Donald 1977). For example, some individuals may be high in exchange orientation, constantly keeping track of how much they and their partners put into or get out of a relationship. Other individuals may be low in exchange orientation, not paying attention to inputs, outputs, costs, and rewards of their relationships at all. Measuring exchange orientation may be a way of measuring self-interest in relationships. Research by Susan Sprecher (1998) has supported this notion. Her findings suggest that different motivations for â€Å"keeping score† of costs and benefits in a relationship have different effects on relationship quality. People who keep track of inputs and outputs to make sure they are not under benefited by the relationship seem to be less satisfied by their relationship whereas people who keep track of inputs and outputs to make sure they are not over-benefited by the relationship seem to be more satisfied by it. Another way to account for differences in philosophies regarding self-interest in relationships is to include relational-level outcomes such as mutuality, sharing, and respect as types of benefits that individuals can receive from relationships. Relational partners may see themselves as a unit, with both of them maximally benefiting from the relationship. In this type of relationship, where identities of the individual partners have merged, what benefits one partner will also benefit the other. Relational-level outcomes have not regularly been considered in equity research, although similar concepts arise during discussions of entitlement processes (Desmarais and Lerner 1994) and fairness rules (Clark and Chrisman 1994) in close relationships. Equity in a relationship may be seen as its own reward. This idea is suggested by proposition 2 that attempts to account for the development of rules, or norms, that limit self-interest behavior. If individuals were to continually strive for the most resources, anarchy and violence would dominate society as each member tried to gain more. However, proposition 2 asserts that societies, groups, and couples will develop rules that foster fairness to each member in order to prevent such a condition. People who follow the rules of fairness will be rewarded, and people who do not will be punished. Thus, behaving equitably becomes a means to maximize one’s outcomes, and fairness, more so than self-interest, becomes the norm. Proposition 3 that focus on the outcomes of inequitable relationships by asserting that individuals in inequitable relationships will become distressed. Researchers exploring the area of equitable outcomes in marital relationships often measure outcomes through reports or observations of behaviors rather than perceptions. This is because individuals’ perceptions of their relationships can become skewed through gender-based valuing of relational inputs, because an incongruence often exists between perception of one’s behavior and the actual behavior itself, and because people in low-power positions often feel entitled to less that leads them to perceive an unfair situation as fair. According to this, people do still report perceived inequity in their relationships, and it has been associated with negative outcomes, including less sexual intimacy, less sexual satisfaction, less commitment to the relationship, decreased happiness and satisfaction with the relationship, and relationship breakup (Sprecher 1995). And proposition 4 states people involved in inequitable relationships will try to restore equity. Hatfield (Walster) and her colleagues (1978) provide two ways that a person can restore equity to a relationship: by restoring actual equity or by restoring psychological equity (the perception that equity actually exists when it does not). Researchers who use behavior to measure relational equity instead of perceptions may do so because they believe partners in an inequitable relationship do not see the inequity. This assumption is congruent with the concept of restoring psychological equity. Understanding the concept of fairness is essential to understanding equity theory. Elaine Hatfield (Walster) and her colleagues (Walster, Walster, and Berscheid 1978) argue that fairness rules are culturally bound, indicating that generally one of three rules of fairness can apply: proportionality, equality, or need. Rules based upon proportionality mean that individuals receive â€Å"equal relative gains from the relationship†. In other words, each person should get out of the relationship gains that are in proportion to what they have put into the relationship. The equality rule, on the other hand, means that regardless of how much each person has put into the relationship, they should each reap equal rewards. Finally, the need-based rule indicates that need should be the determining factor in what partners get from a relationship, regardless of their individual contributions to it. Social exchange theory has always been an important component of cognitive-behavioral treatment for families. Most empirically based couple therapies have their foundations in behavioral couple therapy, which focuses on directly changing behavior by maximizing positive changes and minimizing positive exchanges. This concept particularly important in as much as most unhappy couples report higher daily frequencies of negative events than of positive events (Johnson & O’Leary, 1996). Social exchange theory centers on the costs and benefits associated with relationships. It emphasizes that there is technically a downside to particular social conditions, such as being married or single, and there are moments when a downside may predominate in the mind of an individual, causing him or her to view the social condition with regret. Social exchange theory was first conceived by Homens (1961) and later elaborated on by Thibaut and Kelly (1959). Thibaut and Kelly applied the concept of social exchange to the dynamics of intimate relationships, in which they identified patterns of interdepency. Social exchange theory is based on economic theories and views couple interaction through the lens of the exchange of costs and rewards. Simply stated, costs are reasons why a relationship would be considered undesirable, whereas rewards pertain to reasons that partners would remain in a relationship. If we think about our own spousal relationships, we may discover many costs and rewards. Some costs may be our spouse’s bad habits, such as excessive spending of money or his or her temperament. However, these costs may be strongly outweighed by the rewards, which may consist of the spouse’s kindness, sensitivity, and his or her constant loyalty and support. It is balance of costs and rewards that often helps couples to determine whether or not they are satisfied in a relationship. A main concept of social exchange theory is the tendency of individuals to compare the rewards they are receiving with the perceived alternatives. Equity theory is related to social exchange theory, given their unifying basic premise that outcomes should be evaluated in a relative sense within some frame of reference. Equity theory focuses upon outcome evaluations that result from relationships characterized by economic productivity objectives. Equity theory postulates that parties in exchange relationships compare their ratios of exchange inputs to outcomes. Inequity is said to exist when the perceived inputs and /or outcomes in an exchange relationship are psychologically inconsistent with the perceived inputs and/or outcomes of the referent. Since parties sometimes need to evaluate each other before engaging in an exchange, role expectations play a crucial role in determining the equity level of a potential exchange relationship. Each party to the exchange has certain expectations about their own role as well as that of the other party. According to role theory, each exchange partner has learned a set of behaviors that is appropriate in an exchange context – this will increase the probability of goal attainment by each partner. Role stress can affect long-term relationships if role expectations are unclear or if actual behaviors deviate from expectations. Believed inequities lead exchange parties to feel under-rewarded or over-rewarded, angry, or resentful, and will affect behaviors in subsequent periods by encouraging these parties to change their inputs into the relationship, and thus result in suspicion and mistrust of the exchange partner. The closer the exchange relationship, the more likely it is that relationship participants will perceive inequity. If equity prevails, the ratio of inequity, the ratio of one person’s outcomes to inputs is assumed to be constant across exchange partners, which results in the satisfaction of exchange partners with their outcomes. Equitable outcomes stimulate confidence that parties do not take the advantage of each other and those them are concerned about each others’ welfare. Parties in a relationship can compare their own ratio to that of their exchange partner, to those of others who interact with their exchange partner at the same level, and to that of their best alternative exchange partner. The social exchange theory is useful for couples counseling; it focuses on what each partner gives and receives from the other. It allows for therapist and clients to analyze their positive and negative behaviors which need to be changed. Members of relationship need not achieve total equality in the ratios of positives and negatives they exchange in order to be happy. The key is to find a balance of exchange over time that each person finds acceptable. Equity theory is based on couples counseling as everything in a relationship has to be equal otherwise it is gone be lots of problems in a relationship. Therapist can use it in a couples counseling. The members of the relationship who discover the inequity in their relationship feels distressed and it makes harder to restore the equity in their relationship. Therapist can get members of relationship to focus on the value of their relationship than the more material things they are getting from it. Also different motivations have different effects on relationship quality. So it would be another thing for therapist to look at during the couples counseling session.

Wednesday, October 23, 2019

Othello in Shakespeare’s play Essay

Othello is manipulated to trust Iago rather than his wife. Iago uses fake evidence against Desdemona in an attempt to prove she is cheating on her husband. Iago uses racism and past experiences to persuade Othello into believing he is not good enough for his wife as well as her not being good enough for him. Othello choses to believe Iago over his wife for the reason that she has only her word to back up her story while Iago has hard evidence. Iago plants fake evidence in the form of a handkerchief owned by Desdemona to lead Othello into believing his wife is having an affair with another man. By mistake, Othello leaves Desdemona’s handkerchief laying on the ground and Emilia, Iago’s wife finds it but fails to return it. Although Iago cannot witness Cassio and Desdemona having sex, he promises Othello he will find hard evidence of the affair. Iago creates a fake story claiming to have seen Cassio with Desdemona’s handkerchief given to her by Othello. He claims the evidence is backed by â€Å"imputation and strong circumstances† (3.3.407) and reassures Othello he is only trying to lead him to â€Å"the door of truth† (3.3.408). Iago falsely tells Othello that he must re-think the situation but by that point, Othello had his mind set to kill his framed wife as he cries â€Å"O, blood, blood, blood† (3.3.454). The hard evidence planted by Iago was so efficient to get Othello to believe his wife was involved with Cassio due to its deep personal roots of the couples love. The handkerchief was given to Desdemona by her husband as a token of his love and the framing of her giving it to another man showed Othello that she doesn’t value their love anymore. He does not bother to simply ask Desdemona if she was having an affair because he knows she is now untrustworthy and will simply deny the allegations if challenged. By breaking down the trust between Othello and Desdemona with his hard evidence, Othello now t rusts Iago and not his wife. The hard evidence cements Othello’s trust in Othello although none of it is actually true. With Othello’s trust, Iago can more easily manipulate the framing of Desdemona and Cassio, as Othello will believe anything said by Iago. Throughout the novel, racism plays a crucial role in persuading Othello to think he is not deserving of Desdemona’s love. Iago is perhaps the most racist character but the negative judgments of Othello based upon his race are contributed from all Venetian citizens of Venice. He is judged to be  harsh and rough just because he is black. He is referred to as â€Å"an old black ram† (1.1.89), â€Å"an erring barbarian† (1.3.350) and a â€Å"Barbary horse† (1.1.112) by Iago to let Othello know he is considered to be less important and valuable due to his skin colour. Roderigo also openly degrades Othello by referring to him as â€Å"thick lips† (1.1.67) and â€Å"lascivious moor† (1.1.126) which break him down and forms insecurities about his race. His insecurities in turn lead Othello to believe he is not worthy of Desdemona. Iago also warns Othello that if Desdemona was willing to leave her father, she is likely to do the same with him. Even her own father says, â€Å"She has deciev’d her father and may thee† (1.3.290) proving to Othello that those close to Desdemona have been deceived and she might do the same to him. Iago later echoes Brabantios words by stating, â€Å"She did deceive her father, marrying you;† (3.3.208), which solidifies Othello’s distrust in his own wife. The combination of Iago being perceived as honest and charming and Othello’s gullibility allow for Iago to easily manipulate Othello. Othello is vulnerable to the perceived notion that his wife did not truly love him and could easily leave him all due to the colour of his skin. He is certainly not jealous of his wife but rather scared of the prospect of her leaving him due to his colour. As he becomes vulnerable, Othello is soothed by fake honesty surrounding Iago as he is refereed to as â€Å"Honest Iago† (1.3.290). Iago has no evidence or past experiences to lessen his trustworthiness to Othello while his wife Desdemona has been framed by Iago specifically to create doubt-allowing Othello to question her loyalty to him. The constant charm by Iago and the question surrounding Desdemona eventually lead to Othello to fully trust Iago and being persuaded to kill his own wife. The motive behind the killing of Desdemona was not from jealousy but rather â€Å"in a conviction forced upon him by the almost superhuman art of Iago [..] and must have entertained who had believed Iago’s honesty as Othello did. (Samuel Coleridge). What Coleridge is suggesting is that the motive behind Othello wanting to kill his wife was not jealousy, but rather all of Othello’s trust was to Iago therefore he could be easily manipulated. Iago gained all of Othello’s trust and used it to manipulate Othello into killing Desdemona contributing to his overall plan. Iago gains Othello’s trust by using hard evidence and racism. Othello doesn’t simply ask Desdemona if she were having an affair because he does  not trust her anymore. Othello’s tragic choices are driven by revenge on his wife for being untrustworthy while in reality she was loyal to him. Iago’s lying and deceiving leaves many of his friends dead and leads to his torture and downfall. Work Cited Page Shakespeare, William. Othello. Oxford School Shakespeare. Ed. Roma Gill Oxford: Oxford University Press, 1989. Print Coleridge, Samuel. â€Å"Othello: The Bradley view (& Coleridge).† English Class Handout, 2014. Print.

Tuesday, October 22, 2019

Polio essays

Polio essays Before the development of the Salk and Sabin vaccines, polio was a serious infection that affected the central nervous system; however with proper vaccinations it can be eradicated in the United States today. There are different kinds of polio. They include spinal polio, non-paralytic form, and paralytic polio. Spinal polio is the most common form that occurs when polio viruses attack nerve cells and control the muscles of the legs, arms, trunk, diaphragm, abdomen, and pelvis. Stiffness in the neck and back also may develop. (World Book Encyclopedia) Non-paralytic form of polio has many symptoms. It is accompanied by nausea, headache, sore throat, back pain, neck pain, and stiffness. There are changes in reflex and elevated spinal fluid count. About sixty-five percent of known cases during the outbreak of polio were non-paralytic. Paralytic polio only has a few minor symptoms, but it has weakness in one or more muscle groups. (Polio Fact Sheet) There are three viruses that can cause polio, type I, II, III. They grow in living cells and get in the body through the nose and mouth, and then it is carried to the intestines. Poliomyelitis has several symptoms. Some of the most severe are paralysis, fever, stiff neck, nausea, and weakness in the muscle groups. (Diseases, 106) Post-Polio Syndrome is also a symptom and a late side effect of polio. Survivors of the Post-Polio Syndrome experience joint pain, muscular atrophy, fewer nerves, and they become weaker at a faster rate. (Dempsey, 2) Polio vaccines give life long immunity by two ways, by immunization and natural infection with the virus. (Polio Vaccines) There are two vaccines: the oral polio vaccine and the inactivated polio vaccine. The oral polio vaccine was invented by Albert Sabin in 1961. (Polio Vaccines) It is a weakened, live virus, which can be taken orally. This vaccine produces antibodies in the blood to fight the virus. ...

Monday, October 21, 2019

4 of the Most Common LinkedIn Mistakes

4 of the Most Common LinkedIn Mistakes For a rookie LinkedIn user, the site can feel like Facebook 2.0. Oh hey, I know that guy! He fell asleep in 20th Century Topics every week in college! Look, it’s the girl who used to sit by the elevator two jobs ago! Making these not-so-useful â€Å"connections† is often a mistake- as are the other 4 items on this list from Don Goodman over at Careerealism. 1. You don’t carefully evaluate who you allow as a connection.Do not add the aforementioned connections- be very selective about the add requests you make. Stick to promising contacts in your industry or people who can recommend you for specific skills. Think of LinkedIn as the opposite of Facebook! Be generous- but honest- in your recommendations, too.2. You didn’t pick your profile picture with care.Your profile definitely has a higher chance of being viewed with a photo. Choose one that is friendly, professional, and approachable. Give special scrutiny to the background- don’t have someone tak e a terrific pic with a sloppy couch behind you!3. Your sub-header doesn’t â€Å"talk.†The sub-header is an underused tool by many LinkedIn users. What a recruiter will see is your name and a headline, like â€Å"Associate Editor, ABC Magazine†. That’s fine if you have a job and you’re happy in it, but consider something more descriptive, like â€Å"Healthcare Marketing Pro and Medical Marketing Advisor†- it gives a sense of your experience, your specialties and your range.4. You haven’t adjusted your privacy settings.I try to keep my Facebook to people I know and trust. Anyone else gets sent to an â€Å"acquaintance† list, and I keep a close eye on the audience for each update and notification. Give the same attention to your LinkedIn; the privacy settings on your profile should be more publicly accessible, but any activities relating to job-hunting, like connecting with recruiters or getting recommendations from current colle agues, should be kept private from your current employer (for obvious reasons).When in doubt, have a friend look over your profile while they’re logged in to their own to make sure that only what you want displayed is visible!

Sunday, October 20, 2019

Biography of Sonia Delaunay, Modernist Designer

Biography of Sonia Delaunay, Modernist Designer Sonia Delaunay (born Sophia Stern; November 14, 1885 – December 5, 1979) was one of the pioneers of abstract art at the turn of the century. She is best known for her participation in the art movement of Simultaneity (also known as Orphism), which placed vibrant contrasting colors alongside one another in order to stimulate the feeling of movement in the eye. She was also a highly successful textile and clothing designer, making a living off of the colorful dress and fabric designs she produced in her Paris studio. Early Life Sonia Delaunay was born Sophia Stern in 1885 in Ukraine. (Though she lived there only briefly, Delaunay would cite the brilliant sunsets of Ukraine as the inspiration behind her colorful textiles.) By the age of five she had moved to Saint Petersburg to live with her wealthy uncle. She was eventually adopted by their family and became Sonia Terk. (Delaunay is sometimes referred to as Sonia Delaunay-Terk.) In St. Petersburg, Delaunay lived the life of a cultured aristocrat, learning German, English, and French and traveling often. Delaunay moved to Germany to attend art school, and then eventually went on to Paris, where she enrolled in lAcadà ©mie de la Palette. While in Paris, her gallerist Wilhelm Uhde agreed to marry her as a favor, so that she could avoid moving back to Russia. Though a marriage of convenience, her association with Uhde would prove instrumental. Delaunay exhibited her art for the first time at his gallery and through him met many important figures in the Parisian art scene, including Pablo Picasso, Georges Braque, and her future husband, Robert Delaunay. Sonia and Robert married in 1910, after Sonia and Uhde amicably divorced. Fascination with Color In 1911, Sonia and Robert Delaunays son was born. As a baby blanket, Sonia sewed a patchwork quilt of brilliant colors, reminiscent of the bright colors of folkloric Ukrainian textiles. This quilt is an early example of the Delaunays’ commitment to Simultaneity, a way of combining contrasting colors to create a sensation of movement in the eye. Both Sonia and Robert used it in their painting to evoke the fast pace of the new world, and it became instrumental to the appeal of Sonia’s home furnishings and fashions which she would later turn into a commercial business. Twice a week, in Paris, the Delaunays attended the Bal Bullier, a fashionable nightclub and ballroom. Though she would not dance, Sonia was inspired by the movement and action of dancing figures. At the turn of the century, the world was rapidly industrializing, and artists found figurative representation to be insufficient in describing the changes they were observing. For Robert and Sonia Delaunay, saturation of color was the way to depict the electric vibrations of modernity and the best way to describe the subjectivity of the self. Sonia Delauanay, Flamenco Dancer. 1916. Oil on canvas. Private collection. WikiArt / Public Domain Advances in the science of color theory had proved that perception was inconsistent among individual perceivers. The subjectivity of color, as well the realization that vision was a state of perpetual flux, was a reflection of the unstable world of political and social change in which the only thing man could verify was his individual experience. As an expression of her subjective self, as well as due to her fascination with juxtaposing color, Sonia made the first simultaneous dresses, much like the colorful patchwork quilts she made for her son, which she wore to the Bal Bullier. Soon she was making similar items of clothing for her husband and the various poets and artists close to the couple, including a vest for poet Louis Aragon. Spain and Portugal At the outbreak of World War I, Sonia and Robert were vacationing in Spain. They decided not to return to Paris, but instead to exile themselves to the Iberian Peninsula. They successfully settled into expat life, using the isolation to focus on their work. After the Russian Revolution in 1917, Sonia lost the income that she had been receiving from her aunt and uncle in St. Petersburg. Left with little means while living in Madrid, Sonia was forced to found a workshop which she named Casa Sonia (and later renamed to Boutique Simultanà ©e upon return to Paris). From Casa Sonia, she produced her increasingly popular textiles, dresses, and home goods. Through her connections with fellow Russian Sergei Diaghilev, she designed eye popping interiors for the Spanish aristocracy. Delaunay became popular at a moment in which fashion was significantly changing for young European women. The First World War demanded that women enter the workforce, and as a result, their attire had to change to accommodate their new tasks. After the war was over, it was difficult to convince these women to return to the more restrictive dress of the 1900s and 1910s. Figures like Delaunay (and, perhaps most famously, her contemporary Coco Chanel) designed for the New Woman, who was more interested in freedom of movement and expression. In this way, Delaunay’s designs, which focused on movement of the eye across their patterned surfaces, also encouraged movement of the body in their loose fits and billowing scarves, proving two-fold that Delaunay was a champion of this radically new and exciting lifestyle. (Not to mention that she was the primary breadwinner for her family, making Sonia an exemplar for New Womanhood.) An example of Delaunays beachwear. Luigi Diaz / Hulton Archives / Getty Images Collaborations Delaunay’s exuberance and interest in multimedia collaboration, as well as her creative and social friendships with artistic Parisian notables, were fruitful grounds for collaborations. In 1913, Delaunay illustrated the poem Prose du transsibà ©rien, written by the couple’s good friend, Surrealist poet Blaise Cendrars. This work, now in the collection of Britain’s Tate Modern, bridges the gap between poetry and the visual arts and uses Delaunay’s understanding of undulating form to illustrate the action of the poem. Her collaborative nature also led her to her design costumes for many stage productions, from Tristan Tzara’s play the Gas Heart to Sergei Diaghilev’s Ballets Russes. Delaunay’s output was defined by the fusion of creativity and production, where no element of her life was relegated to a single category. Her designs adorned the surfaces of her living space, covering the wall and furniture as wallpaper and upholstery. Even the doors in her apartment were decorated with poems scrawled by her many poet friends. An example of Delaunays painted work.   Getty Images Later Life and Legacy Sonia Delaunay’s contribution to French art and design was acknowledged by the French government in 1975 when she was named an officer of the Legion d’Honneur, the highest merit awarded to French civilians. She died in 1979 in Paris, thirty-eight years after her husbands death. Her effusiveness for art and color has had lasting appeal. She continues to be celebrated posthumously in retrospectives and group shows, independently and alongside the work of her husband Robert. Her legacy in the worlds of both art and fashion will not soon be forgotten. Sources Buck, R., ed. (1980). Sonia Delaunay: A Retrospective. Buffalo, NY: Albright-Knox Gallery.Cohen, A. (1975). Sonia Delaunay. New York: Abrams.Damase, J. (1991).Sonia Delaunay: Fashion and Fabrics. New York: Abrams.Morano, E. (1986). Sonia Delaunay: Art into Fashion. New York: George Braziller.

Saturday, October 19, 2019

US-Europe relations Essay Example | Topics and Well Written Essays - 2000 words

US-Europe relations - Essay Example This paper demonstrates an insightful study of the Cold War and its impact on the growing relations between the US and the Europe. Europe is considered to be one of the greatest allies of US in the era of 'war on terrorism' first on Afghanistan and on Iraq.The Cold War played a great role in bringing the two countries together for their economic, geopolitical and security needs. While the Europe wants to remain as a close ally of United States, the United States wants to strengthen Europe to project the country as its strong global partner.Besides studying the impact of Cold War in shaping the economic, social and political relationship between United States and Europe, this paper also provides an overview to the background of the Cold War and the geographic and the strategic importance of the region for the United States and Soviet Union. The cold war was commenced in the late 1940s and ended in the late 1980s. The war broke out as an aftermath of the First and Second World War. Crockatt (1995) states that major cause behind the war was the increasing strength and dominance of United States in the global context after the First World War. The potency of United States and the continuing impuissance of Soviet Union Empire evoked a clash of two forces claiming to be super powers. The contentions between United States and Soviet Union erupted as the two countries began to perceive each others as enemies and competitors in global arena. After the First World War, the United States emerged as the global economic power and this continued to be a source of hostility on the part of the Soviet Union, which faced devastating consequences after the war. Gates (1996) propounds that the World War II further ignited the issue of dominance, which resulted into the debilitation of two giant global economic and geopolitical powers; British and French. Thus, as a consequence, the European rule came to an end and two new powers emerged on the global geopolitical screen; the United States and Soviet Union. The Second World War transformed the global geopolitical scenario as the two previous economic powers tumbled and two new contenders for global superiority emerged on the scene. Hence, the issues between United States and Soviet Union further aggravated and both the countries started to conspire against each other. European region was one of the regions in the world that attracted the grave attention of both the countries. Soviet Union faced imminent threats from the East European region with both the regions sharing the same borders. Leffler (1994) states that as the influence of Soviet Union grew into the East European region, the United States and Western European countries began to perceive it as a threat to their global dominance and security. Furthermore, the United States gave rise to policies curtailing the influence of Soviet Union in the region. In the same breath, the United states promoted its anti-communism policies in order to minimize the Soviet activities around the globe. In the Second World War, mass destructive nuclear weapons were used on the part of all the economic powers. It made other countries join the race for development in nuclear and missile technologies and considered it to be of significant essence to their security concerns. Kissinger (1994) illuminates that the Second World War, which led to the global competition for nuclear weapons, enhanced the potency of United States and accelerated the decline of Soviet Union as a global economic power. Having realized the pre-eminence of being an atomic power, the United States decided to strengthen itself as the giant nuclear power so as to maximize its influence globally. This was all the background of the consequences that led to the beginning of Cold War during 1940s, in which the United States and the Soviet Union remained as prominent players of the game. Walker (1993) expresses that the Cold War was permuted into a political war after the beginning of Korean War, which

What is reality Essay Example | Topics and Well Written Essays - 1750 words

What is reality - Essay Example This world is very enchanting and we are enjoying the beauty and charm of this universe in the life we are living. We have all kinds of pleasures achievable from this universe with the aid of our sensory organs.But even after the limitless enjoyment of worldly objects a human being lurk happiness in real sense. It would be a surprising fact to explain that the real happiness in this world only comes from the right knowledge of the world and the self. All human beings have the desire for knowledge but if real knowledge is not connected with outside world. Only when one withdrew his senses from worldly object and concentrate on self then can he attain real knowledge. If we look from the view point of physical body and senses, we assume that the real knowledge is related only with world and its objects. This is because our physical needs and urges are met by physical world.According to article 1â€Å"Every organism is so to speak a nomadic being and it has a world of its own because it has experience of its own†. However if one search for real happiness he needs to go in depth to the urges of soul. On contrast, human culture and civilization always emphasized on external activities rather than internal ones. It is curious nature of man which changed his life, and it is that which persuaded him to turn towards cosmic nature and its power. The mythology and anthropology gave a new dimension to nature and revealed that which man cannot perceive with his sensory organs. A man is a creature which is always in search of himself and according to Socrates he should always be aware of his condition and existence†. But he have this limitation which does not allow him to see the real world .He is bound by mind, intelligence and ego and think what he sees in outside world is all that exist in real sense. We have senses which are restricted in nature and we cannot see things we are not supposed to see. There are lot of things in nature which cannot be viewed with our naked eyes. The rays like gamma and x-rays we cannot observe or comprehend with our senses but their power is beyond our knowledge. In the same way there exist cosmic rays and beyond is the power o f unknown which common men or scientists or physicians cannot understand. According to physical what we see as objects are nothing but matter composed of atoms, electrons and protons. It is the vibration of these makes the world appear as what it is .The quantum physics elaborating the physical universe with the help of time distance and mass. According to article 2â€Å"In its popular sense â€Å"mass† is just another word for weight. But as used by physicist, it denotes a rather different and more fundamental property of matter† The physicist also suggests that light has a dualistic nature which is very difficult to understand and comprehend. And it is reality that every minute particle of universe has something which is unknown attached to it. There is one void ness t o every thing which is related to an unknown source. This unknown reality is the cosmic power or otherwise knows as God or Almighty. However, the people in world live by metaphors that are connected to word rather than action or thought. The way we live our life is metaphorical and we identify every thing in this world relative to our thought and word. Our everyday life is metaphorical and every concept and objects of world are connected to each other. All objects and people in the world are identified with a word and nature .We work automatically in our life, it is mostly the intelligence and mind take the dominant position in our life. In the same way our language also plays a greater role in life by giving meaning to different objects and beings. For an example, the concept of argument is a verbal war and is related to war but there is no physical violence in it. Argument is a war but it is different from the real war. There is winning and losing in a war and an argument also hav e the same. These are different activities but fall in to a same category but we do not consider

Friday, October 18, 2019

Strategic management Research Paper Example | Topics and Well Written Essays - 3000 words

Strategic management - Research Paper Example IKEA has been forced to develop a supply chain model that is very scrutinizing of supplier labour policies, putting considerable strain on in-house procurement to ensure compliance to IKEA’s no child labour processes. These can represent significant costs and restructuring of the supply chain to ensure that no products are being subcontracted from regions that use child labour in production. At a time when IKEA is concerned with cost-cutting measures, this can complicate distribution and operations, making political issues in child labour a budgetary problem. In Russia, IKEA global has been hindered by ongoing corruption that is occurring at the governmental and cultural levels. IKEA actually froze its investments in Russia in 2009 due to its anti-corruption stand and a recent scenario that involved bribes paid to subcontractors related to the procurement of electricity suppliers in St. Petersburg (Betts 2010). This puts pressure on strategic expansion plans as the company must cut through bureaucracy red-tape and attempt to gain governmental support for anti-corruption. In many ways, IKEA is at the mercy of regional governments who seem, in some territories, to turn a blind eye to these business practices. Campaigning against corruption represents a similar strain to operating budget and proper, efficient utilization of executive personnel. Betts (2010) identifies that IKEA has also dealt with corruption in France that was occurring from political groups that suggested IKEA was involved in the exploitation of French workers at its stores. IKEA received cultural backlash from French citizens on picket lines that disrupted trading with 26 French retail stores. IKEA must continuously deal with political angst in certain countries where it operates and, since the company’s supply chain is global, becomes a target of political objectives. The economic environment differs in

An overcome approach to the Melting Pot Essay Example | Topics and Well Written Essays - 750 words

An overcome approach to the Melting Pot - Essay Example Enlistment was next used after the United States entered World War I in 1917. The first peacetime call up came with the Selective Training and Service Act of 1940. Active conscription ("the draft") ended in 1973. Currently, male U.S. citizens, if aged eighteen through twenty five, are required to register with the Selective Service System, whose mission is "to provide manpower to the armed forces in an emergency" including a "Health Care Personnel Delivery System"2 and "to run an Alternative Service Program for men classified as conscientious objectors during a draft." No one has been prosecuted for violating the conscription law in the USA since 1986.3 Conscription should be considered as a hypothetical panacea to cut down, for example, crime, teenage pregnancy and substance abuse rates decline; or to foster a more hard-working, respectful, disciplined, honorable and prepared for life youth4. Enlistment could surely help all of those immigrants in the States to get more, deeper and better integrated within the American society by helping their adoptive country to reinstate peace and freedom where needed by the time they give to the society something in reward for all they have already received. Mandatory military service is one of the oldest forms of national service and is common to both democratic and non-democratic countries. Such democratic countries as Austria, Brazil, Denmark, Finland, Germany, Israel, Mexico, Norway, Russia, South Korea, Sweden, Switzerland and Turkey require male and occasionally female citizens to participate in military service when they become 18 years old. These countries prove that conscription, when handled properly, can be an asset to the military, the society and the conscript. Furthermore,... An overcome approach to the â€Å"Melting Pot† After the introduction of a bill to reinstate the military draft by Representative Charles Rangel (D-NY) on January 7, 2003, rumours went out on the real reach of this measure. A little over a year after, another bill, this time by Representative Tim Johnson, announced on October 5, 2004, that the House defeated a bill that would have reinstated the military draft. H.R. 163 was introduced by and would have required every U.S. citizen, and every other person residing in the United States, between the ages of 18 and 26 to perform a two-year period of national service, unless exempted, either as a member of an active or reserve component of the armed forces or in a civilian capacity that promotes national defence . Detractors of H.R. 163 argued that too many have already lost their lives at the battle field and the Vietnam issue became a recurrent double edged argument. However, it has to be understood and taken into account that the USA are involved in several campaigns all over the world to guarantee freedom and Human Rights where otherwise would be rotten to the core. In addition to this, the military draft should be assumed not as a punishment or backward movement, more proper of a reactionary society than of a leading and modern one, but as a different solution for daily concerns. Besides, military draft is another way to interpret the path to the achievement of the American Dream, overcoming the well worn â€Å"Melting Pot† topic: recruits and conscripts can enter the military branch of their liking, request to be trained in a specific field, and serve in the state of their choice.

Thursday, October 17, 2019

How do US auto firms evaluate the comprehensive and long term Dissertation

How do US auto firms evaluate the comprehensive and long term viability of investing in Information Technology projects that len - Dissertation Example Aptness of the process of decision making is justified by the methodological fitness of the decision to the demand of the concerned situation, reliability of the evidence used for decision making, relevance of the decision to context, transparency in the findings and the extent up to which consensus reached within the decision making individuals. In this paper the mixed method of research has been compared with quantitative and qualitative methods of research. Result of this comparison has been used to study the different models of decision making and the most preferred method of research has been described (Baba & HakemZadeh, 2012). The rational model The neoclassical theory of microeconomics is based on the assumption that man is a rational economic agent and is an informed decision-maker. This process shows involves four different steps, intelligence, design, choice and review. Intelligence of an individual or an organization helps them to find the appropriate occasions for decisi on making. Design of the decision making process allows them to invent new ways and analyze all the probable ways to choose the course of action. It helps in selecting some particular line of action from the available range of choices and review of the choice made helps in judging the outcomes of the decisions made in the past. In the classical model or the model of perfect rationality, numerical values are used to determine the level of utility of each of the alternative options which are then used for the process of decision making or during ‘choice phase’. The alternative choice that provides the maximum amount of utility (subjective level of utility depending on the decision maker) is selected. In business organizations, implementation of the rational model of decision making entails the following assumptions involving the managers in the organization. These assumptions include knowledge of all likely alternatives, awareness of the expected consequences of each of t he alternatives, having a predetermined and organized preference set corresponding to all the consequences and finally, having strong computational ability and deep insights to compare these consequences and determine which one of these is the most preferred (Turpin & Marais, 2004). The model of bounded rationality The notion of bounded rationality explains that while individuals make decisions, rationality of their behavior is limited by three important factors; availability of access to information, cognitive precincts of human minds, and time constraint within which the decision has to be made. According to Simon (1979), the leaders in an organization always do not make completely informed choices. In many occasions they make choices on the basis of available information and the insights and forecasting capabilities of the decision maker. Therefore, the choice made by these leaders is not always the optimal choice. Rational behavior by human beings is mainly influenced by two fac tors; the situation in which the decision has to be made and â€Å"the computational capabilities of the actor† (Turpin & Marais, 2004, 147). Study of rationality of human behavior has become easier since the study can be made within these

Article Critique of Moscow to insist Russia and China join chemical Research Paper

Article Critique of Moscow to insist Russia and China join chemical arms probe by Reuters & AP - Research Paper Example With this in mind, the two warring factions do not want to take responsibility and are therefore blaming one another for the misfortune that one of them caused and led to great damage to the country. The conflict in Syria, which is between rebels and the government has raged on for two years and has caused the deaths of over 70,000 people in the course of its life, that is still going on. The correctness rages on in that the rebels are attempting to take over power from the current government, where the war is beyond taking power for either group. Putting this into perspective means that the group that wins shall not be held accountable for the loss of lives and even the destruction of property that has been experienced countrywide, as well as the civil unrest. The loser will solely be responsible, whereby it is upon the loser to admit defeat and accept all that has occurred with no option of redress or appeal. In addition, the article addressing the Syrian conflict brings into persp ective the problem of a conflict that is too late to stop as all parties have too much to lose considering that, the government has put its all in the war against the rebels, while the rebels to have done the same. In addition, the rebels are backed by a good section of the civilian population, which means that the government is almost on the losing side due to the presence of civilians. In this case, civilians represent a good bargaining chip for the rebels, as the government is bound by international law not to engage civilians using the military or even by use of unnecessary or excessive force. Consequently, the outcome is that the government is losing, which makes the missile issue even more critical for them as a loss in the war is guaranteed for them to take political and legal responsibility for the war. It is at this point that the missile issue comes up again as it highlights an attempt to foil the attempts of one side of the conflict at clinching or maintaining power. This is evident and might appear biased towards the rebel side, as logical analysis would show the ability to fire missiles lies with the military. The same military backs the government, where the government is at war with rebels, and the whole situation does not look for the government, but the rebels (Reuters and AP). On the other hand, the missile could be part of intricate plan to oust the current government by forcing it to take responsibility for the said weapon. It is due to this that the international community in the form of the United Nations and the veto powers in it to look at the situation ad and determine the origin and the intent of its launch in relation to the Syrian conflict. The main concern of the international community, however, is not on the use of missiles against a civilian population but is instead focused on the use of chemicals in the missile. This is a major contravention of the laws of engagement in the event of war in an agreement that goes as far back as the 19th century, where there were signed treaties against the use of chemical warfare against the people, where even soldiers are included. Another perspective of this issue in the use of chemical warfare is what the international community stands to gain.

Wednesday, October 16, 2019

How do US auto firms evaluate the comprehensive and long term Dissertation

How do US auto firms evaluate the comprehensive and long term viability of investing in Information Technology projects that len - Dissertation Example Aptness of the process of decision making is justified by the methodological fitness of the decision to the demand of the concerned situation, reliability of the evidence used for decision making, relevance of the decision to context, transparency in the findings and the extent up to which consensus reached within the decision making individuals. In this paper the mixed method of research has been compared with quantitative and qualitative methods of research. Result of this comparison has been used to study the different models of decision making and the most preferred method of research has been described (Baba & HakemZadeh, 2012). The rational model The neoclassical theory of microeconomics is based on the assumption that man is a rational economic agent and is an informed decision-maker. This process shows involves four different steps, intelligence, design, choice and review. Intelligence of an individual or an organization helps them to find the appropriate occasions for decisi on making. Design of the decision making process allows them to invent new ways and analyze all the probable ways to choose the course of action. It helps in selecting some particular line of action from the available range of choices and review of the choice made helps in judging the outcomes of the decisions made in the past. In the classical model or the model of perfect rationality, numerical values are used to determine the level of utility of each of the alternative options which are then used for the process of decision making or during ‘choice phase’. The alternative choice that provides the maximum amount of utility (subjective level of utility depending on the decision maker) is selected. In business organizations, implementation of the rational model of decision making entails the following assumptions involving the managers in the organization. These assumptions include knowledge of all likely alternatives, awareness of the expected consequences of each of t he alternatives, having a predetermined and organized preference set corresponding to all the consequences and finally, having strong computational ability and deep insights to compare these consequences and determine which one of these is the most preferred (Turpin & Marais, 2004). The model of bounded rationality The notion of bounded rationality explains that while individuals make decisions, rationality of their behavior is limited by three important factors; availability of access to information, cognitive precincts of human minds, and time constraint within which the decision has to be made. According to Simon (1979), the leaders in an organization always do not make completely informed choices. In many occasions they make choices on the basis of available information and the insights and forecasting capabilities of the decision maker. Therefore, the choice made by these leaders is not always the optimal choice. Rational behavior by human beings is mainly influenced by two fac tors; the situation in which the decision has to be made and â€Å"the computational capabilities of the actor† (Turpin & Marais, 2004, 147). Study of rationality of human behavior has become easier since the study can be made within these

Tuesday, October 15, 2019

BUSINESS LAW Essay Example | Topics and Well Written Essays - 1000 words - 1

BUSINESS LAW - Essay Example The difference between them is that the former pre-qualify on the basis of â€Å"good citizenship† working on a part-time basis while the latter are lawyers who sit as full time judges. The former sits in threes with the aid of a legally qualified clerk whilst the latter sits alone (Kelly et al 2005 p. 51; Whincup 2006 p. 7). The Crown Court is part of the Supreme Court together with the Court of Appeal and the High Court. It is a single court which sits in 90 centres unlike the magistrates’ court which is a local court. A Crown Court centre is divided into three tiers: the first tier deals with both civil and criminal cases; the second tier hears criminal cases, and; the third tier hears criminal cases presided by circuit judges and recorders (Kelly et al 2005 p. 52). The Crown Court has a two-fold jurisdiction: original criminal indictable cases, and; appeal cases from summary convictions in the magistrates’ courts. If the accused enters a plea of not guilty, the Crown Court judge hears the case with a jury of twelve. The Court also hears either way-offences (Kelly et al 2005 p. 52). The Magistrates’ Courts, aside from having jurisdiction over criminal cases as stated earlier, have also civil jurisdiction. This civil jurisdiction is largely confined to domestic issues like adoption, affiliation, guardianship and the maintenance and separation issues in separation and divorce proceedings between husbands and wives (Whincup 2007 p. 7).. The County Court is part of the national system and hears minor civil disputes, claims for contract breaches and torts up to  £50,000. A lone judge sits, sometimes joined by a jury. It also hears small claims (below  £5000) although the task is relegated to a registrar who is the court’s administrative officer and follows a less stringent procedural method (Whincup 2007 p. 7). The High Court deals with the most important civil cases with its approximately 100 judges appointed so by the Lord Chancellor. It has

Monday, October 14, 2019

Forget Hell Essay Example for Free

Forget Hell Essay The Civil War was one of the most remembered part of the history, not only for the countries who participated in it, but also for the rest of the world. Civil War, also known as the â€Å"War Between the States,† is highly commemorated due to the great number of lives lost within the same grounds of their mother country. The conflict between the Northerners and the Southerners based on their principles became and larger and grew more distinct which eventually has led to the war. The American Civil War was fought between the Northerners who opposed slavery and the Southerners who formed the Confederate States of America (Confederacy), who supported slavery. The Northerners who were loyal to the ideals of democracy felt that slavery should be refuted in any state. On the other hand, Southerners have long believed that they have belonged to slavery and thus, opposition to such beliefs renders them insubordination and unfaithful to their state. The article written by Charles Joyner entitled â€Å"Forget Hell† is an account of the sentiments and emotions that grew strong at the wars aftermath. The effects of the war is always at the greatest height after all the deaths have been recounted, and the families who lost loved ones and properties have mourned over their losses. Their pain is even more painful at the thought that they have all given their best, and they have hoped for a victory but were rather disappointed. But the most excruciating pain lies in some of them realizing that they have lost the battle, they have lost their loved ones for a reason which they are now doubtful for. Nonetheless, behind the sorrow caused by the losses and the pain of realizing that they fought for a reason that is now more contented than being celebrated, there are lessons to be learned and mistakes that are yet to be corrected. The issue of slavery became pronounced more than ever during this era. America has been divided between those who stand for it and those who opposed it. And this antagonism ignited a fire between the two opposing sides. For the Northerners, it was important that the bonds of slavery to untangle their fellow Americans. They believed that the Southerners lost the battle because they fought only with bravery but without honor or pity. On the other hand, for the Southerners they have believed that they have been chained towards slavery and to refute this idea is a treachery against their nation. The American Civil War was fought due to the differences between beliefs. Indeed, every war fought in the rest of the world was caused by antagonisms and differences in the culture and beliefs of people from different places. Wars have occurred because people have failed to compromise and sort out their differences. The governments of involved states have opted to engage in war to solve the conflict rather than to peacefully negotiate. Despite the occurrences of wars that have ended disastrously, people are still continuing to commit the same mistakes. People must learn and understand that differences always occur between two different states. And struggling to make each state recognize these differences while imposing other people to adjust to suit ones culture and beliefs shall allow more wars to take place. It matter less if people belong from different states or different countries, what matters is that people should acknowledge such differences and make amends to avoid having conflicts. All the soldiers of these battles have fought valiantly in the name of their principle and their motherland, but fighting for absurd reasons and rendering the same mistakes have wasted the lives of brave heroes who sacrifices themselves. Courage, honor and loyalty to ones country are important, but reason and rationality are equally necessary in any

Sunday, October 13, 2019

Impact of Exchange Rate Misalignment on Capital Inflows

Impact of Exchange Rate Misalignment on Capital Inflows EXCHANGE RATE MISALIGNMENT AND CAPITAL INFLOWS: AN ENDOGENOUS THRESHOLD ANALYSIS FOR MALAYSIA ABSTRACT This study presents an attempt to investigate the impact of exchange rate misalignment on capital inflows in Malaysia. Specifically, a precise threshold value is estimated to examine when exchange rate misalignment suppresses capital inflows. To pursue these objectives, this study relies on the endogenous threshold analysis as of Hansen (1996, 2000). Results suggest that misalignment in terms of currency overvaluation, has a negative and significant effect when overvaluation is more than 15 percent. This estimate is consistent and robust despite the changes in the choice of explanatory variables. INTRODUCTION Foreign direct investment (FDI) has served as an important engine of growth via skills and technology transfer, creation of employment opportunities and expanding the capital stock in Malaysia. Since the 1997 Asian financial crisis, Malaysia is no longer the top 10 host for FDI. In fact, the rate of growth of FDI has dramatically decrease compared to that of the early 1990s. This is partly due to reverse investment (Mat Zin, 1999) and declining dependence on FDI to finance growth. However, this may also indicates the declining competitiveness of Malaysia in attracting FDI which warrants empirical research since it would be vital to investigate which factors that contributed to the deterioration of competitiveness. Since early 1980s, real exchange rate misalignment has become a standard concept in international macroeconomic theory and policy (Razin Collins, 1997). Hence, this study focuses on exchange rate misalignment as an indicator of capital inflow competitiveness in the case of Malaysia. Malaysia provides an interesting case as it is one of the largest recipients of FDI amongst its ASEAN counterparts. Another advantage of undertaking a single country study is the ability to delineate the assumption that countries are similar in terms of social, cultural, economic and political background (Sun et al., 2002). Therefore, only relevant economic determinants are accounted for to suit the Malaysian environment. The objective of this paper is to investigate the empirical relationship between capital inflows and exchange rate misalignment. Whilst existing literature focuses on the role of exchange rate, this study takes a step further to examine the impact of exchange rate misalignment on capital inflows. Specifically, we estimate a threshold value at which misalignment begins to significantly affect capital inflows. To the best of our knowledge, no published study has attempted to estimate a threshold value for exchange rate misalignment in Malaysia. Hence, this study intends to fill this gap. Based on the endogenous autoregressive threshold (TAR) model developed by Hansen (2000), we split the sample into high and low misalignment regimes. Results suggest that exchange rate misalignment due to overvaluation is detrimental to the influx of capital inflows. The next section provides a brief overview of FDI in Malaysia followed by a brief explication of the theoretical model and review of liter ature. The fourth section spells out the method pertaining to the objective. The penultimate section provides results and discussion and the final section concludes. CAPITAL INFLOWS IN MALAYSIA: RECENT TRENDS AND INCENTIVES The essence of export oriented-growth nexus somewhat depends on the inflow of foreign capital into the country. In the past, foreign direct investment has been the one of the major conduit for technology transfer, job creation and export-led growth to this country. To pursue this line of interest, the Malaysian government has designed various policies spanning the gamut of industrial specific incentives, taxation, and intellectual property protection to infrastructure support. The company tax rate for example has been reduced from 33 percent in 1987 to 27 percent in 2007 and 26 percent in 2008. Other tax incentives such as the investment tax allowance, tax relief for companies with pioneer status or high technology industries has continued until today with more industries be given the relevant status to reap the benefits of the incentives. Most recently, the government has liberalized bumiputera equity requirements for 27 sectors to further boost competitiveness. With reference to previous information, there was a surge in foreign direct investment (FDI) into Malaysia in the late 1980s and this trend continued until the onset of the 1997 Asian financial crisis. Another acute slump in the influx of FDI occured in 2001 when the economy was in a slight recession but picked up again in 2002 thereafter. With the recent burgeoning world recession following the American sub-mortgage crisis, it is expected that FDI will contract again (IMF, 2009). To capture a more vivid impact of misalignment on capital inflows, this study employs quarterly data from Bank Negara Malaysia (BNM – the central bank of Malaysia) instead of the UNCTAD data which are annual. Foreign capital inflows or investment inflows comprises three items: (i) equity investment, (ii) loans and (iii) real estate. Investment consists of equity investment in Malaysia by non-residents, loans obtained from non-residents and purchase of real estate in Malaysia by non-residents but excludes retained earnings (Source: Bank Negara Malaysia, Glossary, Monthly Bulletin Statistics January, 2009, p. 186-187). This study resorts to a specific measure of FDI, that is, foreign investment inflows. Data starts from 1991:Q1-2008:Q3, partly dictated by availability. THEORY AND REVIEW OF LITERATURE In this study, we rely on the portfolio balance approach to model the determinants of foreign capital inflows. This model has been successfully tested by Goh (2005) for Malaysia. Branson (1968) postulates that the proportion of foreign assets (Kf) in a given stock of wealth is a function of the domestic and foreign interest rates (i and i*), the measure of exchange rate expectation or risk (e) and the stock of wealth (w) expressed as: (1)Darby et al. (1999), augment this concept of exchange rate risk (e) into exchange rate volatility and exchange rate misalignment. Since this study focuses on the role of exchange rate misalignment, we substitute e with misalignment. Expressing the above equation at level yields, (2)Focusing on Z, the literature suggests a number of variables that determines capital flows. The enigmatic relationship between FDI and exchange rate nexus has been widely examined and most of the discussions root back to the work of Kohlhagen (1977), Cushman (1985), Froot and Stein (1991), Goldberg (1993) and Darby et al. (1999). The effect of exchange rate is less straightforward (Benassy-Quere et al., 2001). The mechanisms that exchange rate affects capital inflows can also be viewed via the wealth effect channel and the relative production cost channel (Xing, 2006). A devaluation of the currency of the host country makes local cost of production lower in terms of foreign currency, hence leading to higher returns from export-oriented industries. As for the wealth effect, a devaluation makes local asset cheaper which motivates investors to acquire more. Kohlhagen (1977) static model postulates that following depreciation in host countries, MNEs will increase their production capacity. In a two period dynamic model, Cushman (1985) suggests that adjusted expected real depreciation lowers the production cost which leads to increase in FDI flows. Similarly, Goldberg (1993) illustrates how sectoral profitability, location effects, and portfolio and wealth effects are important factors that determine investment an d their links with exchange rates. In her theoretical model, the direction of investment effects triggered by exchange rate movements is ambiguous, therefore, warrants empirical research. On contrary, in an imperfect information framework, Froot and Stein (1991) show that appreciation induces wealth effect of foreign investors, thus encouraging foreign investors to acquire more local assets. Empirically, there is quite a consensus that a depreciation of the exchange rate in the host country leads to a reduction of the FDI (Klein and Rosengren, 1994; Dewenter, 1995). There is however, a dearth of studies that empirically examine the relationship between FDI and exchange rate misalignment. Empirical attempts include Benassy-Quere et al. (2001) who advocate the benefits of depreciation may be offset by excessive volatility of the exchange rate. Blonigen (1997) illustrates how currency depreciation induces foreign firm to acquire firm-specific assets when markets are segmented. Hasnat (1999) study the impact of misalignment on FDI for five developed nations on annual data ranging from 1976-1995. All of these studies use misalignment as a control variable or a counterpart for exchange rate variability and is measured by a deviation from the purchasing power parity (PPP) values. Furthermore, most of these studies are based on the experiences of industrialized economies using panel data analysis framework. In short, a prolonged misalignment may affect long term business decisions as it affects costs. If the exchange rate is overvalued relative to the e stimated equilibrium level, investors may acquire more domestic assets for future capital gains in host country currency terms (Barrell and Pain, 1996). On the other hand, persistent overvaluation may reduce cost competitiveness of production in the host country, especially for export oriented products. Other traditional determinants of FDI can be demarcated into at least two categories – micro and macro determinants. The list of micro-determinants spans from market size, growth, labour costs, host government policies, tariffs to trade barriers. The macro-determinants include market size (Chakrabarti, 2001; Farrell et al., 2004; Kravis and Lipsey; 1992), openness (Edwards, 1990; Gastanaga et al. 1998; Hausmann and Fernandez-Arias, 2000; Aseidu, 2002), rate of inflation (Bajo-Rubia and Sosvilla-Rivero, 1994; Urata and Kawai, 2000), government budget, taxes (Gastanaga et al., 1998; Wei, 2000) and infrastructure (Wheeler and Mody, 1992; Urata and Kawai, 2000). Financial deepening is also another catalyst for FDI (Borensztein et al., 1998). Liquid liability, private credit and M3 serve as proxies. Increase in money supply fuels inflation which increases the cost of production in the host country rendering a negative relationship. However, increments in money supply supported by g rowth or higher productivity indicate increase in future purchasing power which can benefit market-seeking FDI. Finally, the degree of misalignment is computed based on the difference between the actual and the hypothetical equilibrium exchange rate. Accordingly, the estimation of the hypothetical equilibrium exchange rate relies on the theory advocated by Edwards (1994). This theory postulates that the real exchange rate is a function of several fundamental variables which includes the Balassa-Samuelson effect, trade openness, net foreign assets and government spending. Details are provided in Sidek and Yusoff (2009). METHODOLOGY AND DATA The question of when does misalignment begin to significantly affect capital inflows necessitate the existence of a non-linear relationship between these two variables. Thus, if such non-linear relationship exists, then it is possible to estimate an inflexion point, or a threshold value, at which the sign of misalignment may change or become significant. In the non-linear time series modelling, the threshold autoregressive model (TAR) is more popular since it offers a relatively simple specification, estimation and interpretation compared to other non-linear models. The origins of TAR models roots back to Tong (1980) where the main idea is to approximate a general non-linear autoregressive structure by a threshold autoregession with a small number of regimes. Hansen (1996, 2000) derives the asymptotic distribution of the ordinary least squares (OLS) estimates of the endogeneous threshold parameters which is used in this study. This section explains how equation (2) is estimated to incorporate threshold effect. According to Hansen (2000), threshold estimation is the act of splitting the sample into two regimes when the threshold value is unknown. One necessary precondition is that the threshold variable must be a continuous variable. In this study, the threshold estimation is carried out by splitting the sample into high misalignment and low misalignment regime. Since misalignment is a continuous variable, TAR model would be appropriate to engender the threshold value. Formally, the two-regime threshold regression model takes the form: where is the threshold variable which is used to split the sample into two regimes, is the threshold value which is unknown and must be estimated, denotes the dependent variable (capital inflow), represents a vector of explanatory variables and is the error term assumed to be white noise and i.i.d. Note that if the threshold value is greater than the threshold variable, equation (3) is estimated and vice versa. This allows the regression parameters to change with respect to . In order to write equations (3) and (4) in a single equation, a dummy variable is used which is defined as where {.} is the indicator function, with d=1 when and d = 0, if otherwise; and set , such that (3) and where and . Equation (5) allows all the regression parameters , and to be estimated and switch between the two regimes. The least square (LS) technique is used to estimate through minimization of the sum of squared errors function. To implement this, the model is expressed in matrix notation, hence, equat ion (5) is expressed as: (6) Define, (7) as the sum of squared error function. By definition the least squares estimators which is also the MLE when with i.i.d. , jointly minimize equation (7). This minimization process requires to be restricted to a bounded set . The concentrated sum of squared errors function is written as: (8) where is the value that minimizes . As takes values that is less than n, is uniquely described as: with (9) Focusing on the objective of this section, the first step is to examine whether there exist a threshold effect in the model. This requires the examination between the linear model vis-Ã  -vis the two-regime model, equation (5). The null hypothesis of no threshold effect is tested against an alternative hypothesis where threshold effect is present. Since TAR models have a non-standard distribution, Hansen (1997, 2000) develops a standard heteroscedasticity-consistent Langrange Multiplier (LM) bootstrap method to calculate the asymptotic critical value and the p-value. The second step is to examine whether the derived threshold value is statistically significant. This is done by differencing the confidence interval region based on the likelihood ratio statistic . Based on Hansen (2000), let C represent the desired asymptotic confidence interval (in this study at 95%) and be the C-level critical value and set . Assuming homoscedasticity, as , therefore, is the asymptotic C-level confidence region for . If the homoscedasticity condition is not fulfilled, then a scale likelihood ratio statistics of the residual sum of squared errors is defined as: (10)and the adjusted confidence region becomes such that is robust whether or not the heteroscedasticity condition holds. Simulation is set at 1000 replications as suggested by Hansen (2000). Also, is not normally distributed hence, the valid asymptotic confidence intervals of the estimated threshold values in the no-rejection areas defined as , where is a given asymptotic level; and the no- rejection region of the confidence interval is . If , than the null hypothesis of cannot be rejected. In addition, to examine the possibility of a second threshold value, the same exercise is repeated. Specifically, the empirical model to be tested which is based on equation (2) is defined as follows: (11) where K is capital inflows, Mis, R and M3 denote exchange rate misalignment, interest differentials and financial deepening, and Z represents the other control variables. Table 1 summarizes the description of data, measurement and sources used in this study. Table 1: Determinants of Capital Inflows (1991Q1-2008Q3) Variable Description Measurement Source I Foreign investment Total foreign investment inflow as a percentage of GDP BNM M3 Money supply M2 as a percentage of GDP IFS D Government deficit The difference between revenue and expenditure as a percentage of GDP BNM R Interest differential The difference between Malaysia and US 3-month T-Bill rates IFS T Taxation Government corporate tax revenue as a percentage of GDP BNM LL Liquid Liability Log International liquidity: banking institution liability, line. 7b.d IFS INFRA Infrastructure Log of spending on infrastructure as a percentage of GDP BNM IFS: International Financial Statistics, IMF, UNCTAD: United Nations Conference on Trade and Development, BNM: Bank Negara Malaysia Monthly Statistical BulletinDOS: Department of Statistics, Malaysia (various issues). RESULTS AND DISCUSSION Prior to time series analysis, we test for unit roots in order to avoid spurious regression. Three versions of unit root testing, namely the ADF, PP and KPSS tests are employed to examine whether the variables are stationary on level or otherwise. Table 3 indicates that the order of integration are mixed for a majority of variables. However, this study proceeds to examine the threshold effect by including lagged variables for I(1) variables in the OLS estimation. Moreover, equation (2) derived from the theory requires estimations at level. Table 2: Unit root test ADF PP KPSS Order of Integration Level 1st Diff Level 1st Diff Level 1st Diff I -3.7029* -7.9812* -3.5286* 14.00208 0.9008* 0.2305 I(0)/I(1) M3 -1.2741 -10.0951* -1.3334 -10.4699* 1.0229* 0.3588*** I(1) D -1.6297 -19.7087* -8.8219* -27.3774* 0.3649* 0.0894 I(0)/I(1) R -4.5405* -3.8179** -2.6509 -7.0649* 0.0711 0.0471 I(0)/I(1) INFRA -2.2527 -4.5270* -3.5053* -27.7776* 0.2234* 0.0813 I(0)/I(1) LL -3.0805 -6.5500* -2.4386 -6.7355* 0.1073 0.0607 I(0)/I(1) MIS -3.8075** -9.7442* -3.8076** -9.8483* 0.0662 0.0577 I(0) Note: *, ** and *** denote significance at 1%, 5% and 10% significant level. p-values are in parentheses. For ADF and PP test the null is no unit root (H0: Variable is stationary) whilst the null for the KPSS is the existence of unit root (H0: Variable is not stationary). The baseline regression constitutes the exchange rate misalignment, interest differential and a measure of financial development, M3. We present four additional models with different variables added to the baseline regression, namely liquid liability, government budget deficit, and infrastructure for sensitivity analysis. Hansen (2000) theoretical construct allows for two threshold effects, hence, the first step is to investigate the possible existence of such an effect. Prior to that, a threshold variable needs to be selected. Since the aim of this section is to examine at what percentage exchange rate misalignment actually hurts capital inflows, the appropriate threshold variable is the exchange rate misalignment. Upon choosing the appropriate threshold variable, the next step is to observe any evidence of a threshold effect and whether there exist one or more threshold by employing the heteroscedasticity-consistent Lagrange-multiplier (LM) test for a threshold based on Hansen (1996). To test under the null hypothesis of no threshold effect, p-values are calculated using a bootstrap analog which generates the dependent variable from the distribution , where is the OLS residuals from the estimated threshold model. With 1000 bootstrap replications, the p-values for the baseline threshold models (Table 3) using misalignment strongly suggest the existence of threshold effect at 0.000. Subsequently, this suggests that there is a sample split based on the effect of exchange rate misalignment. Table 3: Threshold Effects for the baseline model Model 1 First Sample Split F-Stats 51.4045 Bootstrap P-Value 0.000 Threshold Estimates -15.0260% 95% Confidence Interval -15.446% , -9.8360% Second Sample Split F-Stats 16.2171 Bootstrap P-Value 0.2890 Note: H0: No threshold effect. The threshold is based on the minimized sum of squared residuals. This illustrates the graph of the normalized likelihood ratio sequence as a function of the threshold in exchange rate misalignment. The estimated is the value which minimizes these graphs which range at =15.02-15.44%. The dotted lines on the graphs present the 95% critical values. For example, in model 1, the asymptotic 95% confidence interval set where crosses the dotted lines. The results suggest that there is ample evidence for a two-regime specification. Also, it is worth noting that 41 of the 71 observations fall into the 95% confidence interval, hence, requires an examination of the possible existence of a second sample split. Results in Table 3, show that second sample split renders insignificant bootstrap p-value thus, indicating no further regime split. Table 4 presents the results for baseline regression. For comparison purposes, this study provides the linear OLS model without the threshold effect and a two-regime model which accommodates the threshold effect. Basically, the variables confer the correct signs in line with the prediction of the theory. Misalignment has a negative and significant effect on capital inflows in regime 2. Interest differential is expected to confer a negative effect. Results indicate that interest differentials only affects capital inflows negatively in the regime 1 but is insignificant in the regime 2. Similarly, M3 has significant effect in both regime but is positive in the regime 1 but the sign switches in regime 2. Hence, splitting the sample gives a more indepth view of the effects of these basic variables on investment inflows. To reiterate, sample splitting allows the examination of whether the significant effect is present in both regimes or otherwise. The results show that below the threshold value of 15%, exchange rate misalignment may be negative but are not statistically significant. However, above the 15% threshold level, misalignment exerts both negative and significant impact on capital inflows. A 1% increase in misalignment (overvaluation) suppresses capital inflows by approximately 1.19%. The negative effect of exchange rate misalignment on capital inflows is consistent with the findings of Hasnat (1999). Barrel and Pain (1996) argue that an apparent currency misalignment persistent over some length of time may affect investment inflows decisions. A reasonable explanation is that the relative production costs may be higher as a result of such misalignment. If the ringgit is thought to be overvalued relative to its estimated equilibrium level, then foreign production may be discouraged by the prospect of future capital loss in home currency terms. Another issue which emerges after the 1997 financial crisis is that capital inflows must be managed since reversals are likely to cause severe damage to the economy. Reinhart and Reinhart (1998) calls for greater exchange rate flexibility which is meant to introduce two-way risks, therefore, discouraging speculative capital inflows. It is, however, only possible in the context of de facto peg or a tightly managed float. Furthermore, the effectiveness of this policy depends on how much policymakers are willing to allow the exchange rate to fluctuate. A large band denotes greater flexibility but risks having large nominal appreciation which connotes possible overvaluation of the currency. The result of this study suggests that overvaluation is detrimental to capital inflows if this band exceeds 15%. Hence, policymakers should keep exchange rate fluctuations well below this 15% threshold. Table 4: Baseline regression results on the effect of misalignment on capital inflows (1991:Q1-2008:Q3). Dependent variable is capital inflows. Model 1 Linear Model Threshold Model OLS without threshold Regime 1 Â £ 15.0259% Regime 2 > 15.0259% Misalignment -0.4267** (0.2115) -0.3186 (0.2573) -1.1955** (0.5712) Interest Differential -0.0250*** (0.0131) -0.0438* (0.01533) -0.0261 (0.0193) M3 0.2964* (0.0391) 0.2644* (0.0516) -0.5560* (0.1240) Constant 3.0468* (0.2779) 2.5394* (0.2593) 6.7313* (0.6099) No. of Observations 71 42 29 R2 0.3664 0.6484 0.4218 Notes: *, ** and *** denote 1%, 5% and 10% significance respectively. Standard errors in parentheses. Interest rate differential are consistently negative and significant in all specifications and in both regimes in majority of the threshold model. This stresses the role of interest rates in attracting capital inflows into Malaysia. Although the impact may be small, it is significant and the authorities should ensure that interest rates are kept at certain levels to maintain competitiveness of Malaysia as destination for capital investment. In this paper, the estimated impact of a 1% change in interest differential is expected to subdue foreign investment by 0.04 percentage point in the first regime and 0.03 percentage point in the second regime. The proxy for financial deepening, M3 is statistically significant in all models and in both regimes. Again, this signifies the importance of financial development in attracting capital investment into Malaysia. Interestingly, M3 is positive during the periods of low misalignment regime (regime 1) but becomes negative at higher misalignment regime (regime 2). During low misalignment, a 1% increase in M3 is expected to draw in 0.3 percentage point more investment inflow into Malaysia. This shows that in the lower regime, financial depth acts as an impetus to capital inflows. However, the situation reverse with 0.6 percentage point lower investment inflows is expected with a 1% increase in misalignment in the second threshold regime. Montiel (1999) explicitly explains this phenomenon where capital inflows increase reserves which then prompt an increase in the monetary base, M2 and M3. Such increases fuels further increments in domestic demand leading to real appreciation. Thus, any overvaluation of the currency may eventually have negative ramifications on capital inflows. Sensitivity analysis To check for the sensitivity of the estimated threshold value, Table 6 -7 and Figure 3 represents four other models which use different variables in addition to the baseline regression. The addition of taxes yields insignificant results without drastically changing the threshold value. Other additional variables such as government budget deficit and liquid liability are only significant in one of the two regimes . With the inclusion of additional variables, the estimated magnitude of each regressors differ slightly but maintains the same sign and significance level. For example a 1% increase in misalignment (overvaluation) suppresses capital inflows by 1.11-1.55 percentage point. The estimated impact of a 1% change in interest differential is expected to deter foreign investment by 0.04-0.05 percentage point in the first regime and 0.02-0.06 percentage point in the second regime. Similarly, during low misalignment, a 1% increase in M3 is expected to draw in 0.2-0.3 percentage point m ore investment inflow into Malaysia. An estimated 0.49-0.67 percentage point lower investment inflows is expected with a 1% increase in M3 in the second threshold regime. In view of the results, it seems evident that the exchange rate policy has important effect in attracting foreign capital inflows into Malaysia. Specifically, misalignment in terms of overvaluation should be kept lower than 15 percent to ensure that capital inflows remained unhurt. Table 5: Sensitivity Analysis: Threshold Effects Model 2 Model 3 Model 4 Model 5 First Sample Split F-Stats 71.1442 45.9364 53.3722 53.3722 Bootstrap P-Value 0.000 0.000 0.000 0.000 Threshold Estimates -15.4461% -15.0260% -15.0260% -15.0260% 95% Confidence Interval -15.446%, -15.025% -15.446%, -9.836% -15.446%, -0.0984% -15.446%, -0.0984% Second Sample Split F-Stats 16.4917 19.7585 22.9710 22.9710 Bootstrap P-Value 0.5310 0.3800 0.2420 0.2420 Note: H0: No threshold effect. The threshold is based on the minimized sum of squared residuals Table 6: Sensitivity Analysis for threshold estimates (1991:Q1-2008:Q3). Model 2 Linear Model Threshold Model OLS without threshold Regime 1 Â £ 15.4461% Regime 2 > 15.4461% Misalignment -0.4278*** (0.2216) -0.3497 (0.4143) -1.5593* (0.3135) Interest Differential -0.0250*** (0.0134) -0.0462* (0.0153) -0.0599* (0.0131) M3 0.2966* (0.0414) 0.2732* (0.0488) -0.5609* (0.0744) Liquid Liability -0.0029 (0.1709) -0.0634 (0.1932) 1.1843* (0.2615) Constant 2.9780* (0.2713) 2.5259* (0.2593) 6.1799* (0.3135) No. of Observations 71 41 30 R2 0.3842 0.6503 0.5986 Model 3 Linear Model Threshold Model OLS without threshold Regime 1 Â £ 15.0260% Regime 2 > 15.0260% Misalignment -0.4472** (0.2038) -0.3800 (0.2460) -1.1171*** (0.6229) Interest Differential -0.0254* (0.0126) -0.0505* (0.0140) -0.0237 (0.0221) M3 0.2844* (7.4922) 0.2521* (0.0472) -0.5391* (0.1477) Deficit -0.7655* (0.3059) -0.7380* (0.3099) -0.1841 (0.7174) Constant 3.0308* (0.2674) 2.5835* (0.2445) 6.6452* (0.7337) No. of Observations 71 42 29 R2 0.4285 0.6829 0.4230 Model 4 Linear Model Threshold Model OL S without threshold Regime 1 Â £ 15.0260% Regime 2 > 15.0260% Misalignment -0.2852 (0.2181) -0.2582 (0.2720) 1.2490** (0.5612) Interest Differential -0.0275** (0.0128) -0.0419* (0.0165) -0.0311 (0.0204) M3 0.3208* (0.0401) 0.2796* (0.0583) -0.5489* (0.1245) Tax 2.1899** (1.0761) 0.1283 (0.1457) 0.1260 (0.1720) Constant 3.0274* (0.4383) 2.2463* (0.4806) 6.5027* (0.7227) No. of Observations 71 42 29 R2 0.3665 0.6516 0.4300 Model 5 Linear Model Threshold Model OLS without threshold Regime 1 Â £ 15.0260% Regime 2 > 15.0260% Misalignment -0.3780*** (0.1977) -0.4495*** (0.2602) -1.3190** (0.6059) Interest Differential -0.0203 (0.0123) -0.0433* (0.0152) -0.0308 (0.0212) M3 0.2941* (0.0365) 0.2388* (0.0479) -0.6093* (0.1406) Infrastructure 3.0729* (3.3373) 0.0474** (0.0228) -0.0382 (0.0392) Constant 3.0709* (0.2569) 2.5698* (0.2346) 7.0433* (0.7173) No. of Observations 71 42 29 R2 0.4091 0.6815 0.4384 Notes: *, ** and *** denote 1%, 5% and 10% significance respectively. Standard errors in parentheses. CONCLUSION The objective of this chapter is to examine the impact of exchange rate misalignment on capital inflows. Results provide evidences of the negative impact of misalignment on capital inflows. To reiterate, overvaluation of the ringgit signals that Malaysia is less competitive vis-Ã  -vis other countries. In addition, this paper also estimates a specific threshold value; that is the degree of misalignment after which it begins to hurt capital inflows. By employing a recent technique by Hansen (1996, 2000), this study splits the sample into high misalignment and low misalignment regimes. This study shows that misalignments hurt capital inflows in the high misalignment regime or when misalignment is greater than 15 percent. This study also confirms the work of Goh (2005) who suggests that the portfolio balance model can capture the determinants of capital inflows in Malaysia. In particular, the results suggest that interest differential is an important determinant albeit, small, hence, p olicies should be direc Impact of Exchange Rate Misalignment on Capital Inflows Impact of Exchange Rate Misalignment on Capital Inflows EXCHANGE RATE MISALIGNMENT AND CAPITAL INFLOWS: AN ENDOGENOUS THRESHOLD ANALYSIS FOR MALAYSIA ABSTRACT This study presents an attempt to investigate the impact of exchange rate misalignment on capital inflows in Malaysia. Specifically, a precise threshold value is estimated to examine when exchange rate misalignment suppresses capital inflows. To pursue these objectives, this study relies on the endogenous threshold analysis as of Hansen (1996, 2000). Results suggest that misalignment in terms of currency overvaluation, has a negative and significant effect when overvaluation is more than 15 percent. This estimate is consistent and robust despite the changes in the choice of explanatory variables. INTRODUCTION Foreign direct investment (FDI) has served as an important engine of growth via skills and technology transfer, creation of employment opportunities and expanding the capital stock in Malaysia. Since the 1997 Asian financial crisis, Malaysia is no longer the top 10 host for FDI. In fact, the rate of growth of FDI has dramatically decrease compared to that of the early 1990s. This is partly due to reverse investment (Mat Zin, 1999) and declining dependence on FDI to finance growth. However, this may also indicates the declining competitiveness of Malaysia in attracting FDI which warrants empirical research since it would be vital to investigate which factors that contributed to the deterioration of competitiveness. Since early 1980s, real exchange rate misalignment has become a standard concept in international macroeconomic theory and policy (Razin Collins, 1997). Hence, this study focuses on exchange rate misalignment as an indicator of capital inflow competitiveness in the case of Malaysia. Malaysia provides an interesting case as it is one of the largest recipients of FDI amongst its ASEAN counterparts. Another advantage of undertaking a single country study is the ability to delineate the assumption that countries are similar in terms of social, cultural, economic and political background (Sun et al., 2002). Therefore, only relevant economic determinants are accounted for to suit the Malaysian environment. The objective of this paper is to investigate the empirical relationship between capital inflows and exchange rate misalignment. Whilst existing literature focuses on the role of exchange rate, this study takes a step further to examine the impact of exchange rate misalignment on capital inflows. Specifically, we estimate a threshold value at which misalignment begins to significantly affect capital inflows. To the best of our knowledge, no published study has attempted to estimate a threshold value for exchange rate misalignment in Malaysia. Hence, this study intends to fill this gap. Based on the endogenous autoregressive threshold (TAR) model developed by Hansen (2000), we split the sample into high and low misalignment regimes. Results suggest that exchange rate misalignment due to overvaluation is detrimental to the influx of capital inflows. The next section provides a brief overview of FDI in Malaysia followed by a brief explication of the theoretical model and review of liter ature. The fourth section spells out the method pertaining to the objective. The penultimate section provides results and discussion and the final section concludes. CAPITAL INFLOWS IN MALAYSIA: RECENT TRENDS AND INCENTIVES The essence of export oriented-growth nexus somewhat depends on the inflow of foreign capital into the country. In the past, foreign direct investment has been the one of the major conduit for technology transfer, job creation and export-led growth to this country. To pursue this line of interest, the Malaysian government has designed various policies spanning the gamut of industrial specific incentives, taxation, and intellectual property protection to infrastructure support. The company tax rate for example has been reduced from 33 percent in 1987 to 27 percent in 2007 and 26 percent in 2008. Other tax incentives such as the investment tax allowance, tax relief for companies with pioneer status or high technology industries has continued until today with more industries be given the relevant status to reap the benefits of the incentives. Most recently, the government has liberalized bumiputera equity requirements for 27 sectors to further boost competitiveness. With reference to previous information, there was a surge in foreign direct investment (FDI) into Malaysia in the late 1980s and this trend continued until the onset of the 1997 Asian financial crisis. Another acute slump in the influx of FDI occured in 2001 when the economy was in a slight recession but picked up again in 2002 thereafter. With the recent burgeoning world recession following the American sub-mortgage crisis, it is expected that FDI will contract again (IMF, 2009). To capture a more vivid impact of misalignment on capital inflows, this study employs quarterly data from Bank Negara Malaysia (BNM – the central bank of Malaysia) instead of the UNCTAD data which are annual. Foreign capital inflows or investment inflows comprises three items: (i) equity investment, (ii) loans and (iii) real estate. Investment consists of equity investment in Malaysia by non-residents, loans obtained from non-residents and purchase of real estate in Malaysia by non-residents but excludes retained earnings (Source: Bank Negara Malaysia, Glossary, Monthly Bulletin Statistics January, 2009, p. 186-187). This study resorts to a specific measure of FDI, that is, foreign investment inflows. Data starts from 1991:Q1-2008:Q3, partly dictated by availability. THEORY AND REVIEW OF LITERATURE In this study, we rely on the portfolio balance approach to model the determinants of foreign capital inflows. This model has been successfully tested by Goh (2005) for Malaysia. Branson (1968) postulates that the proportion of foreign assets (Kf) in a given stock of wealth is a function of the domestic and foreign interest rates (i and i*), the measure of exchange rate expectation or risk (e) and the stock of wealth (w) expressed as: (1)Darby et al. (1999), augment this concept of exchange rate risk (e) into exchange rate volatility and exchange rate misalignment. Since this study focuses on the role of exchange rate misalignment, we substitute e with misalignment. Expressing the above equation at level yields, (2)Focusing on Z, the literature suggests a number of variables that determines capital flows. The enigmatic relationship between FDI and exchange rate nexus has been widely examined and most of the discussions root back to the work of Kohlhagen (1977), Cushman (1985), Froot and Stein (1991), Goldberg (1993) and Darby et al. (1999). The effect of exchange rate is less straightforward (Benassy-Quere et al., 2001). The mechanisms that exchange rate affects capital inflows can also be viewed via the wealth effect channel and the relative production cost channel (Xing, 2006). A devaluation of the currency of the host country makes local cost of production lower in terms of foreign currency, hence leading to higher returns from export-oriented industries. As for the wealth effect, a devaluation makes local asset cheaper which motivates investors to acquire more. Kohlhagen (1977) static model postulates that following depreciation in host countries, MNEs will increase their production capacity. In a two period dynamic model, Cushman (1985) suggests that adjusted expected real depreciation lowers the production cost which leads to increase in FDI flows. Similarly, Goldberg (1993) illustrates how sectoral profitability, location effects, and portfolio and wealth effects are important factors that determine investment an d their links with exchange rates. In her theoretical model, the direction of investment effects triggered by exchange rate movements is ambiguous, therefore, warrants empirical research. On contrary, in an imperfect information framework, Froot and Stein (1991) show that appreciation induces wealth effect of foreign investors, thus encouraging foreign investors to acquire more local assets. Empirically, there is quite a consensus that a depreciation of the exchange rate in the host country leads to a reduction of the FDI (Klein and Rosengren, 1994; Dewenter, 1995). There is however, a dearth of studies that empirically examine the relationship between FDI and exchange rate misalignment. Empirical attempts include Benassy-Quere et al. (2001) who advocate the benefits of depreciation may be offset by excessive volatility of the exchange rate. Blonigen (1997) illustrates how currency depreciation induces foreign firm to acquire firm-specific assets when markets are segmented. Hasnat (1999) study the impact of misalignment on FDI for five developed nations on annual data ranging from 1976-1995. All of these studies use misalignment as a control variable or a counterpart for exchange rate variability and is measured by a deviation from the purchasing power parity (PPP) values. Furthermore, most of these studies are based on the experiences of industrialized economies using panel data analysis framework. In short, a prolonged misalignment may affect long term business decisions as it affects costs. If the exchange rate is overvalued relative to the e stimated equilibrium level, investors may acquire more domestic assets for future capital gains in host country currency terms (Barrell and Pain, 1996). On the other hand, persistent overvaluation may reduce cost competitiveness of production in the host country, especially for export oriented products. Other traditional determinants of FDI can be demarcated into at least two categories – micro and macro determinants. The list of micro-determinants spans from market size, growth, labour costs, host government policies, tariffs to trade barriers. The macro-determinants include market size (Chakrabarti, 2001; Farrell et al., 2004; Kravis and Lipsey; 1992), openness (Edwards, 1990; Gastanaga et al. 1998; Hausmann and Fernandez-Arias, 2000; Aseidu, 2002), rate of inflation (Bajo-Rubia and Sosvilla-Rivero, 1994; Urata and Kawai, 2000), government budget, taxes (Gastanaga et al., 1998; Wei, 2000) and infrastructure (Wheeler and Mody, 1992; Urata and Kawai, 2000). Financial deepening is also another catalyst for FDI (Borensztein et al., 1998). Liquid liability, private credit and M3 serve as proxies. Increase in money supply fuels inflation which increases the cost of production in the host country rendering a negative relationship. However, increments in money supply supported by g rowth or higher productivity indicate increase in future purchasing power which can benefit market-seeking FDI. Finally, the degree of misalignment is computed based on the difference between the actual and the hypothetical equilibrium exchange rate. Accordingly, the estimation of the hypothetical equilibrium exchange rate relies on the theory advocated by Edwards (1994). This theory postulates that the real exchange rate is a function of several fundamental variables which includes the Balassa-Samuelson effect, trade openness, net foreign assets and government spending. Details are provided in Sidek and Yusoff (2009). METHODOLOGY AND DATA The question of when does misalignment begin to significantly affect capital inflows necessitate the existence of a non-linear relationship between these two variables. Thus, if such non-linear relationship exists, then it is possible to estimate an inflexion point, or a threshold value, at which the sign of misalignment may change or become significant. In the non-linear time series modelling, the threshold autoregressive model (TAR) is more popular since it offers a relatively simple specification, estimation and interpretation compared to other non-linear models. The origins of TAR models roots back to Tong (1980) where the main idea is to approximate a general non-linear autoregressive structure by a threshold autoregession with a small number of regimes. Hansen (1996, 2000) derives the asymptotic distribution of the ordinary least squares (OLS) estimates of the endogeneous threshold parameters which is used in this study. This section explains how equation (2) is estimated to incorporate threshold effect. According to Hansen (2000), threshold estimation is the act of splitting the sample into two regimes when the threshold value is unknown. One necessary precondition is that the threshold variable must be a continuous variable. In this study, the threshold estimation is carried out by splitting the sample into high misalignment and low misalignment regime. Since misalignment is a continuous variable, TAR model would be appropriate to engender the threshold value. Formally, the two-regime threshold regression model takes the form: where is the threshold variable which is used to split the sample into two regimes, is the threshold value which is unknown and must be estimated, denotes the dependent variable (capital inflow), represents a vector of explanatory variables and is the error term assumed to be white noise and i.i.d. Note that if the threshold value is greater than the threshold variable, equation (3) is estimated and vice versa. This allows the regression parameters to change with respect to . In order to write equations (3) and (4) in a single equation, a dummy variable is used which is defined as where {.} is the indicator function, with d=1 when and d = 0, if otherwise; and set , such that (3) and where and . Equation (5) allows all the regression parameters , and to be estimated and switch between the two regimes. The least square (LS) technique is used to estimate through minimization of the sum of squared errors function. To implement this, the model is expressed in matrix notation, hence, equat ion (5) is expressed as: (6) Define, (7) as the sum of squared error function. By definition the least squares estimators which is also the MLE when with i.i.d. , jointly minimize equation (7). This minimization process requires to be restricted to a bounded set . The concentrated sum of squared errors function is written as: (8) where is the value that minimizes . As takes values that is less than n, is uniquely described as: with (9) Focusing on the objective of this section, the first step is to examine whether there exist a threshold effect in the model. This requires the examination between the linear model vis-Ã  -vis the two-regime model, equation (5). The null hypothesis of no threshold effect is tested against an alternative hypothesis where threshold effect is present. Since TAR models have a non-standard distribution, Hansen (1997, 2000) develops a standard heteroscedasticity-consistent Langrange Multiplier (LM) bootstrap method to calculate the asymptotic critical value and the p-value. The second step is to examine whether the derived threshold value is statistically significant. This is done by differencing the confidence interval region based on the likelihood ratio statistic . Based on Hansen (2000), let C represent the desired asymptotic confidence interval (in this study at 95%) and be the C-level critical value and set . Assuming homoscedasticity, as , therefore, is the asymptotic C-level confidence region for . If the homoscedasticity condition is not fulfilled, then a scale likelihood ratio statistics of the residual sum of squared errors is defined as: (10)and the adjusted confidence region becomes such that is robust whether or not the heteroscedasticity condition holds. Simulation is set at 1000 replications as suggested by Hansen (2000). Also, is not normally distributed hence, the valid asymptotic confidence intervals of the estimated threshold values in the no-rejection areas defined as , where is a given asymptotic level; and the no- rejection region of the confidence interval is . If , than the null hypothesis of cannot be rejected. In addition, to examine the possibility of a second threshold value, the same exercise is repeated. Specifically, the empirical model to be tested which is based on equation (2) is defined as follows: (11) where K is capital inflows, Mis, R and M3 denote exchange rate misalignment, interest differentials and financial deepening, and Z represents the other control variables. Table 1 summarizes the description of data, measurement and sources used in this study. Table 1: Determinants of Capital Inflows (1991Q1-2008Q3) Variable Description Measurement Source I Foreign investment Total foreign investment inflow as a percentage of GDP BNM M3 Money supply M2 as a percentage of GDP IFS D Government deficit The difference between revenue and expenditure as a percentage of GDP BNM R Interest differential The difference between Malaysia and US 3-month T-Bill rates IFS T Taxation Government corporate tax revenue as a percentage of GDP BNM LL Liquid Liability Log International liquidity: banking institution liability, line. 7b.d IFS INFRA Infrastructure Log of spending on infrastructure as a percentage of GDP BNM IFS: International Financial Statistics, IMF, UNCTAD: United Nations Conference on Trade and Development, BNM: Bank Negara Malaysia Monthly Statistical BulletinDOS: Department of Statistics, Malaysia (various issues). RESULTS AND DISCUSSION Prior to time series analysis, we test for unit roots in order to avoid spurious regression. Three versions of unit root testing, namely the ADF, PP and KPSS tests are employed to examine whether the variables are stationary on level or otherwise. Table 3 indicates that the order of integration are mixed for a majority of variables. However, this study proceeds to examine the threshold effect by including lagged variables for I(1) variables in the OLS estimation. Moreover, equation (2) derived from the theory requires estimations at level. Table 2: Unit root test ADF PP KPSS Order of Integration Level 1st Diff Level 1st Diff Level 1st Diff I -3.7029* -7.9812* -3.5286* 14.00208 0.9008* 0.2305 I(0)/I(1) M3 -1.2741 -10.0951* -1.3334 -10.4699* 1.0229* 0.3588*** I(1) D -1.6297 -19.7087* -8.8219* -27.3774* 0.3649* 0.0894 I(0)/I(1) R -4.5405* -3.8179** -2.6509 -7.0649* 0.0711 0.0471 I(0)/I(1) INFRA -2.2527 -4.5270* -3.5053* -27.7776* 0.2234* 0.0813 I(0)/I(1) LL -3.0805 -6.5500* -2.4386 -6.7355* 0.1073 0.0607 I(0)/I(1) MIS -3.8075** -9.7442* -3.8076** -9.8483* 0.0662 0.0577 I(0) Note: *, ** and *** denote significance at 1%, 5% and 10% significant level. p-values are in parentheses. For ADF and PP test the null is no unit root (H0: Variable is stationary) whilst the null for the KPSS is the existence of unit root (H0: Variable is not stationary). The baseline regression constitutes the exchange rate misalignment, interest differential and a measure of financial development, M3. We present four additional models with different variables added to the baseline regression, namely liquid liability, government budget deficit, and infrastructure for sensitivity analysis. Hansen (2000) theoretical construct allows for two threshold effects, hence, the first step is to investigate the possible existence of such an effect. Prior to that, a threshold variable needs to be selected. Since the aim of this section is to examine at what percentage exchange rate misalignment actually hurts capital inflows, the appropriate threshold variable is the exchange rate misalignment. Upon choosing the appropriate threshold variable, the next step is to observe any evidence of a threshold effect and whether there exist one or more threshold by employing the heteroscedasticity-consistent Lagrange-multiplier (LM) test for a threshold based on Hansen (1996). To test under the null hypothesis of no threshold effect, p-values are calculated using a bootstrap analog which generates the dependent variable from the distribution , where is the OLS residuals from the estimated threshold model. With 1000 bootstrap replications, the p-values for the baseline threshold models (Table 3) using misalignment strongly suggest the existence of threshold effect at 0.000. Subsequently, this suggests that there is a sample split based on the effect of exchange rate misalignment. Table 3: Threshold Effects for the baseline model Model 1 First Sample Split F-Stats 51.4045 Bootstrap P-Value 0.000 Threshold Estimates -15.0260% 95% Confidence Interval -15.446% , -9.8360% Second Sample Split F-Stats 16.2171 Bootstrap P-Value 0.2890 Note: H0: No threshold effect. The threshold is based on the minimized sum of squared residuals. This illustrates the graph of the normalized likelihood ratio sequence as a function of the threshold in exchange rate misalignment. The estimated is the value which minimizes these graphs which range at =15.02-15.44%. The dotted lines on the graphs present the 95% critical values. For example, in model 1, the asymptotic 95% confidence interval set where crosses the dotted lines. The results suggest that there is ample evidence for a two-regime specification. Also, it is worth noting that 41 of the 71 observations fall into the 95% confidence interval, hence, requires an examination of the possible existence of a second sample split. Results in Table 3, show that second sample split renders insignificant bootstrap p-value thus, indicating no further regime split. Table 4 presents the results for baseline regression. For comparison purposes, this study provides the linear OLS model without the threshold effect and a two-regime model which accommodates the threshold effect. Basically, the variables confer the correct signs in line with the prediction of the theory. Misalignment has a negative and significant effect on capital inflows in regime 2. Interest differential is expected to confer a negative effect. Results indicate that interest differentials only affects capital inflows negatively in the regime 1 but is insignificant in the regime 2. Similarly, M3 has significant effect in both regime but is positive in the regime 1 but the sign switches in regime 2. Hence, splitting the sample gives a more indepth view of the effects of these basic variables on investment inflows. To reiterate, sample splitting allows the examination of whether the significant effect is present in both regimes or otherwise. The results show that below the threshold value of 15%, exchange rate misalignment may be negative but are not statistically significant. However, above the 15% threshold level, misalignment exerts both negative and significant impact on capital inflows. A 1% increase in misalignment (overvaluation) suppresses capital inflows by approximately 1.19%. The negative effect of exchange rate misalignment on capital inflows is consistent with the findings of Hasnat (1999). Barrel and Pain (1996) argue that an apparent currency misalignment persistent over some length of time may affect investment inflows decisions. A reasonable explanation is that the relative production costs may be higher as a result of such misalignment. If the ringgit is thought to be overvalued relative to its estimated equilibrium level, then foreign production may be discouraged by the prospect of future capital loss in home currency terms. Another issue which emerges after the 1997 financial crisis is that capital inflows must be managed since reversals are likely to cause severe damage to the economy. Reinhart and Reinhart (1998) calls for greater exchange rate flexibility which is meant to introduce two-way risks, therefore, discouraging speculative capital inflows. It is, however, only possible in the context of de facto peg or a tightly managed float. Furthermore, the effectiveness of this policy depends on how much policymakers are willing to allow the exchange rate to fluctuate. A large band denotes greater flexibility but risks having large nominal appreciation which connotes possible overvaluation of the currency. The result of this study suggests that overvaluation is detrimental to capital inflows if this band exceeds 15%. Hence, policymakers should keep exchange rate fluctuations well below this 15% threshold. Table 4: Baseline regression results on the effect of misalignment on capital inflows (1991:Q1-2008:Q3). Dependent variable is capital inflows. Model 1 Linear Model Threshold Model OLS without threshold Regime 1 Â £ 15.0259% Regime 2 > 15.0259% Misalignment -0.4267** (0.2115) -0.3186 (0.2573) -1.1955** (0.5712) Interest Differential -0.0250*** (0.0131) -0.0438* (0.01533) -0.0261 (0.0193) M3 0.2964* (0.0391) 0.2644* (0.0516) -0.5560* (0.1240) Constant 3.0468* (0.2779) 2.5394* (0.2593) 6.7313* (0.6099) No. of Observations 71 42 29 R2 0.3664 0.6484 0.4218 Notes: *, ** and *** denote 1%, 5% and 10% significance respectively. Standard errors in parentheses. Interest rate differential are consistently negative and significant in all specifications and in both regimes in majority of the threshold model. This stresses the role of interest rates in attracting capital inflows into Malaysia. Although the impact may be small, it is significant and the authorities should ensure that interest rates are kept at certain levels to maintain competitiveness of Malaysia as destination for capital investment. In this paper, the estimated impact of a 1% change in interest differential is expected to subdue foreign investment by 0.04 percentage point in the first regime and 0.03 percentage point in the second regime. The proxy for financial deepening, M3 is statistically significant in all models and in both regimes. Again, this signifies the importance of financial development in attracting capital investment into Malaysia. Interestingly, M3 is positive during the periods of low misalignment regime (regime 1) but becomes negative at higher misalignment regime (regime 2). During low misalignment, a 1% increase in M3 is expected to draw in 0.3 percentage point more investment inflow into Malaysia. This shows that in the lower regime, financial depth acts as an impetus to capital inflows. However, the situation reverse with 0.6 percentage point lower investment inflows is expected with a 1% increase in misalignment in the second threshold regime. Montiel (1999) explicitly explains this phenomenon where capital inflows increase reserves which then prompt an increase in the monetary base, M2 and M3. Such increases fuels further increments in domestic demand leading to real appreciation. Thus, any overvaluation of the currency may eventually have negative ramifications on capital inflows. Sensitivity analysis To check for the sensitivity of the estimated threshold value, Table 6 -7 and Figure 3 represents four other models which use different variables in addition to the baseline regression. The addition of taxes yields insignificant results without drastically changing the threshold value. Other additional variables such as government budget deficit and liquid liability are only significant in one of the two regimes . With the inclusion of additional variables, the estimated magnitude of each regressors differ slightly but maintains the same sign and significance level. For example a 1% increase in misalignment (overvaluation) suppresses capital inflows by 1.11-1.55 percentage point. The estimated impact of a 1% change in interest differential is expected to deter foreign investment by 0.04-0.05 percentage point in the first regime and 0.02-0.06 percentage point in the second regime. Similarly, during low misalignment, a 1% increase in M3 is expected to draw in 0.2-0.3 percentage point m ore investment inflow into Malaysia. An estimated 0.49-0.67 percentage point lower investment inflows is expected with a 1% increase in M3 in the second threshold regime. In view of the results, it seems evident that the exchange rate policy has important effect in attracting foreign capital inflows into Malaysia. Specifically, misalignment in terms of overvaluation should be kept lower than 15 percent to ensure that capital inflows remained unhurt. Table 5: Sensitivity Analysis: Threshold Effects Model 2 Model 3 Model 4 Model 5 First Sample Split F-Stats 71.1442 45.9364 53.3722 53.3722 Bootstrap P-Value 0.000 0.000 0.000 0.000 Threshold Estimates -15.4461% -15.0260% -15.0260% -15.0260% 95% Confidence Interval -15.446%, -15.025% -15.446%, -9.836% -15.446%, -0.0984% -15.446%, -0.0984% Second Sample Split F-Stats 16.4917 19.7585 22.9710 22.9710 Bootstrap P-Value 0.5310 0.3800 0.2420 0.2420 Note: H0: No threshold effect. The threshold is based on the minimized sum of squared residuals Table 6: Sensitivity Analysis for threshold estimates (1991:Q1-2008:Q3). Model 2 Linear Model Threshold Model OLS without threshold Regime 1 Â £ 15.4461% Regime 2 > 15.4461% Misalignment -0.4278*** (0.2216) -0.3497 (0.4143) -1.5593* (0.3135) Interest Differential -0.0250*** (0.0134) -0.0462* (0.0153) -0.0599* (0.0131) M3 0.2966* (0.0414) 0.2732* (0.0488) -0.5609* (0.0744) Liquid Liability -0.0029 (0.1709) -0.0634 (0.1932) 1.1843* (0.2615) Constant 2.9780* (0.2713) 2.5259* (0.2593) 6.1799* (0.3135) No. of Observations 71 41 30 R2 0.3842 0.6503 0.5986 Model 3 Linear Model Threshold Model OLS without threshold Regime 1 Â £ 15.0260% Regime 2 > 15.0260% Misalignment -0.4472** (0.2038) -0.3800 (0.2460) -1.1171*** (0.6229) Interest Differential -0.0254* (0.0126) -0.0505* (0.0140) -0.0237 (0.0221) M3 0.2844* (7.4922) 0.2521* (0.0472) -0.5391* (0.1477) Deficit -0.7655* (0.3059) -0.7380* (0.3099) -0.1841 (0.7174) Constant 3.0308* (0.2674) 2.5835* (0.2445) 6.6452* (0.7337) No. of Observations 71 42 29 R2 0.4285 0.6829 0.4230 Model 4 Linear Model Threshold Model OL S without threshold Regime 1 Â £ 15.0260% Regime 2 > 15.0260% Misalignment -0.2852 (0.2181) -0.2582 (0.2720) 1.2490** (0.5612) Interest Differential -0.0275** (0.0128) -0.0419* (0.0165) -0.0311 (0.0204) M3 0.3208* (0.0401) 0.2796* (0.0583) -0.5489* (0.1245) Tax 2.1899** (1.0761) 0.1283 (0.1457) 0.1260 (0.1720) Constant 3.0274* (0.4383) 2.2463* (0.4806) 6.5027* (0.7227) No. of Observations 71 42 29 R2 0.3665 0.6516 0.4300 Model 5 Linear Model Threshold Model OLS without threshold Regime 1 Â £ 15.0260% Regime 2 > 15.0260% Misalignment -0.3780*** (0.1977) -0.4495*** (0.2602) -1.3190** (0.6059) Interest Differential -0.0203 (0.0123) -0.0433* (0.0152) -0.0308 (0.0212) M3 0.2941* (0.0365) 0.2388* (0.0479) -0.6093* (0.1406) Infrastructure 3.0729* (3.3373) 0.0474** (0.0228) -0.0382 (0.0392) Constant 3.0709* (0.2569) 2.5698* (0.2346) 7.0433* (0.7173) No. of Observations 71 42 29 R2 0.4091 0.6815 0.4384 Notes: *, ** and *** denote 1%, 5% and 10% significance respectively. Standard errors in parentheses. CONCLUSION The objective of this chapter is to examine the impact of exchange rate misalignment on capital inflows. Results provide evidences of the negative impact of misalignment on capital inflows. To reiterate, overvaluation of the ringgit signals that Malaysia is less competitive vis-Ã  -vis other countries. In addition, this paper also estimates a specific threshold value; that is the degree of misalignment after which it begins to hurt capital inflows. By employing a recent technique by Hansen (1996, 2000), this study splits the sample into high misalignment and low misalignment regimes. This study shows that misalignments hurt capital inflows in the high misalignment regime or when misalignment is greater than 15 percent. This study also confirms the work of Goh (2005) who suggests that the portfolio balance model can capture the determinants of capital inflows in Malaysia. In particular, the results suggest that interest differential is an important determinant albeit, small, hence, p olicies should be direc