Journal of Business & Financial Affairs

In this paper, I offer a new theory for why price reductions take place on a regular basis in some industries. I suggest that the demand for a firm’s product drops over time because of the erosion of consumers’ brand recall, and that price discounts are utilized to boost the diminishing demand. A dynamic model is then constructed to demonstrate the theory for both monopoly and duopoly competition. I show that it is optimal for a monopolist to alternate between a constant high (normal) price and a constant low (discount) price with fixed frequency, and that competing firms offer discounts at the same time in duopoly competition.

In this paper evidence on whether Malaysia’s, Bank Negara policy of allowing flexible exchange rate along with financial development has affected the volatility of real macroeconomic variables like trade, foreign investment and economic growth is presented. An econometric framework is also utilized to examine the linkages between the exchange rate and the real economy. Different indicators of financial development and exchange rate variability are used. Results are found to vary with the indicators used. Correlation matrix shows that Variability in real effective exchange rate has an adverse effect on the inflow of FDI and economic growth. While the development of Capital market has a positive correlation with FDI, trade and economic growth. Credit to the private sector by the financial institutions has a positive impact on the international trade intensity. Regression results show that variability in exchange rate has a significant negative impact on economic growth. While its effect on trade intensity is not conclusive.

Economic liberalization-growth-Environment nexus is well known but debatable and an open question in the economic literature. Results regarding this nexus are not straight forward but they are sometimes confusing and contradicting. Some studies have found that the two key elements of globalization viz. trade liberalization and inflow of Foreign Direct Investment (FDI) have a positive impact on economic growth, while others have seriously questioned the significance of this result. Likewise studies have been conducted to investigate the impact of trade liberalization and FDI inflow on environment and the results remain inconclusive. There are numerous studies investigating the impact of trade and FDI on economic growth. But few studies exist that have analyzed the joint impact of FDI and trade liberalization policies on environment. The present study fills this gap by introducing explicitly and jointly the two major elements of globalization namely trade liberalization and the inflow of FDI into the analysis. Annual data from 1980 to 2008 from the World Bank data base has been used. To start with, the paper explores the causal relationship between FDI, trade, and Gross Domestic Product (GDP) growth. Also variables are tested for the degree of stationarity and co integration. Then Autoregressive Distributed Lag (ARDL) approach to co-integration techniques has been used to capture the impact of short-run dynamics and long-run equilibrium.

The study finds that economic liberalization policies have been helpful for the growth of the Economy. The growth environment nexus via the Environment Kuznet Curve Hypothesis (EKC) for Malaysia is confirmed by the study. Further, the results do not suggest that trade liberalization policies have directly affected environment. Pollution Heaven hypothesis is also not fully supported by the data.