A number of theories have been proposed as to why banks should expand internationally, although all of these, ultimately, relate to banks’ ability to earn profits from doing so. Major theories to explain international expansion include the industrial organization theory, the comparative advantage theory, the international investment theory, portfolio theory, the internalisation theory and the eclectic theory.
The industrial organisation theory has a number of different strands, including banks following their customers into foreign markets, higher concentration in the home country market providing higher profits to support expansion, greater strength or importance of the home country currency and a desire to secure (retail) deposits in the host country. The comparative advantage theory proposes that banks expand from countries with a comparative advantage in the supply of banking services. International investment theory is based on the idea that banks will expand internationally in order to exploit or avoid market externalities, while portfolio theory argues that international expansion is a risk diversification decision. Internalisation theory recognises the market imperfections preventing the efficient operation of international banking, and suggests that a bank expands internationally to overcome externalities. The eclectic theory combines a number of strands, largely from the internalisation theories: these are ownership-specific advantages, internalisation specific advantages and location-specific variables.
To what extent do the increases in earnings inequality among individual American workers pose an issue for public policy? To answer this, we would want to know the extent to which changes in individual earnings translate into changes in income inequality in the households within which these earnings are pooled and shared.
The link between the earnings of one household member and the income consumed of each household member depends not only on the magnitude of this individual’s earnings but on whether other household members work for pay, and, if so, how many hours they work, on other sources of income, and on changing patterns of household formation and dissolution. Hence the connection between the growth in inequality of individual pay and changes in income consumed by individuals (both those who work for pay and those who do not) is complex and involves a number of interrelated factors.
In his Presidential Address, Friedman (1968) presented a theory of the short run behavior of inflation. In Friedman’s theory, inflation depends on expected inflation and the gap between unemployment and its natural rate. Friedman also suggested that “unanticipated inflation generally means a rising rate of inflation”–in other words, that expected inflation is well-proxied by past inflation. These assumptions imply an accelerationist Phillips curve that relates the change in inflation to the unemployment gap.
