FOREIGN CROSS-LISTINGS INCREASE FIRM VALUE

Foreign Cross-Listings Increase Firm Value



Foreign Cross-Listings Increase Firm Value

Methodology

Before discussing the impact that Foreign cross listings has had on South Africa, the extent of Foreign cross listings in South Africa must first be established. Foreign cross listing's impact goes beyond economics to cultural, social and political influences as well. A comprehensive Foreign cross listings index is calculated by Foreign Policy Magazine, which includes the level of economic integration, technological connectivity, political engagement, and personal contact. The 2005 Foreign Policy Magazine Foreign cross listings Index ranked South Africa at 48; this is behind six other African countries, including Uganda and Tunisia. The ranking shows that South Africa is not very well integrated into the global community relative to other countries. This may be due to the fact that South Africa has not been "Foreign cross listing" for as long as many other countries have. The rankings support this assertion in that South Africa fairs better than China and Russia who have also not been "Foreign cross listing" for as long as many other countries1.

Tariff, non-tariff barriers and capital controls have all been decreasing since democracy (and South Africa's re-entry into the WTO); which is in line with the global trend. This is due to the downward pressure that Foreign cross listing places on tariff structure and capital controls to maintain global competitiveness. Exports of goods and services as a percent of GDP have only increased slightly, from 24% in 1990 to 28% in 2003 [Human Development Report, 2005], and South Africa's share in world trade has remained around the 0.5% mark since 1995 [South African Department of Trade and Industry]. This shows that South Africa is maintaining its share of exports in the rapidly increasing global exports and thus is not being marginalised by the process of Foreign cross listing.

The era of Foreign cross listing has seen growth in world trade exceeding world economic growth, and to discuss the impact of Foreign cross listings on South Africa would thus require a discussion on the impact of increased trade in South Africa. Since Ricardian trade theory it has been generally accepted that trade is a positive sum game, and thus when discussing the impact of increased trade in South Africa it is not a question of whether South Africa benefited or not, but rather a question of by how much does South Africa benefit. The Heckscher-Ohlin Theory attempts to clarify the question of who gains more and who gains less from trade.

The Heckscher-Ohlin theory states that "a nation will export the commodity whose production requires the intensive use of the nation's abundant and cheap factor and import the commodity whose production requires the intensive use of the nation's relatively scarce and expensive factor" [Salvatore, 2004, 125]. The theory has implications for inequality within a country (Stopler Samuelson) and between countries (Factor Price Equalization). The Stopler-Samuelson theory, which builds on the Heckscher-Ohlin theory, predicts that with increased trade, the nation's abundant factor will gain and the scarce factor will ...