Showing papers in "Journal of Economic Literature in 2004"

International Technology Diffusion

Abstract: This paper surveys what is known about the extent of international technology diffusion and channels through which technology spreads. Productivity differences explain much of the variation in incomes across countries, and technology plays a key role in determining productivity. The pattern of worldwide technical change is determined largely by international technology diffusion because a few rich countries account for most of the world's creation of new technology. Cross-country income convergence turns on whether technology diffusion is global or local. There is no indication that international diffusion is inevitable or automatic, but rather, domestic technology investments are necessary. Better understanding of what determines the effectiveness of technology diffusion sheds light on the pace at which the world's technology frontier may expand.

Trade, Growth, and the Environment

Abstract: For the last ten years environmentalists and the trade policy community have engaged in a heated debate over the environmental consequences of liberalized trade. The debate was originally fueled by negotiations over the North American Free Trade Agreement and the Uruguay round of GATT negotiations, both of which occurred at a time when concerns over global warming, species extinction and industrial pollution were rising. Recently it has been intensified by the creation of the World Trade Organization (WTO) and proposals for future rounds of trade negotiations. The debate has often been unproductive. It has been hampered by the lack of a common language and also suffered from little recourse to economic theory and empirical evidence. The purpose of this essay is set out what we currently know about the environmental consequences of economic growth and international trade. We critically review both theory and empirical work to answer three basic questions. What do we know about the relationship between international trade, economic growth and the environment? How can this evidence help us evaluate ongoing policy debates? Where do we go from here?

Job Information Networks, Neighborhood Effects, and Inequality

Abstract: This paper explores the theoretical and empirical literature to examine the use by different social groups of informal sources of information provided by friends, relatives, and acquaintances during job search and its consequences for the job market. It also addresses the role of network structure and size, the resource endowments of contacts, and nature of the links between contacts to explain differences in the effects of job information networks. In doing so, the paper also turns to the sociology literature on job information networks and provides an economic perspective on such sociological concepts as strong versus weak ties, inbreeding, distance from structural holes, etc. The paper distinguishes between models of exogenous job information networks, that is where individuals obtain job-related information through a given social structure, and endogenous job information networks, which are social networks that result from individuals' uncoordinated actions. The paper pays special attention to such issues as physical and social proximity and sharing of information and discusses them in the context of the recent social interactions and neighborhood effects literature. Finally, the paper outlines a model that integrates job information networks, where interactions occur in business cycle frequencies, with the dynamics of human capital formation, which include the joint effects of parental, community and neighborhood human capital, and are set in life cycle frequencies, for the purpose of organizing suggestions for future research and examining earned income inequality.

Trade Liberalization and Poverty: The Evidence So Far

Abstract: This paper assesses the current state of evidence on the impact of trade policy reform on poverty in developing countries. There is little empirical evidence addressing this question directly, but a lot of related evidence on specific aspects. We summarize this evidence using an analytic framework addressing four key areas: economic growth and stability; households and markets; wages and employment and government revenue. Twelve key questions are identified and empirical studies and results are discussed. We argue that there is no simple generalizable conclusion about the relationship between trade liberalization and poverty, and the picture is much less negative than is often suggested. In the long run and on average, trade liberalization is likely to be strongly poverty alleviating, and there is no convincing evidence that it will generally increase overall poverty or vulnerability. But there is evidence that the poor may be less well placed in the short run to protect themselves against adverse effects and take advantage of favorable opportunities.

Economic Insights from Internet Auctions

Abstract: This paper surveys recent studies of internet auctions. Four main areas of research are summarized. First, we survey several studies that document and attempt to explain the frequently observed sniping, or last-second bidding behavior, in these auctions. Second, we summarize several methods proposed to quantify the distortions caused by asymmetric information in these markets, most notably due to the winner's curse. Third, we explore research about the role of reputation mechanisms installed to help combat these distortions. Finally, we discuss what internet auctions have to teach us about auction design.

The Chinese Saving Puzzle and the Life-Cycle Hypothesis

Abstract: China's per capita income ranks below 100th in the world. Its saving rate, however, has been one of the highest worldwide in recent decades. In this paper, we attempt to explain the seeming paradox within the framework of the Life-Cycle Hypothesis developed by Franco Modigliani. The key LCH variables are income and population growth. Our results based on data we put together from official sources show that income growth has been the dominant factor behind the dramatic increase in China's saving rate, as predicted by the LCH. Demographic structure and inflation also had significant impact on the fluctuations of the saving rate.

Success and failure of reform : insights from the transition of agriculture

Abstract: This paper analyzes the linkages between the reform strategies in transition countries and economic performance The authors focus on agriculture because of the sharpness of the policy changes, fundamental differences among countries, and relative simplicity of agricultural relationships The authors document post reform performance in the transition countries of Asia and Europe The authors show how: (a) pricing reform and subsidy reductions; (b) land rights reform and policies that affect farm restructuring; and (c) the presence institutions that facilitate exchange (either markets or market substitutes) affect output and productivity The paper ends with general lessons on reforms and transition

Empirical Studies of Financial Innovation: Lots of Talk, Little Action?

Abstract: This paper reviews the extant empirical studies of financial innovation. Adopting broad criteria, we could find only somewhat more than two dozen studies; and since some financial innovations are examined by more than one study, they cover only seventeen phenomena. Especially striking is the fact that only two studies offer tests of the broad hypotheses concerning the environmental conditions spurring financial innovation (e.g., regulation, taxes, unstable macroeconomic conditions, and ripe technologies) that have been advanced in descriptive articles. We offer some tentative conjectures as to why empirical studies of financial innovation are comparatively rare. Among our suggested culprits is an absence of accessible data. We urge financial regulators to undertake more surveys of financial innovation and to make the survey data more available to researchers.

Modeling Knowledge in Economic Analysis

Abstract: This paper provides an introduction to how knowledge is modeled in economic contexts and the role played by the concepts of knowledge and common knowledge in economic analysis.

Whose Line Is It? Plagiarism in Economics

Abstract: This paper reports the results of a survey regarding the instances of plagiarism reported by journal editors in the economics profession. The survey finds that nearly 24% of responding editors encounter one case of plagiarism in a typical year. In addition, the survey reveals that less than 19% of responding journals have a formal policy regarding plagiarism. Moreover, there is a great deal of variance in what is considered plagiarism and what an appropriate response to plagiarism should be. A majority of editors believe that the economics profession would benefit from a professional code of ethics.

The Unity of Auction Theory: Milgrom's Masterclass

Abstract: 1 Paul Milgrom, Putting Auction Theory to Work. Cambridge, Churchill Lectures in Economics: Cambridge University Press, 2004. NY, Melbourne, Pp. xxi, 368. ISBN 0-521-55184-6. 2 Institute for Advanced Study and Princeton University. I thank the NSF (SES-0318103) for research support. 3 To give just one indication: at the August 2004 joint meeting of the Econometric Society and European Economic Association, there were seven separate sessions on auction theory, a figure well beyond that for any other sort of theory. 4 Again, to cite only one, conference-related datum, the organizers of the 2005 Econometric Society World Congress, who attempt to invite special talks on the most lively and interesting developments in recent economics, are planning a set of talks on empirical auctions work. 5 So, for example, there is now a sizeable computer-science literature on auction theory, often focusing on computational issues.

The Years of Emerging Market Crises: A Review of Feldstein

Abstract: Early 1997 was a time of great optimism in the developing world. The Mexican crisis that had erupted in late 1994 was regarded as a hiccup that had been overcome with a V-shaped recovery (not many people knew, or, if they knew, they didn't seem to care, that Mexican wages were still some 20 percent below their pre-crisis level). The flow of capital to emerging markets was hitting new highs. The East Asian miracle was regarded as a permanent part of the scenery (see the enthusiastic report Asian Development Bank 1997), which China and even India were in the process of emulating, or bettering. Latin America had put the debt crisis behind it. Some of the transition economies had emerged from their years of purgatory, and in most of the others there seemed at least to be light at the end of the tunnel. Only Africa and perhaps the Middle East spoiled the picture of a developing world that really was developing. This dream started to implode on July 2, 1997, when the Thai baht was set free to float, following strong speculative pressures, and promptly lost about 17 percent of its value. The crisis was not initially assumed to be unduly serious. After all, it had an obvious cause: the Thai baht had long looked overvalued, and Thailand had been running dangerously large current account deficits for years.3 I recall Rudi Dornbusch returning from Thailand and reporting that Thailand's public debt was so low (it was 9.3 percent of GDP at the end of 1996) that they would have no trouble recapitalizing the financial system. And I know that when my (Thai) secretary went off for her summer vacation I told her not to worry, that it would all have been sorted out long before she got back. I was, of course, tragically wrong. My optimism failed to allow for two factors: the dollar denomination of so much of the debt in Thailand, and the panic in financial markets as contagion took hold. The dollar denomination meant that devaluation of the baht resulted in the liabilities of many firms and banks increasing spectacularly relative to the value of their assets, so that many others besides the finance companies that were known to be a problem became insolvent. (Before long, currency mismatches had been elevated to a third theory of currency crises, 1 Martin Feldstein, ed. Economic and Financial Crises in Emerging Market Economies. Chicago: University of Chicago Press for the National Bureau of Economic Research, 2003, Pp. x, 530. ISBN 0-226-24102-2. 2 Senior Fellow, Institute for International Economics. The author is indebted to Nancy Birdsall, William Cline, Morris Goldstein, Howard Pack, and Edwin Truman for comments on a previous draft, and to Fabrizio lacobellis for competent research assistance. 3 I had forgotten the incident, but a friend reminded me that when he asked me soon after the Mexican crisis which country was next, I had named Thailand as the most likely candidate.

On The Politics of Property Rights by Haber, Razo, and Maurer

Abstract: Stephen Haber et al. explore economic growth in key sectors of the Mexican economy, 1876-1929, an era of political instability and (1914-17) civil war. The authors demonstrate that economic growth continued amidst political instability and offer an explanation for their counterintuitive finding. Reviewing the evidence advanced by the authors, Robert Bates summarizes and comments on their argument, and applies it to "out of sample" data from Africa.

Review of Mokyr's Gifts of Athena

Abstract: Why did the Industrial Revolution hapAl7pen in Europe? Why did it happen when it did? Why did it happen at all? These questions have occupied historians for decades and with good reason: the Industrial Revolution marked the start of the greatest growth in human prosperity ever documented. Admittedly, this is a debatable claim. What about fire? Domesticating animals? Farming? Written language? Those were major advances to be sure, but note the cagey use of the words "documented" and "growth." These prehistorical innovations, important though they were, did not start a period of cumulative growth in the way that the Industrial Revolution did. Indeed, there have been many other oneshot technological innovations in human history. But these were isolated and idiosyncratic, and typically did not set off a sustained period of innovation and growth as we saw after the Industrial Revolution. Despite the many individual technological innovations that occurred during the last 10,000 years, by 1700 a remarkably large fraction of the human population still lived a subsistence existence. As figure 1 shows, the economic growth in the centuries following the Industrial Revolution has been phenomenal. Not only did progress not die out; if anything, its growth rate has accelerated. Joel Mokyr's book, The Gifts of Athena, attempts to analyze this unique feature of the Industrial Revolution. As he puts it: "The true question of the Industrial Revolution is not why it took place, but why it was sustained beyond, say, 1820" (p. 20). The answer he offers can be phrased succinctly. In the period following the Industrial Revolution, humans learned to use science to advance engineering, and engineering to advance science. The mutual co-evolution of practical and theoretical knowledge set off an unprecedented wave of technological advance. Indeed, the acceleration of growth in the twentieth century suggests that the "gifts of Athena" are far from played out. Though historians are notoriously shy of extrapolation to explain current events, in their hearts they all believe that the "lessons of history" are valuable to those who want to understand the present. In his study of the Industrial Revolution, Mokyr cannot resist offering some provocative parallels between the nature of innovation in the eighteenth and nineteenth centuries and our own time. This speculative component makes Mokyr's volume stimulating reading even for those who are not economic historians. 1 Joel Mokyr. The Gifts of Athena: Historical Origins of the Knowledge Economy. Princeton and Oxford: Princeton University Press, 2002. Pp. xiii, 359. ISBN 0-691-09483-7. 2 University of California. Berkeley.

Financial Crises: Review of Eichengreen and Tirole

Abstract: T hese two books, each by a distinguished economist, analyze the reform of the international financial system from very different viewpoints.3 Barry Eichengreen, who has played a leading role in the debate following the Asian financial crisis, reviews progress in crisis prevention and crisis management over the past decade, and argues for further changes. Jean Tirole, who has made major contributions to the theory and analysis of contracts and the behavior of financial markets, goes back to first principles to reexamine the debate and suggest a way ahead. Eichengreen concludes that real progress has been made in crisis prevention, particularly for emerging-market countries-those active in the international financial markets.