Showing papers in "Quarterly Journal of Economics in 1991"
TL;DR: For 98 countries in the period 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial (1960) level as mentioned in this paper.
Abstract: For 98 countries in the period 1960–1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial (1960) level of real per capita GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions.
9,420 citations
TL;DR: In this article, the authors present a reference-dependent theory of consumer choice, which explains such effects by a deformation of indifference curves about the reference point, in which losses and disadvantages have greater impact on preferences than gains and advantages.
Abstract: Much experimental evidence indicates that choice depends on the status quo or reference level: changes of reference point often lead to reversals of preference. We present a reference-dependent theory of consumer choice, which explains such effects by a deformation of indifference curves about the reference point. The central assumption of the theory is that losses and disadvantages have greater impact on preferences than gains and advantages. Implications of loss aversion for economic behavior are considered. The standard models of decision making assume that preferences do not depend on current assets. This assumption greatly simplifies the analysis of individual choice and the prediction of trades: indifference curves are drawn without reference to current holdings, and the Coase theorem asserts that, except for transaction costs, initial entitlements do not affect final allocations. The facts of the matter are more complex. There is substantial evidence that initial entitlements do matter and that the rate of exchange between goods can be quite different depending on which is acquired and which is given up, even in the absence of transaction costs or income effects. In accord with a psychological analysis of value, reference levels play a large role in determining preferences. In the present paper we review the evidence for this proposition and offer a theory that generalizes the standard model by introducing a reference state. The present analysis of riskless choice extends our treatment of choice under uncertainty [Kahneman and Tversky, 1979, 1984; Tversky and Kahneman, 1991], in which the outcomes of risky prospects are evaluated by a value function that has three essential characteristics. Reference dependence: the carriers of value are gains and losses defined relative to a reference point. Loss aversion: the function is steeper in the negative than in the positive domain; losses loom larger than corresponding gains. Diminishing sensitivity: the marginal value of both gains and losses decreases with their
5,864 citations
TL;DR: The Penn World Table as discussed by the authors is a set of national accounts economic time series covering many countries and its expenditure entries are denominated in common set of prices in a common currency so that real quantity comparisons can be made, both between countries and over time.
Abstract: The Penn World Table displays a set of national accounts economic time series covering many countries. Its expenditure entries are denominated in a common set of prices in a common currency so that real quantity comparisons can be made, both between countries and over time. It also provides information about relative prices within and between countries, as well as demographic data and capital stock estimates. This updated, revised, and expanded Mark 5 version of the table includes more countries, years, and variables of interest to economic researchers. The Table is available on personal computer diskettes and through BITNET.
2,790 citations
TL;DR: This paper found that the season of birth is related to educational attainment and earnings, and that roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws. But, they did not study the effect of compulsory attendance laws on educational attainment.
Abstract: We establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws. Individuals born in the beginning of the year start school at an older age, and can therefore drop out after completing less schooling than individuals born near the end of the year. Roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws. We estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education. The instrumental variables estimate of the return to education is close to the ordinary least squares estimate, suggesting that there is little bias in conventional estimates. Every developed country in the world has a compulsory schooling requirement, yet little is known about the effect these laws have on educational attainment and earnings.1 This paper exploits an unusual natural experiment to estimate the impact of compulsory schooling laws in the United States. The experiment stems from the fact that children born in different months of the year start school at different ages, while compulsory schooling laws generally require students to remain in school until their sixteenth or seventeenth birthday. In effect, the interaction of school-entry requirements and compulsory schooling laws compel students born
2,475 citations
TL;DR: In this article, the authors present evidence suggesting that information and incentive problems in the capital market affect investment and highlight the role of financial intermediaries in the investment process, and conclude that investment is more sensitive to liquidity for the second set of firms than for the first set.
Abstract: This paper presents evidence suggesting that information and incentive problems in the capital market affect investment. We come to this conclusion by examining two sets of Japanese firms. The first set has close financial ties to large Japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm. The second set of firms has weaker links to a main bank and presumably faces greater problems raising capital. Investment is more sensitive to liquidity for the second set of firms than for the first set. The analysis also highlights the role of financial intermediaries in the investment process.
2,015 citations
TL;DR: This paper found that countries with a higher proportion of engineering college majors grow faster than countries with lower proportion of law concentrators, whereas countries with high proportion of business concentrators grow more slowly.
Abstract: A country's most talented people typically organize production by others, so they can spread their ability advantage over a larger scale. When they start firms, they innovate and foster growth, but when they become rent seekers, they only redistribute wealth and reduce growth. Occupational choice depends on returns to ability and to scale in each sector, on market size, and on compensation contracts. In most countries, rent seeking rewards talent more than entrepreneurship does, leading to stagnation. Our evidence shows that countries with a higher proportion of engineering college majors grow faster; whereas countries with a higher proportion of law concentrators grow more slowly.
1,679 citations
TL;DR: The authors analyzes debt maturity structure for borrowers with private information about their future credit rating, and finds that the optimal maturity structure trades off a preference for short maturity due to expecting their credit rating to improve, against liquidity risk, which is the risk that a borrower will lose the nonassignable rents due to excessive liquidation incentives of lenders.
Abstract: This paper analyzes debt maturity structure for borrowers with private information about their future credit rating. Borrowers' projects provide them with rents that they cannot assign to lenders. The optimal maturity structure trades off a preference for short maturity due to expecting their credit rating to improve, against liquidity risk. Liquidity risk is the risk that a borrower will lose the nonassignable rents due to excessive liquidation incentives of lenders. Borrowers with high credit ratings prefer short-term debt, and those with somewhat lower ratings prefer long-term debt. Still lower rated borrowers can issue only short-term debt.
1,661 citations
TL;DR: In this paper, the authors consider two models with different specifications of the research and development sector that is the source of growth and show that either form of integration can increase the long-run rate of growth if it encourages the worldwide exploitation of increasing returns to scale in the R&D sector.
Abstract: In a world with two similar, developed economies, economic integration can cause a permanent increase in the worldwide rate of growth. Starting from a position of isolation, closer integration can be achieved by increasing trade in goods or by increasing flows of ideas. We consider two models with different specifications of the research and development sector that is the source of growth. Either form of integration can increase the long-run rate of growth if it encourages the worldwide exploitation of increasing returns to scale in the research and development sector. I. INTRODUCTION Many economists believe that increased economic integration between the developed economies of the world has tended to increase the long-run rate of economic growth. If they were asked to make an intuitive prediction, they would suggest that prospects for growth would be permanently diminished if a barrier were erected that impeded the flow of all goods, ideas, and people between Asia, Europe, and North America. Yet it would be difficult for any of us to offer a rigorous model that has been (or even could be) calibrated to data and that could justify this belief. We know what some of the basic elements of such a growth model would be. Historical analysis (e.g., Rosenberg [1980]) shows that the creation and transmission of ideas has been extremely important in the development of modern standards of living. Theoretical arguments dating from Adam Smith's analysis of the pin factory have emphasized the potential importance of fixed costs and the extent of the market. There is a long tradition in trade theory of using models with Marshallian external effects to approach questions about increasing returns. More recently, static models with fixed costs and international specialization have been proposed that come closer to Smith's description of the sources of the gains from trade [Dixit and Norman, 1980; Ethier, 1982; Krugman, 1979, 1981; Lancaster, 1980]. There are also dynamic models with fixed costs and differentiated products in which output
1,610 citations
TL;DR: The authors found that machinery and equipment investment has a strong association with growth: over 1960-1985 each extra percent of GDP invested in equipment is associated with an increase in GDP growth of one third of a percentage point per year.
Abstract: Using data from the United Nations Comparison Project and the Penn World Table, we find that machinery and equipment investment has a strong association with growth: over 1960-1985 each extra percent of GDP invested in equipment is associated with an increase in GDP growth of one third of a percentage point per year. This is a much stronger association than found between growth and any of the other components of investment. A variety of considerations suggest that this association is causal, that higher equipment investment drives faster growth, and that the social return to equipment investment in well-functioning market economies is on the order of 30 percent per year.
1,374 citations
TL;DR: The authors developed a simple model of exchange rate behavior under a target zone regime and showed that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behaviour even when the exchange rate lies inside the zone and is thus not being defended actively.
Abstract: This paper develops a simple model of exchange rate behavior under a target zone regime. It shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is thus not being defended actively. Somewhat surprisingly, the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty.
1,213 citations
TL;DR: In this paper, the authors investigated the dynamic effects of international trade and found that, under free trade, the LDC experienced rates of technical progress and GDP growth less than or equal to those enjoyed under autarky.
Abstract: Using an endogenous growth model in which learning by doing, although bounded in each good, exhibits spillovers across goods, this paper investigates the dynamic effects of international trade. Examining the interaction of a LDC and a DC, the latter distinguished by a higher initial level of knowledge, the author finds that, under free trade, the LDC (DC) experiences rates of technical progress and GDP growth less than or equal (greater than or equal to) those enjoyed under autarky. Since both countries enjoy the usual static gains from trade, free trade may, nevertheless, improve the welfare of LDC consumers.
TL;DR: The authors examined the connection between exchange rates and foreign direct investment that arises when globally integrated capital markets are subject to informational imperfections, and developed a simple model of this phenomenon and test for its relevance in determining international capital flows.
Abstract: We examine the connection between exchange rates and foreign direct investment that arises when globally integrated capital markets are subject to informational imperfections. These imperfections cause external financing to be more expensive than internal financing, so that changes in wealth translate into changes in the demand for direct investment. By systematically lowering the relative wealth of domestic agents, a depreciation of the domestic currency can lead to foreign acquisitions of certain domestic assets. We develop a simple model of this phenomenon and test for its relevance in determining international capital flows.
TL;DR: This paper used a simple trade model with both external economies and adjustment costs to show how the parameters of the economy determine the relative importance of history and expectations in determining equilibrium, and used this insight to offer a rigorous formulation of Rosenstein-Rodan's [1943] "Big Push" theory of economic development.
Abstract: In models with external economies, there are often two or more long-run equilibria. Which equilibrium is chosen? Much of the literature presumes that "history" sets initial conditions that determine the outcome, but an alternative view stresses the role of "expectations," i.e., of self-fulfilling prophecy. This paper uses a simple trade model with both external economies and adjustment costs to show how the parameters of the economy determine the relative importance of history and expectations in determining equilibrium. In recent years there has been increasing interest in economic models in which there are positive external economies in production; these models have been seen as a way to formulate rigorously a number of heterodox challenges to standard economic doctrine. Ethier [1982a, 1982b] has provided a new, streamlined exposition of Graham's [1927] argument that external economies may make the pattern of international trade arbitrary and the gains from trade ambiguous, and has also shown that monopolistic competition in intermediate goods may lead to de facto external economies in production of final goods. Romer [1986a, 1986b] has shown that external economies may remove the traditional distinction between factor accumulation and technical change as sources of growth, and has also shown that an Ethier-like formulation can rationalize Young's [1928] vision of cumulative growth driven by increasing returns. Murphy, Shleifer, and Vishny [1989] have shown how market-size effects can in effect create external economies among firms investing in industrialization, and have used this insight to offer a rigorous formulation of Rosenstein-Rodan's [1943] "Big Push" theory of economic development. In my own work [1981, 1987] I have used external economies to formulate an ''uneven development" model in which the division of the world into rich and poor nations takes place endogenously, and a model in which a variety of heterodox views are justified by a framework in which patterns of specialization generated by historical accident get "locked in" through learning effects. A key element in many of these models is the possibility of meaningful multiple equilibria in the presence of external economies. The point is obvious: when there are external economies, it will often happen that the return to committing resources to some activity is higher, the greater the resources committed. Thus, in c 1991 by the President and Fellows of Harvard College and the Massachusetts Institute of
TL;DR: In this article, the authors develop an agency-theoretic approach to interest-group politics and show that the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation.
Abstract: The paper develops an agency-theoretic approach to interest-group politics and shows the following: (1) the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation. (2) The threat of producer protection leads to low-powered incentive schemes for regulated firms. (3) Consumer politics may induce uniform pricing by a multiproduct firm. (4) An interest group has more power when its interest lies in inefficient rather than efficient regulation, where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the political principal (Congress).
TL;DR: The authors used the global bifurcation technique to determine when an underdevelopment trap exists and when a takeoff path exists, and the role of government policy and agricultural productivity in industrialization were then considered.
Abstract: This paper asks whether adjustment processes over real time help to "select" the long-run outcome in a model of industrialization, where multiple stationary states exist because of increasing returns in the manufacturing sector. "History" alone cannot in general determine where the economy will end up. Self-fulfilling expectations often make the escape from the state of preindustrialization (the takeoff) possible. The global bifurcation technique is used to determine when an underdevelopment trap exists and when a takeoff path exists. The role of government policy and agricultural productivity in industrialization are then considered.
TL;DR: In this article, the authors developed a two-country model of endogenous innovation and imitation in order to study the interactions between these two processes, and the steady-state equilibrium is characterized by constant aggregate rates of innovation.
Abstract: We develop a two-country model of endogenous innovation and imitation in order to study the interactions between these two processes. Firms in the North race to bring out the next generation of a set of technology-intensive products. Each product potentially can be improved a countably infinite number of times, but quality improvements require the investment of resources and entail uncertain prospects of success. In the South, entrepreneurs invest resources in order to learn the production processes that have been developed in the North. All R&D investment decisions are made by forward looking, profit maximizing entrepreneurs. The steady-state equilibrium is characterized by constant aggregate rates of innovation and imitation. We study how these rates respond to changes in the sizes of the two regions and to policies in each region to promote learning.
TL;DR: In this paper, the saliency of payoffdominance, security, and historical precedents in related average opinion games is examined, and it is shown that it is possible to construct an accurate theory of equilibrium selection.
Abstract: Deductive equilibrium analysis often fails to provide a unique equilibrium solution in many situations of strategic interdependence. Consequently, a theory of equilibrium selection would be a useful complement to the theory of equilibrium points. A salient equilibrium selection principle would allow decision makers to implement a mutual best response outcome. This paper uses the experimental method to examine the salience of payoff-dominance, security, and historical precedents in related average opinion games. The systematic and, hence, predictable behavior observed in the experiments suggests that it should be possible to construct an accurate theory of equilibrium selection.
TL;DR: In this article, the authors argue that firms use debt to protect the wealth of shareholders from the threat of unionization under U.S. labor law and present empirical evidence that strongly supports this hypothesis.
Abstract: This paper argues that firms use debt to protect the wealth of shareholders from the threat of unionization. Under U. S. labor law the firm cannot prohibit its workers from attempting to form a collective bargaining unit. Debt policy offers a method of reducing the impact of this monopoly right on shareholders. By issuing debt, the firm credibly reduces the funds that are available to a potential union. Empirical evidence that strongly supports this hypothesis is presented.
TL;DR: In this paper, a model of growth is developed in which finite-lived individuals invest in human capital, investments have a positive external effect on the human capital of later cohorts, and labor with more human capital produces higher quality goods.
Abstract: A model of growth is developed in which finite-lived individuals invest in human capital, investments have a positive external effect on the human capital of later cohorts, and labor with more human capital produces higher-quality goods. Stationary growth paths are analyzed, paths along which human capital and the quality of goods grow at a common, constant rate. It is also shown that if a small open economy is either very advanced or very backward relative to the rest of the world, then its rate of investment in human capital is lower under free trade than under autarky.
TL;DR: In this article, the authors developed a search-theoretic explanation of inter-industry wage differentials and showed that high-wage firms will receive more applications per job opening and that wages in the labor market will behave as strategic complements.
Abstract: This paper develops a search-theoretic explanation of interindustry wage differentials. Given coordination problems in the labor market, the probability of filling a vacancy is an increasing function of the wage offered; in equilibrium, firms that find vacancies more costly will offer higher wages. The model thus explains the persistence of interindustry wage differentials and their correlation with industry-average capital-labor ratio and profitability. Additionally, the model predicts that high-wage firms will receive more applications per job opening and that wages in the labor market will behave as strategic complements.
TL;DR: In this article, the authors investigate the existence of status quo effects in the consumer valuation of a particular unpriced product, the reliability of residential electrical service, and find substantial status- quo effects, which must be addressed in welfare comparisons regarding electric service reliability.
Abstract: Received microeconomic theory presumes rational consumers maximize utility over all commodity bundles. Recent analysis, however, suggests that a consumer's status quo may limit economic rationality, "bias" consumer decisions, and induce serious errors in survey-based valuations of public and private goods. Using regression and choice-theoretic frameworks, we investigate the existence of status quo effects in the consumer valuation of a particular unpriced product—the reliability of residential electrical service. Such valuations have become important in electric utility resource planning and rate making. We find substantial status quo effects, which must be addressed in welfare comparisons regarding electric service reliability.
TL;DR: This article found that establishment-based wage differentials are not random variations or returns to usual measures of human capital, but rather are a regularization of the traditional measures of capital, which accounts for 20 to 70 percent of intra-industry wage variation.
Abstract: Observed human capital explains less than half of wage variation. In BLS Industry Wage Surveys, establishment-based wage differentials (controlling for occupation) account for 20–70 percent of intra-industry wage variation. This corresponds to a standard deviation in wages of 14 percent of the mean, almost as large as interindustry wage variation. Investigation suggests that establishment wage differentials are not random variations or returns to usual measures of human capital.
TL;DR: In this paper, the authors present an alternative model in which the pricing decision depends on the state of the economy and find a method of aggregating individual price changes that allows a simple characterization of macroeconomic variables.
Abstract: Standard macroeconomic models of price stickiness assume that each firm leaves its price unchanged for a fixed amount of time. We present an alternative model in which the pricing decision depends on the state of the economy. We find a method of aggregating individual price changes that allows a simple characterization of macroeconomic variables. The model produces a positive money-output correlation and an empirical Phillips curve. In addition, the impact of monetary shocks depends crucially on the current level of output, which points to a natural connection between state-dependent microeconomics and state-dependent macroeconomics. I. INTRODUCTION There is a long tradition in macroeconomics of attributing the real effects of nominal demand shocks to nominal price stickiness. In this view, if there is no change in prices when nominal demand rises, then quantities must bear the burden of adjustment. Hence nominal price rigidity provides the friction needed for nominal demand shocks to be transmitted to the real economy. Standard models of this transmission mechanism, such as Fischer [1977] and Taylor [1980], are based on the assumption that each firm leaves its price unchanged for a fixed amount of time. The main reason for considering such time-dependent pricing rules is their analytic tractability. Constraining firms to adjust their prices at prespecified times both simplifies the derivation of equilibrium strategies and allows the use of powerful time series techniques to analyze aggregate dynamics. The main disadvantage of the timedependent approach is that between price adjustments firms are not allowed to respond even to extreme changes of circumstance. This makes it difficult to know whether the qualitative effects of money in these models are the result of nominal rigidities per se or of the exogenously imposed pattern of price changes. An alternative approach to modeling price stickiness is to allow the price-setting decision to depend on the actual state of the
TL;DR: In this article, the difference in compensation between company-owned and franchisee-owned fast food restaurants is estimated based on two data sets, and it is found that employee compensation is slightly greater at company-own outlets than at franchise-owned outlets.
Abstract: This paper estimates the difference in compensation between company-owned and franchisee-owned fast food restaurants. The contrast is of interest because contractual arrangements give managers of company-owned outlets less of an incentive to monitor and supervise employees. Estimates based on two data sets suggest that employee compensation is slightly greater at company-owned outlets than at franchisee-owned outlets. The earnings gap is 9 percent for assistant and shift managers and 2 percent for full-time crew workers. Furthermore, the tenure-earnings profile is steeper at company-owned restaurants. These findings suggest that monitoring difficulties influence the timing and generosity of compensation.
TL;DR: In this paper, the authors present a paper by the presidents and Fellows of Harvard College and the Massachusetts Institute of Technology, entitled "A History of the 1990s: A Review".
Abstract: © 1991 by the President, and Fellows of Harvard College and the Massachusetts Institute of
Technology.
TL;DR: In this paper, the authors examine how the centralization or decentralization of decision-making authority affects the quality of the managers who are actually selected, and they find that there is a greater variability in the steady-state quality of managers in a more centralized economy.
Abstract: A central task of the leadership of any organization is the choice of its successors and subordinates. Corporate presidents spend a significant part of their time selecting upper management. Tenured faculty sometimes spends months deciding whether particular individuals should be admitted into their ranks. The effort and contentiousness which often go into this process suggests that it has important consequences for the organization. It is recognized that there are large differences in individuals' abilities and that the abilities of those in leadership inevitably affect the performance and survival of the organization. Our objective here is to examine how the centralization or decentralization of decision-making authority affects the quality of the managers who are actually selected. This question is naturally dynamic because the quality of current managers is not only influenced by that of past managers, but it, in turn, affects the quality of future managers. We consider stylized economies consisting of an arbitrary number of hierarchies (organizations) of different sizes. The size of a hierarchy is the number of managers within the hierarchy, one of whom is the hierarch (the boss) and others are subordinates. The current hierarch appoints his own successor and those of his subordinates, but has no influence on any other hierarchy. (This assumption exaggerates somewhat the typical asymmetry of authority between the hierarch and the subordinates.) Our definition of a "more" or "less" centralized economy is intuitive: an economy is more centralized if it has a larger proportion of the total number of managers in larger hierarchies. Our main result is that there is a greater variability (over time) in the steady-state quality of managers in a more centralized economy. This is because highly capable decision-makers have greater beneficial effects on the managerial choices in a more centralized economy. By the same token, highly incapable managers placed in the same positions have greater deleterious effects.
TL;DR: In this paper, the authors explored the recent decline in the fraction of unemployed workers who receive unemployment insurance benefits using March Current Population Surveys, and compared the fraction who are potentially eligible for benefits with the proportion who receive them.
Abstract: This paper explores the recent decline in the fraction of unemployed workers who receive unemployment insurance benefits. Using March Current Population Surveys, we compare the fraction who are potentially eligible for benefits with the fraction who receive them. The decline in insured unemployment is almost entirely due to a decline in the early 1980s in the takeup rate for benefits. We analyze the determinants of the takeup rate, using both aggregated state-level data and micro-data. At least half the decline is due to an increasing share of unemployment in states with lower takeup rates.
TL;DR: In this paper, the authors present an approach to estimate the advantages of a dominant firm in the airline industry that allows one to effectively control for cost and quality heterogeneity, and show that an airline with a dominant presence at an airport will have a significant advantage in attracting customers whose trips originate at that airport, regardless of the specific route on which the customer is traveling.
Abstract: In many industries, the largest firms are most successful in entering and competing in individual markets or submarkets. While this success is often attributed to cost or quality differences, it may also reflect reputation advantages or marketing strategies that benefit firms selling a wider variety of products in the industry. I present an approach to estimating the advantages of a dominant firm in the airline industry that allows one to effectively control for cost and quality heterogeneity. Results using data from 1986 indicate that an airline with a dominant presence at an airport will have a significant advantage in attracting customers whose trips originate at that airport, regardless of the specific route on which the customer is traveling.
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TL;DR: In this article, the authors investigated the relationship between job queues and wage differentials and found that openings for jobs that pay the minimum wage attract more job applicants than jobs that either pay either slightly more or slightly less than minimum wage.
Abstract: This paper uses job applications data to investigate the relationship between job queues and wage differentials. The main finding is that openings for jobs that pay the minimum wage attract more job applicants than jobs that pay either slightly more or slightly less than the minimum wage. This spike in the job application rate distribution suggests that ex ante rents generated for employees by an above market-level minimum wage are not completely dissipated by reductions in nonwage benefits. In addition, we find that highly unionized firms, large firms, and firms in high-wage industries tend to receive relatively many job applicants for openings.
TL;DR: The authors showed that such equations can forecast investment in many heavily indebted countries, and thus cast doubt on many debt-related explanations for the investment declines in many indebted countries. But, these countries also faced falling export prices and high world real interest rates in the early 1980s, and these shocks could have directly caused investment to decline.
Abstract: There is now a large literature that attributes the investment decline in heavily indebted countries to the effects of the international debt crisis which began in 1982. However, these countries also faced falling export prices and high world real interest rates in the early 1980s, and these shocks could have directly caused investment to decline. One way to test for debt effects is to see whether equations without any debt-related information can nevertheless forecast the investment declines that these countries experienced. This paper shows that such equations can forecast investment in many indebted countries, and thus casts doubt on many debt-related explanations for the investment declines.