Showing papers in "Research Papers in Economics in 1991"

The New Institutionalism in Organizational Analysis

Abstract: Long a fruitful area of scrutiny for students of organizations, the study of institutions is undergoing a renaissance in contemporary social science. This volume offers, for the first time, both often-cited foundation works and the latest writings of scholars associated with the "institutional" approach to organization analysis. In their introduction, the editors discuss points of convergence and disagreement with institutionally oriented research in economics and political science, and locate the "institutional" approach in relation to major developments in contemporary sociological theory. Several chapters consolidate the theoretical advances of the past decade, identify and clarify the paradigm's key ambiguities, and push the theoretical agenda in novel ways by developing sophisticated arguments about the linkage between institutional patterns and forms of social structure. The empirical studies that follow—involving such diverse topics as mental health clinics, art museums, large corporations, civil-service systems, and national polities—illustrate the explanatory power of institutional theory in the analysis of organizational change. Required reading for anyone interested in the sociology of organizations, the volume should appeal to scholars concerned with culture, political institutions, and social change.

A sensitivity analysis of cross-country growth regressions

Abstract: A vast amount of literature uses cross-country regressions to find empirical links between policy indicators and long-run average growth rates. The authors study whether the conclusions from existing studies are robust or fragile when small changes in the list of independent variables occur. They find that although"policy"appears to be importantly related to growth, there is no strong independent relationship between growth and almost every existing policy indicator. They also find that very few macroeconomic variables are robustly correlated with cross-country growth rates. They clarify the conditions under which one finds convergence of per capita output levels and confirm the positive correlation between the share of investment in GDP and long-run growth. They conclude that all findings using the share of exports in GDP could be obtained almost identically using the total trade or import share and also that few commonly used fiscal indicators are robustly correlated with growth. Finally, the authors highlight the importance of considering alternative specifications in cross-country growth regressions.

Environmental Impacts of a North American Free Trade Agreement

Abstract: In general, a reduction in trade barriers will affect the environment by expanding the scale of economic activity, by altering the composition of economic activity and by initiating a change in the techniques of production. We present empirical evidence to assess the relative magnitudes of these three effects as they apply to further trade liberalization in Mexico. We first use comparable measures of three air pollutants in a cross-section of urban areas located in 42 countries to study the relationship between air quality and economic growth. We find for two pollutants (sulphur dioxide and `smoke') that concentrations increase with per capita GDP at low levels of national income, but decrease with GDP growth at higher levels of income. We then study the determinants of the industry pattern of US imports from Mexico and of value added by Mexico's maquiladora sector. We investigate whether the size of pollution abatement costs in US industry influences the pattern of international trade and investment. Finally, we use the results from a computable general equilibrium model to study the likely compositional effect of a North American Free Trade Agreement (NAFTA) on pollution in Mexico.

Convergence Across States and Regions

Abstract: A key economic issue is whether poor countries or regions tend to grow faster than rich ones: are there automatic forces that lead to convergence over time in the levels of per capita income and product? The authors use the neoclassical growth model as a framework to study convergence across the forty-eight contiguous U.S. states. They exploit data on personal income since 1840 and on gross state product since 1963. The U.S. states provide clear evidence of convergence, but the findings can be reconciled quantitatively with the neoclassical model only if diminishing returns to capital set in very slowly. Copyright 1992 by University of Chicago Press. (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.)

Investor Sentiment and the Closed-End Fund Puzzle

Abstract: This paper examines the proposition that fluctuations in discounts on closed end funds are driven by changes in individual investor sentiment toward closed end funds and other securities The theory implies that discounts on various funds must move together, that new funds get started when seasoned funds sell at a premium or a small discount, and that discounts on the funds fluctuate together with prices of securities affected by the same investor sentiment The evidence supports these predictions In particular, we find that discounts on closed end funds narrow when small stocks do well, as would be expected if closed end funds were subject to the same sentiment as small stocks, whim tern also to be held by individual investors The evidence thus suggests that investor sentiment affects security returns

A Theory of Debt Based on the Inalienability of Human Capital

Abstract: Consider an entrepreneur whocneeds to raise funds from an investor, but cannot commit not to withdraw his human capital from the project The possibility of a default or quit puts an upper bound on the total indebtedness from the entrepreneur to the investor at any date We characterize the optimal repayment path and show how it is affected both by the maturity structure of the project return stream and by the durability and specificity of project assets Our results are consistent with the conventional wisdom about what determines the maturity structure of (long-term) debt contracts(This abstract was borrowed from another version of this item)

Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots

Abstract: This paper is an introduction to unit root econometrics as applied in macroeconomics. The paper first discusses univariate time series analysis, emphasizing the following topics: alternative representations of unit root processes, unit root testing procedures, the power of unit root tests, and the interpretation of unit root econometrics in finite samples. A second part of the paper tackles similar issues in a multivariate context where cointegration is now the central concept. The paper reviews representation, testing, and estimation of multivariate time series models with some unit roots. Two important themes of this paper are first, the importance of correctly specifying deterministic components of the series; and second, the usefulness of unit root tests not as methods to uncover some -true relation" but as practical devices that can be used to impose reasonable restrictions on the data and to suggest what asymptotic distribution theory gives the best approximation to the finite-sample distribution of coefficient estimates and test statistics.

Productivity Gains From Geographic Concentration of human Capital: Evidence From the Cities

Abstract: Based on recent theoretical developments I argue that the average level of human capital is a local public good. Cities with higher average levels of human capital should therefore have higher wages and higher land rents. After conditioning on the characteristics of individual workers and dwellings, this prediction is supported by data for Standard Metropolitan Statistical Areas (SMSAs) in the United States, where the SMSA average levels of formal education and work experience are used as proxies for the average level of human capital. I evaluate the alternative explanations of omitted SMSA variables and self-selection. I conclude by computing an estimate of the effect of an additional year of average education on total factor productivity.

Learning by Doing and the Dynamic Effects of International Trade

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 an LDC and a DC, the latter distinguished by a higher initial level of knowledge, under autarky and free trade, I find that under free trade the LDC (DC) experiences rates of technical progress and GOP growth less than or equal (greater than or equal) to those enjoyed under autarky. Unless the LDC's population is several orders of magnitude greater than that of the DC and the initial technical gap between the two economies is not large, the LDC will be unable to catch up with its trading partner. Hence, in terms of technical progress and growth, the LDC experiences dynamic losses from trade, whilst the DC experiences dynamic gains. However, since technical progress abroad can improve welfare at home, LDC consumers may enjoy - higher intertemporal utility along the free trade path. In the case of DC consumers, as long as their economy is not overtaken by the LDC they will enjoy both more rapid technical progress and the traditional static gains from trade, and hence experience an unambiguous improvement in intertemporal welfare.

Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study

Abstract: In an experiment comparing two-person bargaining and multiperson markets in Israel, Japan, the United States, and Yugoslavia, market outcomes converged to equilibrium everywhere, with no payoff-relevant differences between countries Bargaining outcomes were everywhere different from equilibrium predictions (both in agreements and in the substantial frequency of disagreements) and differences were observed between countries Because of the experimental design, the fact that the market behavior is the same in all countries supports the hypothesis that the observed differences are not due to differences in languages, currencies, or experimenters, but may tentatively be attributed to cultural differences Copyright 1991 by American Economic Association (This abstract was borrowed from another version of this item)

Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries

Abstract: This paper compares the association between many popular proxies for openness and the rate of GDP growth, as well as the results from cross-section and panel estimation, controlling for country effects. The results suggest that using period averages versus annual data critically affects the strength of the association between openness and growth. The paper reviews the empirical literature on openness and technological change. It discusses the dataset for this paper and the empirical specification, while also presenting the main results. The sensitivity of the results to the inclusion of both macroeconomic variables and country size are also tested. It concludes with an agenda for future research.

Policies and strategies to promote social equity in health. Background document to WHO - Strategy paper for Europe

Abstract: This is the second in a series of discussion papers from the WHO Regional Office for Europe. The first covers concepts and principes of equity in relation to health, and should be read in conjunction with this paper (Whitehead 1990). The present paper sets out to develop the discussion further by outlining a strategic approach to promote greater equity in health between different social and occupational groups. This draws on the work of WHO advisory groups and associated litterature listed at the back, together with practical examples from industrialized countries where strategies have been put into action. The first part (section 1-9) of the paper outlines why equity is seen as a priority and distinguishes different policy levels for interventions. Specific equity aspects related to each policy level are then highlighted as well as some case studies. The second part of the paper (section 10-14) deals with putting policy into practice. Special attention is then paid to the need for comprehensive approaches to combat social and occupational inequities in health as illustrated in terms of a strategy matrix. Furthermore the democratice process within which healthy public policies are to be discussed and determined is discussed as well as organizational aspects as regards the implementation of an equity oriented health policy. Finally checklists are presented focusing upon how to make things happen.

Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?

Abstract: The standard conclusion that is drawn from this empirical evidence is that many or most aggregate economic time series contain a unit root. However, it is important to note that in this empirical work the unit root is set up as the null hypothesis testing is carried out ensures that the null hypothesis is accepted unless there is strong evidence against it. Therefore, an alternative explanation for the common failure to reject a unit root is simply that most economic time series are not very informative about whether or not there is a unit root; or, equivalently, that standard unit root tests are not very powerful against relevant alternatives.

Hunger and Public Action

Abstract: This study was well-received and widely discussed when it appeared in hardback in 1990. It is devoted to analysis of the enduring problem of hunger in the modern world, and of the role that public action can play in countering it. The book is divided into four parts. The first attempts to provide a coherent perspective on the complex nutritional, economic, social and political issues involved in the causation of hunger and deprivation. The second deals with famine prevention, paying special attention to Africa and India. The third focuses on chronic undernourishment and related deprivations. Parts two and three include a number of case studies of successful public action for the prevention of hunger and famines in various parts of the world. The fourth part of the book draws together the main themes and concerns of the earlier chapters, and provides an integrated view of the role of public action in eliminating hunger.

Ethnic Capital and Intergenerational Mobility

Abstract: This paper analyzes the extent to which ethnic skill differentials are transmitted across generations. I assume that ethnicity acts as an externality in the human capital accumulation process. The skills of the next generation depend on parental inputs and on the quality of the ethnic environment in which parents make their investments, or "ethnic capital." The empirical evidence reveals that the skills of today's generation depend not only on the skills of their parents, but also on the average skills of the ethnic group in the parent's generation.

Indeterminacy and Increasing Returns

Abstract: We investigate properties of the one-sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms. The first involves input externalities; the second involves monopolistic competition. We show, for parameters in close accord with recent literature on real business cycles, that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self-fulfilling beliefs. In our first class of models, growth is generated by exogenous increases in factor productivity. In the second class the marginal product of capital is large enough for endogenous growth. Journal of Economic Literature Classification Numbers: E00, E3, O40.

Openness and inflation: theory and evidence

Abstract: This paper points out and tests a straight forward but previously unnoticed prediction of models in which the absence of precommitment in monetary policy leads to excessive inflation. Because unanticipated monetary expansion leads to real exchange rate depreciation, and because the harms of real depreciation are greater in more open economies, the benefits of surprise expansion are decreasing in the degree of openness. Thus, under discretionary policy-making, money growth and inflation will be lower in more open economies. After presenting a simple theoretical model demonstrating this prediction of the theory, the paper examines the link between openness and inflation using cross-country data. The data reveal a strong negative link between openness and inflation.

Cooperation, conflict and power in the absence of property rights

Abstract: This paper examines interaction in the absence of property rights when agents face a trade-off between productive and coercive activities. In this setting, conflict is not the necessary outcome of one-time interaction and cooperation is consistent with domination of one agent over another. Other things being equal, an agent's power, a well-defined concept in this paper, is inversely related to an agent's resources when resources are valued according to marginal-productivity theory. Some implications for the evolution of property rights are drawn. The model is applicable to a variety of situations in which directly unproductive activities are prevalent. Copyright 1992 by American Economic Association.(This abstract was borrowed from another version of this item.)

Anatomy of Financial Distress: An Examination of Junk-Bond Issuers

Abstract: This paper examines the events following the onset of financial distress for 102 public junk bond issuers. We find that out-of-court debt relief mainly comes from junk bond - holders; banks almost never forgive principal, though they do defer payments and waive debt covenants. Asset sales are an important means of avoiding Chapter 11 reorganization; however, they may be limited by industry factors. If a company simply restructures its bank debt, but either does not restructure its public debt or does not sell major assets or merge, the company goes bankrupt. The structure of a company's liabilities affects the likelihood that it goes bankrupt; companies whose bank and private debt are secured as well as companies with complex public debt structures are more prone to go bankrupt. Finally, there is no evidence that more profitable distressed companies are more successful in dealing with financial distress; they are not less likely to go bankrupt, sell assets, or reduce capital expenditures.

The Effects of Immigration on the Labor Market Outcomes of Less-skilled Natives

Abstract: This paper examines the effects of immigration on the labor market outcomes of less-skilled natives. Working from a simple model of a local labor market, we show that the effects of immigration can be estimated from the correlations between the fraction of immigrants in a city and the employment and wage outcomes of natives. The size of the effects depend on the fraction and skill composition of the immigrants. We go on the compute these correlations using city-specific outcomes for individuals in 120 major SMSA's in the 1970 and 1980 Censuses. We also use the relative industry distributions of immigrants and natives to provide a direct assessment of the degree of labor market competition between them. Our empirical findings indicate a modest degree of competition between immigrants and less-skilled natives. A comparison of industry distributions shows that an increase in the fraction of immigrants in the labor force translates to an approximately equivalent percentage increase in the supply of labor to industries in which less-skilled natives are employed. Based on this calculation, immigrant inflows between 1970 and 1980 generated l-2 percent increases in labor supply to these industries in most cities. A comparison of industry distributions of less-skilled natives in high- and low-immigrant share cities between 1970 and 1980 shows some displacement out of low-wage immigrant-intensive industries. We find little effect of immigration on the employment outcomes of the four race/sex groups that we consider. Our estimates of the effect of immigration on the wages of less-skilled natives are sensitive to the specification and estimation procedure. However, our preferred estimates, which are based on first differences between 1980 and 1970 and the use of instrumental variables to control for the endogeneity of immigrant inflows, imply that an increase in immigrants equal to l percent of an SMSA's population reduces native wages by roughly 1.2 percent.(This abstract was borrowed from another version of this item.)

Tax competition and tax coordination : when countries differ in size

Abstract: The purpose of this paper is to develop a model that is rich enough to capture some of the central features of the interaction between national tax systems in an integrated world but simple enough to yield sharp insights into some of the central questions which that interaction raises. The underlying theme is the comparison between tax competition and tax cooperation. The model itself focuses on the role of the relative sizes of the economies involved. The paper consists of seven sections. Section 1 serves as an introduction. It states the paper's objectives, cites the findings of other recent studies on the subject, and lists some of the central questions raised by the economic integration of multiple countries in regard to taxation. Section 2 describes the model created by the authors. Sections 3 and 4 characterize and investigate the outcome under unrestricted tax competition, modelled as a non-cooperative (Nash) equilibrium in tax-setting. Partial measures of tax coordination are then examined in Section 5. Section 6 characterizes the jointly optimal tax structure, which suggests that the optimal joint response to freer cross-border trade may be to do absolutely nothing. Section 7 concludes by addressing some of the questions mentioned in the introduction, based on the results of the application of the model.

International Trade with Endogenous Technological Change

Abstract: To explain why trade restrictions sometimes speed up worldwide growth and sometimes slow it down, we exploit an analogy with the theory of consumer behavior. substitution effects make demand curves slope down, but income effects can increase or decrease the slope, and can sometimes overwhelm the substitution effect. We decompose changes in the worldwide growth rate into two effects (integration and redundancy) that unambiguously slow down growth, and a third effect (allocation) that can either speed it up or slow it down. We study two types of trade restrictions to illustrate the use of this decomposition. The first is across the board restrictions on traded goods in an otherwise perfect market. The second is selective protection of knowledge-intensive goods in a world with imperfect intellectual property rights. In both examples, we show that for trade between similar regions such as Europe and North America, the first two effects dominate; starting from free trade, restrictions unambiguously reduce worldwide growth.

The Great Compression: The Wage Structure in the United States at Mid- Century

Abstract: The structure of wages narrowed considerably during the 1940's, increased slightly during the 1950's and 1960's, and then expanded greatly after 1970. The era of wage stretching of the past two decades has been a current focus, but we return attention here to the decade that was witness to an extraordinary compression in the wage structure. Wages narrowed by education, job experience, region, and occupation, and compression occurred within these cells as well. For white men, the 90-10 differential in the log of wages was 1.414 in 1940 but 1.060 in 1950. By 1985 it has risen back to its 1940 level. Thus the recent widening of the wage structure has returned to it a dispersion characteristic of fifty years ago. We explore various explanations for the rapid compression in the wage structure during the 1940's and for its maintenance during the subsequent decade or more. We first assess the hypothesis that the Great Depression left the wage structure in 1939 more unequal than in the late 1920's, but we find evidence to the contrary. World War II and the National War Labor Board share some of the credit for the Great Compression. But much belongs to a rapid increase in the demand for unskilled labor at a time when educated labor was greatly increasing in number. These same factors caused the wage structure to remain compressed until its expansion during the past two decades.

Long-Run Economic Relationships: Readings in Cointegration

Abstract: This is a survey of recent developments in the field of cointegration, which links long run components of a pair or of a group of series. It can then be used to discuss some types of equilibrium and to introduce them into time-series models in a fairly uncontroversial way. The idea was introduced in the early 1980s and has generated much interest since then amongst econometricians and macroeconomists. The authors discuss the basic ideas in their introduction, and the final chapters review the most recent developments in the field in a non-technical way that will enable economists with some training in modern econometrics to understand and appreciate these developments.

The Socioeconomic Consequences of Teen Childbearing Reconsidered

Abstract: Teen childbearing is commonly viewed as an irrational behavior that leads to long-term socioeconomic disadvantage for mothers and their children Cross-sectional studies that estimate relationships between maternal age at first birth and socioeconomic indicators measured later in life form the empirical basis for this view However1 these studies have failed to account adequately for differences in family background among women who time their births at different ages We present new estimates of the consequences of teen childbearing that take into account observed and unobserved family background heterogeneity, comparing sisters who have timed their first births at different ages Sister comparisons suggest that previous estimates are biased by failure to control adequately for family background heterogeneity, and, as a result, have overstated the consequences of early fertility

First Nature, Second Nature, and Metropolitan Location

Abstract: This paper develops models of spatial equilibrium in which a central metropolis emerges to supply manufactured goods to an agricultural hinterland. The location of the metropolis is not fully determined by the location of resources: as long as it is not too far from the geographical center of the region, the concentration of economic mass at the metropolis makes it the optimal location for manufacturing firms, and is thus self-justifying. The approach in this paper therefore helps explain the role of historical accident and self-fulfilling expectations in metropolitan location.

Duynamics of Interorganizational Attachments: Auditor-Client Relationships

Abstract: The order of authorship is randomly assigned. Earlier versions of this paper were presented at the TIMS/ORSA meetings, May 1987, Academy of Management, August 1987, and the Law, Economics and Organization Workshop at Yale University. We gratefully acknowledge support from a Faculty Development Grant from Carnegie-Mellon. We have benefited from conversations with Bill Baber, Robert Kaplan, Jody Magliolo, and Jim Noel and appreciate their help in understanding the nature of the audit relationship. We also thank Linda Argote, Alison Davis-Blake, Jack Brittain, John Freeman, Jerry Ross, Jerry Salancik, Mark Seabright, Kathryn Shaw, and three anonymous ASQ reviewers for their comments on a prior draft. We used the techniques of event-history analysis to examine empirically the duration of dyadic interorganizational attachments through a study of auditor-client relationships. These attachments were found to have positive duration dependence. In the early stages of these attachments the rate at which these interorganizational relationships ended increased with time. After this early "honeymoon" period, the rate at which relationships ended decreased with time, consistent with notions that assets specific to the relationship develop over time. Furthermore, we found that relationships in which the task was more complex tended to be of longer duration.'

Evaluating the accuracy of sampling-based approaches to the calculation of posterior moments

Abstract: Data augmentation and Gibbs sampling are two closely related, sampling-based approaches to the calculation of posterior moments. The fact that each produces a sample whose constituents are neither independent nor identically distributed complicates the assessment of convergence and numerical accuracy of the approximations to the expected value of functions of interest under the posterior. In this paper methods for spectral analysis are used to evaluate numerical accuracy formally and construct diagnostics for convergence. These methods are illustrated in the normal linear model with informative priors, and in the Tobit-censored regression model.

Financial Repression and Economic Growth

Abstract: We survey the literatures that study the relation between the trade regime and growth and financial development, financial repression, and growth. We analyze the relation between the trade regime, the degree of financial development and the growth performance of a large cross section of countries. The systematic finding is that there is a negative relation between trade distortions and growth. We also present some variables that capture the degree to which the financial sector is distorted. We find that financial repression has negative consequences for growth. We also find that inflation- is negatively related to growth. We interpret this relation, however, as symptomatic rather than causal. We show that once we hold constant measures of the trade regime and financial repression, the regional dummies for Latin America are no longer significant. Thus, the poor performance of the Latin American countries over the last few decades is related to the trade and financial policies pursued by their governments.