Showing papers in "The Review of Economics and Statistics in 2002"
TL;DR: In this article, the authors consider causal inference and sample selection bias in nonexperimental settings in which few units in the nonex-experiment comparison group are comparable to the treatment units, and selecting a subset of comparison units similar to treatment units is difficult because units must be compared across a high-dimensional set of pre-treatment characteristics.
Abstract: This paper considers causal inference and sample selection bias in nonexperimental settings in which (i) few units in the nonexperimental comparison group are comparable to the treatment units, and (ii) selecting a subset of comparison units similar to the treatment units is difficult because units must be compared across a high-dimensional set of pre-treatment characteristics. We discuss the use of propensity score-matching methods, and implement them using data from the National Supported Work experiment. Following LaLonde (1986), we pair the experimental treated units with nonexperimental comparison units from the CPS and PSID, and compare the estimates of the treatment effect obtained using our methods to the benchmark results from the experiment. For both comparison groups, we show that the methods succeed in focusing attention on the small subset of the comparison units comparable to the treated units and, hence, in alleviating the bias due to systematic differences between the treated and compariso...
3,920 citations
TL;DR: In this paper, the Hodrick-Prescott filter parameter was adjusted by multiplying it with the fourth power of the observation frequency ratios, which yields an HP parameter value of 6.25.
Abstract: This paper studies how the Hodrick-Prescott filter should be adjusted when changing the frequency of observations. It complements the results of Baxter and King (1999) with an analytical analysis, demonstrating that the filter parameter should be adjusted by multiplying it with the fourth power of the observation frequency ratios. This yields an HP parameter value of 6.25 for annual data given a value of 1600 for quarterly data. The relevance of the suggestion is illustrated empirically.
1,909 citations
TL;DR: This paper found that ethnic Chinese networks, proxied by the product of ethnic Chinese population shares, increased bilateral trade more for differentiated than for homogeneous products, and that business and social networks have a considerable quantitative impact on international trade by helping to match buyers and sellers in characteristics space, in addition to their effect through enforcement of community sanctions that deter opportunistic behavior.
Abstract: We find that ethnic Chinese networks, proxied by the product of ethnic Chinese population shares, increased bilateral trade more for differentiated than for homogeneous products. This suggests that business and social networks have a considerable quantitative impact on international trade by helping to match buyers and sellers in characteristics space, in addition to their effect through enforcement of community sanctions that deter opportunistic behavior. For trade between countries with ethnic Chinese population shares at the levels prevailing in Southeast Asia, the smallest estimated average increase in bilateral trade in differentiated products attributable to ethnic Chinese networks is nearly 60%.
1,092 citations
TL;DR: In this paper, the authors examined the long-standing theory that the growth of small firms is often constrained by the quantity of internal finance and found that most firms are not constrained by internal finance.
Abstract: This paper examines the long-standing theory that the growth of small firms is often constrained by the quantity of internal finance. Under plausible assumptions, when financing constraints are binding, an additional dollar of internal finance should generate slightly more than an additional dollar of growth in assets. This quantitative prediction should not hold for the relatively small number of firms which access external equity. We test these predictions with a panel of more than 1, 600 small firms and find that the growth of most firms is constrained by internal finance. Our results have implications for several different research literatures, including models of firm growth.
1,058 citations
TL;DR: In this article, the authors investigate the presence of short and long-term effects from joining a Swedish labor market program vis-a-vis more intense job search in open unemployment.
Abstract: We investigate the presence of short- and long-term effects from joining a Swedish labor market program vis-a-vis more intense job search in open unemployment. Overall, the impact of the program system is found to have been mixed. Joining a program has increased employment rates among participants, a result robust to a misclassification problem in the data. On the other hand it has also allowed participants to remain significantly longer on unemployment benefits and more generally in the unemployment system, this being particularly the case for those entitled individuals entering a program around the time of their unemployment benefits' exhaustion.
1,042 citations
TL;DR: In this article, a structural model of import demand in which insecurity acts as a hidden tax on trade is proposed, and the authors find that inadequate institutions constrain trade as much as tariffs do.
Abstract: Corruption and imperfect contract enforcement dramatically reduce international trade. This paper estimates the reduction using a structural model of import demand in which insecurity acts as a hidden tax on trade. We find that inadequate institutions constrain trade as much as tariffs do. We also find that omission of indices of institutional quality biases the estimates of typical gravity models, obscuring a negative relationship between per capita income and the share of total expenditure devoted to traded goods. Finally, we argue that cross-country variation in the effectiveness of institutions and the consequent variation in the prices of traded goods offer a simple explanation for the stylized fact that high-income, capital-abundant countries trade disproportionately with each other.
1,001 citations
TL;DR: In this article, the authors examined the impact of both wages and unemployment on crime, and used instrumental variables to establish causality, finding that crime rates show a reverse pattern: increasing during the 1980s and falling in the 1990s.
Abstract: The labor market prospects of young, unskilled men fell dramatically in the 1980s and improved in the 1990s. Crime rates show a reverse pattern: increasing during the 1980s and falling in the 1990s. Because young, unskilled men commit most crime, this paper seeks to establish a causal relationship between the two trends. Previous work on the relationship between labor markets and crime focused mainly on the relationship between the unemployment rate and crime, and found inconclusive results. In contrast, this paper examines the impact of both wages and unemployment on crime, and uses instrumental variables to establish causality. We conclude that both wages and unemployment are significantly related to crime, but that wages played a larger role in the crime trends over the last few decades. These results are robust to the inclusion of deterrence variables, controls for simultaneity, and controlling for individual and family characteristics.
644 citations
TL;DR: This article used an updated and revised panel data set on ambient air pollution in cities worldwide to examine the robustness of the evidence for the existence of an inverted U-shaped relationship between national income and pollution.
Abstract: This paper uses an updated and revised panel data set on ambient air pollution in cities worldwide to examine the robustness of the evidence for the existence of an inverted U-shaped relationship between national income and pollution. We test the sensitivity of the pollution-income relationship to functional forms, to additional covariates, and to changes in the nations, cities, and years sampled. We find that the results are highly sensitive to these changes, and conclude that there is little empirical support for an inverted U-shaped relationship between several important air pollutants and national income in these data.
625 citations
TL;DR: In this article, the authors address micro-econometric evaluation by matching methods when the programs under consideration are heterogeneous, assuming that selection into the different sub-programs and the potential outcomes are independent given observable characteristics, estimators based on different propensity scores are compared and applied to the analysis of active labor market policies in the Swiss region of Zurich.
Abstract: Not available in German. This paper addresses microeconometric evaluation by matching methods when the programs under consideration are heterogeneous. Assuming that selection into the different sub-programs and the potential outcomes are independent given observable characteristics, estimators based on dif-ferent propensity scores are compared and applied to the analysis of active labor market policies in the Swiss region of Zurich. Furthermore, the issues of heterogeneous effects and aggregation are addressed. The results suggest that an approach that incorporates the possibility of having multiple programs can be an informative tool in applied work.
505 citations
TL;DR: The authors used data from the Census Bureau's Longitudinal Research Database (LRB) to describe the dynamics of geographic concentration in U.S. manufacturing industries, finding that the location choices of new firms play a deagglomerating role, whereas plant closures have tended to reinforce agglomeration.
Abstract: This paper uses data from the Census Bureau's Longitudinal Research Database to describe the dynamics of geographic concentration in U.S. manufacturing industries. Agglomeration results from a combination of the mean reversion and randomness in the growth of state-industry employment. Although industries' agglomeration levels have declined only slightly over the last quarter century, we find a great deal of movement for many geographically concentrated industries. We decompose aggregate concentration changes into portions attributable to plant births, expansions, contractions, and closures. We find that the location choices of new firms play a deagglomerating role, whereas plant closures have tended to reinforce agglomeration.
490 citations
TL;DR: In this paper, the effect of changing environmental standards on patterns of international investment was investigated, and the authors found that environmental costs in U.S. states are more comparable than those for different countries, and U. S. states were more similar in other dimensions.
Abstract: This paper estimates the effect of changing environmental standards on patterns of international investment. The analysis advances the existing literature in three ways. First, we avoid comparing different countries by examining foreign direct investment in the United States and differences in pollution abatement costs among U.S. states. Data on environmental costs in U.S. states are more comparable than those for different countries, and U.S. states are more similar in other dife cult-to- measure dimensions. Second, we allow for differences in states' industrial compositions, an acknowledged problem for earlier studies. Third, we employ an 18-year panel of relative abatement costs, allowing us to control for unobserved state characteristics. We e nd robust evidence that abatement costs have had moderate deterrent effects on foreign invest- ment.
TL;DR: The authors investigated purchasing power parity (PPP) since the late nineteenth century and found that episodes of floating exchange rates have generally been associated with larger deviations from PPP, as expected; this result is not attributable to significantly greater persistence (longer half-lives) of deviations in such regimes, but is due to the larger shocks to the real exchange rate process in such episodes.
Abstract: This paper investigates purchasing-power parity (PPP) since the late nineteenth century. I collected data for a group of twenty countries over 100 years, a larger historical panel of annual data than has ever been studied. The evidence for long-run PPP is favorable using recent multivariate and univariate tests of higher power. Residual variance analysis shows that episodes of floating exchange rates have generally been associated with larger deviations from PPP, as expected; this result is not attributable to significantly greater persistence (longer half-lives) of deviations in such regimes, but is due to the larger shocks to the real exchange rate process in such episodes. In the course of the twentieth century, there was relatively little change in the capacity of international market integration to smooth out real exchange rate shocks. Instead, changes in the size of shocks depended on the political economy of monetary and exchange rate regime choice under the constraints imposed by the trilemma.
TL;DR: In this article, the authors investigated the multifractal model of asset returns (MMAR), a class of continuous-time processes that incorporate the thick tails and volatility persistence exhibited by many financial time series.
Abstract: This paper investigates the multifractal model of asset returns (MMAR), a class of continuous-time processes that incorporate the thick tails and volatility persistence exhibited by many financial time series. The simplest version of the MMAR compounds a Brownian motion with a multifractal time-deformation. Prices follow a semi-martingale, which precludes arbitrage in a standard two-asset economy. Volatility has long memory, and the highest finite moments of returns can take any value greater than 2. The local variability of a sample path is highly heterogeneous and is usefully characterized by the local Holder exponent at every instant. In contrast with earlier processes, this exponent takes a continuum of values in any time interval. The MMAR predicts that the moments of returns vary as a power law of the time horizon. We confirm this property for Deutsche mark/U.S. dollar exchange rates and several equity series. We develop an estimation procedure and infer a parsimonious generating mechanism for the e...
TL;DR: The authors found that good practices and good policy appear to have played a more important role in explaining the post-1984 decline in the volatility of consumer price inflation than exogenous disturbances, suggesting that good luck is the most likely explanation.
Abstract: The volatility of U.S. real GDP growth since 1984 has been markedlylowerthanoverthepreviousquartercentury.Weutilizefrequency-domain and VAR methods to distinguish among competing explanations for this reduction: improvements in monetary policy, better business practices, and a fortuitous reduction in exogenous disturbances. We find that reduced innovation variances account for much of the decline in aggregate output volatility, suggesting that good luck is the most likely explanation. Good practices and good policy appear to have played a more important role in explaining the post-1984 decline in the volatility of consumer price inflation.
TL;DR: In this paper, the effects of children and the differential effects of sons and daughters on men's labor supply and hourly wage rates were examined separately, and they used fixed-effects estimation to control for unobserved heterogeneity.
Abstract: In this paper, we estimate the effects of children and the differential effects of sons and daughters on men's labor supply and hourly wage rates. The responses to fatherhood of two cohorts of men from the PSID sample are examined separately, and we use fixed-effects estimation to control for unobserved heterogeneity. We find that fatherhood significantly increases the hourly wage rates and annual hours of work for men from both cohorts. Most notably, men's labor supply and wage rates increase more in response to the births of sons than to the births of daughters.
TL;DR: One-and-one-half-bound (OOHB) as discussed by the authors was proposed to reduce the potential for response bias on the follow-up bid in multiple-bound discrete choice CVM questions.
Abstract: To reduce the potential for response bias on the follow-up bid in multiple-bound discrete choice CVM questions while maintaining much of the efficiency gains of the multiple-bound approach, we introduce the one-and-one-half-bound (OOHB) approach. Despite the fact that the OOHB model uses less information than the double-bound (DB) approach, efficiency gains in moving from single-bound to OOHB capture a large portion of the gain associated with moving from single-bound to DB. In an analysis of survey data, our OOHB estimates demonstrated higher consistency with respect to the follow-up data than the DB estimates and were more efficient as well.
TL;DR: In this article, the authors used primary data on household participants and nonparticipants in Grameen Bank and two similar microcredit programs to measure the total and non-credit effects of micro-credit program participation on productivity.
Abstract: Microcredit programs provide a two-tiered approach to poverty alleviation: credit for the purchase of capital inputs in order to promote self-employment and noncredit services and incentives. These noncredit aspects may be an important component of the success of microcredit programs. However, because they are costly to deliver and their contribution to the success of the programs is difficult to measure, they may not be properly valued. This paper uses primary data on household participants and nonparticipants in Grameen Bank and two similar microcredit programs to measure the total and noncredit effects of microcredit program participation on productivity. The total effect is measured by estimating a profit equation and the noncredit effect by estimating the profit equation conditional on productive capital. Productive capital and program participation are treated as endogenous variables in the analysis. I find large positive effects of participation and the noncredit aspects of participation on self-em...
TL;DR: This paper found that the average special education program significantly boosts mathematics achievement of special education students, particularly those classified as learning-disabled or emotionally disturbed, while not detracting from regular education students.
Abstract: Most discussion of special education has centered on the costs of providing mandated programs for children with disabilities and not on their effectiveness. As in many other policy areas, inferring program effectiveness is difficult because students not in special education do not provide a good comparison group. By following students who move in and out of targeted programs, however, we are able to identify program effectiveness from changes over time in individual performance. We find that the average special education program significantly boosts mathematics achievement of special-education students, particularly those classified as learning-disabled or emotionally disturbed, while not detracting from regular-education students. These results are estimated quite precisely from models of students and school-by-grade-by-year fixed effects in achievement gains, and they are robust to a series of specification tests.
TL;DR: This paper found that black applicants are almost twice as likely as comparable white households to be rejected, even when credit history proxies and measures of household wealth are accounted for, and the analysis suggests that differences in income, family structure, and in the ability and willingness of parents to provide downpayment assistance are the primary reasons for this applications gap.
Abstract: This paper analyzes differences in the likelihood that black and white families become homeowners. By following a sample of black and white renters over time, we are able to separately study racial differences in the likelihood of applying for a mortgage and in the likelihood that a mortgage application is accepted. Although its effect on the race gap in housing transitions is small, we find strong evidence that black applicants are almost twice as likely as comparable white households to be rejected, even when credit history proxies and measures of household wealth are accounted for. We show that the housing transition gap exists primarily because blacks are less likely to apply for mortgages in the first place. The analysis suggests that differences in income, family structure, and in the ability and willingness of parents to provide down-payment assistance are the primary reasons for this applications gap. We speculate that the portion of the gap that remains unexplained after controlling for income, d...
TL;DR: This article showed that plants located in areas where an industry concentrates are larger, on average, than plants in the same industry outside such areas, and that the connection between size and concentration is stronger than what we would expect to find if plants were randomly distributed like darts on a dartboard.
Abstract: This paper shows that plants located in areas where an industry concentrates are larger, on average, than plants in the same industry outside such areas. In some sectors, such as manufacturing, the differences are substantial. The connection between size and concentration is stronger than what we would expect to find if plants were randomly distributed like darts on a dartboard.
TL;DR: In this article, the authors reconcile the growth empirics technique of Mankiw, Romer, and Weil (1992) with the empirical results of Barro and Sala-i-Martin (1991) through the development of a new database covering the 1977-96 period.
Abstract: This paper seeks to reconcile the growth empirics technique of Mankiw, Romer, and Weil (1992) with the empirical results of Barro and Sala-“i-Martin (1991) through the development of a new database covering the 1977-96 period. We create state-by-state capital stock and gross investment estimates by apportioning the national capital stock among the states. Using these estimates along with gross state product and employment data, we find evidence that the Solow growth model explains state-wide growth during this period. We consistently find a rate of convergence of around 2%. Our results, as a consequence, suggest that the empirical results of Barro and Sala-i-Martin are driven by the neoclassical growth process of Solow.
TL;DR: The authors found that foreign-owned companies invest the most and cooperatives the least, that private firms do not invest more than state-owned ones, and that cooperatives and small firms are credit rationed.
Abstract: Strategic restructuring of firms through investment is key to a transition from plan to market. Using data on industrial firms in the Czech Republic during 1992-1998, we find that foreign-owned companies invest the most and cooperatives the least, that private firms do not invest more than state-owned ones, and that cooperatives and small firms are credit rationed. Given the large volume of nonperforming bank loans to firms and the high rate of investment of large state-owned and private firms, our findings also suggest that these firms operate under a soft budget constraint. Estimates of a dynamic model, together with the support for the neoclassical model, suggest that firms started to behave consistently with profit maximization.
TL;DR: The authors compared the performance of UK plants that were acquired by the foreign-owned sector during 1987-1992 with other comparable subgroups of plants operating at the same time (including plants acquired by UK-owned companies).
Abstract: This paper compares the performance of UK plants that were acquired by the foreign-owned sector during 1987-1992 with other comparable subgroups of plants operating at the same time (including plants acquired by UK-owned companies) The principal aim is to consider the types of plants that were acquired and whether after acquisition they performed above or below average when compared to other manufacturing plants The results show that foreign-owned enterprises acquired the most-productive plants previously operated by UK enterprises After acquisition, there is some evidence that productivity declined, which would be consistent with difficulties associated with assimilating these established plants into the new organization
TL;DR: In this article, the authors study the existence and characteristics of the dispersion of prices across stores, as well as its persistence over time, and find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity.
Abstract: The Hebrew University of Jerusalem and NBER. Using a unique data set on store-level monthly prices of four homogenous products sold in Israel, I study the existence and characteristics of the dispersion of prices across stores, as well as its persistence over time. I find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity. Moreover, intra-distribution mobility is significant: stores move up and down the cross-sectional price distribution. Thus, consumers cannot learn about stores that consistently post low prices. As a consequence, price dispersion does not disappear and persists over time as predicted by Varian's (1980) model of sales.
TL;DR: For a "genuine" small open economy that has experienced both dictatorship and democracy, this article found support for the predictions of the Grossman-Helpman (1994) "Protection for Sale" model.
Abstract: For a "genuine" small open economy that has experienced both dictatorship and democracy, we find support for the predictions of the Grossman-Helpman (1994) "Protection for Sale" model. In contrast to previous studies, we use various protection measures (including tariffs, the direct measure of the theoretical model) and perform both single-year and panel regressions. Using Turkish industry-level data, the government's weight on welfare is estimated to be much larger than that on contributions. More importantly, we find that this weight is generally higher for the democratic regime than for dictatorship.
TL;DR: The authors found that white families are more likely to send their children to private schools with large concentrations of poor minority schoolchildren than to send them to public schools with a large concentration of minority students.
Abstract: Using a recently released cone dential data set from the Na- tional Center for Educational Statistics (NCES), we e nd some evidence of " white e ight" from public schools into private schools partly in response to minority schoolchildren. We also examine whether white e ight is from all minorities or only from certain minority groups, delineated by race or income. We e nd that white families are e eeing public schools with large concentrations of poor minority schoolchildren. In addition, the clearest e ight appears to occur from poor black schoolchildren. The results for white e ight from Asians and Hispanics are less clear.
TL;DR: In this paper, the authors investigate the effect of individual incentive regulation on the technical efficiency of a large set of coal and natural gas generation units, and find that those programs tied directly to generator performance and those that modify traditional fuel cost pass-through programs, to provide a greater incentive to reduce fuel costs, are associated with greater efficiency levels.
Abstract: The use of incentive regulation and other alternative regulatory programs in U.S. electricity markets has grown during the past two decades. Within a stochastic frontier framework, I investigate the effect of individual programs on the technical efficiency of a large set of coal and natural gas generation units. I find that those programs tied directly to generator performance and those that modify traditional fuel cost pass-through programs, to provide a greater incentive to reduce fuel costs, are associated with greater efficiency levels. Other programs have no statistical association with efficiency levels.
TL;DR: This paper examined the effects of work experience acquired while youth were in high school (and college) on young men's wage rates and found that the estimated returns to working while in either high school or college are dramatically diminished in magnitude and are not statistically significant when one applies dynamic selection methods.
Abstract: This paper examines the effects of work experience acquired while youth were in high school (and college) on young men's wage rates. Previous studies have found sizeable and persistent rates of return to working while enrolled in school, especially high school, on subsequent wage growth. We evaluate the extent to which these estimates represent causal effects by assessing the robustness of prior findings to controls for unobserved heterogeneity and sample selectivity. We explore more-general econometric methods for dealing with the dynamic of selection and apply them to data on young men from the 1979 National Longitudinal Survey of Youth (NLSY79). We find that the estimated returns to working while in high school or college are dramatically diminished in magnitude and are not statistically significant when one applies dynamic selection methods.
TL;DR: This paper explored the effects of peers, friends, family, IQ, and academic performance, observed in the last year of high school, on earnings at ages 35 and 53, and found that all significantly affect earnings at both ages.
Abstract: This paper explores the effects of peers, friends, family, IQ, and academic performance, observed in the last year of high school, on earnings at ages 35 and 53. All significantly affect earnings at both ages. The effects of IQ are much smaller than asserted in, for example, The Bell Curve, and badly overstated in the absence of controls for family, wider context, or academic performance. Aspirations appear to be very important. Socialization and role models may be as well, but not ability spillovers. Feasible increases in academic performance and education can compensate for the effects of many cognitive and contextual deficits.
TL;DR: The authors found that residential zoning led to higher land value growth rates than commercial zoning, after controlling for initial land use and the endogeneity of zoning decisions, and that residential zones were more desirable than commercial zones.
Abstract: The introduction of a new zoning ordinance to Chicago in 1923 offers a natural experiment that allows us to determine the effects of zoning on relative land-value growth rates. Policymakers claimed at the time that land-use zoning would raise aggregate land values by reducing negative externalities associated with mixed land use. After controlling for initial land use and the endogeneity of zoning decisions, we find that residential zoning led to higher land value growth rates than commercial zoning.