Showing papers in "The Review of Economics and Statistics in 2005"
TL;DR: In this paper, the authors used a new data set on annual deaths from disasters in 73 nations from 1980 to 2002, and tested several hypotheses concerning natural-disaster mitigation, concluding that richer nations do not experience fewer natural disasters than poorer nations, while richer nations suffer less death from disaster.
Abstract: Using a new data set on annual deaths from disasters in 73 nations from 1980 to 2002, this paper tests several hypotheses concerning natural-disaster mitigation. Though richer nations do not experience fewer natural disasters than poorer nations, richer nations do suffer less death from disaster. Economic development provides implicit insurance against nature's shocks. Democracies and nations with higher-quality institutions suffer less death from natural disaster. Because climate change is expected to increase the frequency of natural disasters such as floods, these results have implications for the incidence of global warming.
950 citations
TL;DR: The authors argued that low import price pass-through means that nominal exchange rate fluctuations may lead to lower expenditure-switching effects of domestic monetary policy and as a consequence, monetary policy effectiveness is greater for stimulating the domestic economy.
Abstract: Though exchange rate pass-through has long been of interest, the focus of this interest has evolved considerably over time. After a long period of debate over the law of one price and convergence across countries, beginning in the late 1980s exchange rate pass-through studies emphasized industrial organization and the role of segmentation and price discrimination across geographically distinct product markets. More recently pass-through issues have played a central role in heated debates over appropriate monetary policies and exchange rate regime optimality in general equilibrium models. 1 These debates have broad implications for the conduct of monetary policy, for macroeconomic stability, for international transmission of shocks, and for efforts to contain large imbalances in trade and international capital flows. These debates hinge on the issue of the prevalence of producer-currency pricing (PCP) versus local-currency pricing (LCP) of imports, and on whether exchange rate pass-through rates are endogenous to a country’s monetary performance. Low import price pass-through means that nominal exchange rate fluctuations may lead to lower expenditure-switching effects of domestic monetary policy. As a consequence of this insulation, monetary policy effectiveness is greater for stimulating the domestic economy. Taylor (2000) also has noted the potential complementarity between monetary stability and monetary effectiveness as a policy instrument. The idea is that if pass-through rates are endogenous to a country’s relative monetary stability, periods of more stable inflation and monetary performance also will be periods when monetary policy may be more effective as a stabilization instrument. Concerns
870 citations
TL;DR: This paper studied the effect of trade on a country's environment, for a given level of GDP, using exogenous geographic determinants of trade as instrumental variables, and found that trade tends to reduce three measures of air pollution.
Abstract: We seek to contribute to the debate over globalization and the environment by asking: What is the effect of trade on a country's environment, for a given level of GDP? We take specific account of the endogeneity of trade, using exogenous geographic determinants of trade as instrumental variables. We find that trade tends to reduce three measures of air pollution. Statistical significance is high for concentrations of SO2, moderate for NO2, and lacking for particulate matter. Although results for other environmental measures are not as encouraging, there is little evidence that trade has a detrimental effect on the environment.
646 citations
TL;DR: This article found that intergenerational mobility is significantly lower for families with little or no wealth, offering empirical support for theoretical models that predict differences due to borrowing constraints, suggesting that the United States is substantially less mobile than previous research indicated.
Abstract: Previous studies, relying on short-term averages of fathers' earnings, have estimated the intergenerational elasticity (IGE) in earnings to be approximately 0.4. Due to persistent transitory fluctuations, these estimates have been biased down by approximately 30% or more. Using administrative data containing the earnings histories of parents and children, the IGE is estimated to be around 0.6. This suggests that the United States is substantially less mobile than previous research indicated. Estimates of intergenerational mobility are significantly lower for families with little or no wealth, offering empirical support for theoretical models that predict differences due to borrowing constraints.
598 citations
TL;DR: For example, the authors found higher rates of job-hopping for college-educated men in Silicon Valley's computer industry than in computer clusters located out of the state, suggesting some role for features of California law that make noncompete agreements unenforceable.
Abstract: Observers of Silicon Valley's computer cluster report that employees move rapidly between competing firms, but evidence supporting this claim is scarce. Job-hopping is important in computer clusters because it facilitates the reallocation of talent and resources toward firms with superior innovations. Using new data on labor mobility, we find higher rates of job-hopping for college-educated men in Silicon Valley's computer industry than in computer clusters located out of the state. Mobility rates in other California computer clusters are similar to Silicon Valley's, suggesting some role for features of California law that make noncompete agreements unenforceable. Consistent with our model of innovation, mobility rates outside computer industries are no higher in California than elsewhere.
498 citations
TL;DR: The extent to which growth reduces global poverty has been disputed for 30 years as discussed by the authors, and a major problem is that consumption measured from household surveys, which is used to measure poverty, grows less rapidly than consumption measured in national accounts, in the world as a whole and in large countries, particularly India, China and the United States.
Abstract: The extent to which growth reduces global poverty has been disputed for 30 years. Although there are better data than ever before, controversies are not resolved. A major problem is that consumption measured from household surveys, which is used to measure poverty, grows less rapidly than consumption measured in national accounts, in the world as a whole and in large countries, particularly India, China, and the United States. In consequence, measured poverty has fallen less rapidly than appears warranted by measured growth in poor countries. One plausible cause is that richer households are less likely to participate in surveys. But growth in the national accounts is also upward biased, and consumption in the national accounts contains large and rapidly growing items that are not consumed by the poor and not included in surveys. So it is possible for consumption of the poor to grow less rapidly than national consumption, without any increase in measured inequality. Current statistical procedures in poor ...
477 citations
TL;DR: Knowledge flows within and across countries may have important consequences for both productivity and innovation as discussed by the authors, using data on 1.5 million patents and 4.5 millions citations to estimate knowledge flow.
Abstract: Knowledge flows within and across countries may have important consequences for both productivity and innovation. We use data on 1.5 million patents and 4.5 million citations to estimate knowledge ...
466 citations
TL;DR: This article studied the coherence of international interest rates over more than 130 years and found that the constraints implied by the monetary policy trilemma are largely borne out by history, and that under the modern float there could be limited monetary autonomy; others, that even under the classical gold standard domestic monetary autonomy was considerable.
Abstract: The exchange-rate regime is often seen as constrained by the monetary policy trilemma, which imposes a stark tradeoff among exchange stability, monetary independence, and capital market openness. Yet the trilemma has not gone without challenge. Some argue that under the modern float there could be limited monetary autonomy; others, that even under the classical gold standard domestic monetary autonomy was considerable. This paper studies the coherence of international interest rates over more than 130 years. The constraints implied by the trilemma are largely borne out by history.
446 citations
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TL;DR: A gender impact evaluation study on the impact of the merit scholarship program on adolescent girls in Kenya on the student level is presented in this article, where the effect size was about 0.2 to 0.3 standard deviations.
Abstract: This brief summarizes the results of a gender impact evaluation study, entitled Incentives to learn, conducted between March 2001 and March 2002 school year in Kenya. The study observed the impact of merit scholarship program on adolescent girls in Kenya on the student level. Girls who were eligible for the scholarships had significantly higher test scores than comparison schoolgirls. The effect size was about 0.2 to 0.3 standard deviations. Teacher attendance also improved significantly in program schools. There were positive externalities on girls who started off with low baseline scores who had little chance of receiving the scholarship. There is evidence that the scholarship program did not reduce intrinsic motivation. Funding for the study derived from the World Bank and the MacArthur Foundation.
405 citations
TL;DR: The authors examined trade in intermediate inputs for further processing between parent firms and their foreign affiliates and found that demand for imported inputs is higher when affiliates face lower trade costs, lower wages for less-skilled labor, and lower corporate income tax rates.
Abstract: In recent decades, growth of world trade has been driven largely by rapid growth of trade in intermediate inputs. Much of input trade involves multinational firms locating input processing in their foreign affiliates, thereby creating global vertical production networks. We use firm-level data on U.S. multinationals to examine trade in intermediate inputs for further processing between parent firms and their foreign affiliates. Among our main findings are that demand for imported inputs is higher when affiliates face lower trade costs, lower wages for less-skilled labor, and lower corporate income tax rates.
380 citations
TL;DR: Impacts of childhood health on socioeconomic status (SES) outcomes observed during adulthood: levels and trajectories of education, family income, household wealth, individual earnings, and labor supply are examined.
Abstract: This paper examines impacts of childhood health on SES outcomes observed during adulthood-levels and trajectories of education, family income, household wealth, individual earnings and labor supply. The analysis is conducted using data that collects these SES measures in a panel who were originally children and who are now well into their adult years. Since all siblings are in the panel, one can control for unmeasured family and neighborhood background effects. With the exception of education, poor childhood health has a quantitatively large effect on all these outcomes. Moreover, these estimated effects are larger when unobserved family effects are controlled. (JEL codes; I10, J00).
TL;DR: In this paper, the authors examined the contributions of each of these avenues, as well as their interactions, to productivity within Chinese industry, based on a large data set for China's large and medium-size enterprises.
Abstract: In bridging the technology gap with the OECD nations, developing economies have access to three avenues of technological advance: domestic R&D, technology transfer, and foreign direct investment. This paper examines the contributions of each of these avenues, as well as their interactions, to productivity within Chinese industry. Based on a large data set for China's large and medium-size enterprises, the estimation results show that in-house R&D significantly complements technology transfer—whether of domestic or foreign origin. Foreign direct investment, which we assume is an important channel of proprietary technology transfer, does not facilitate the transfer of market-mediated foreign technology.
TL;DR: In this article, the authors assess the total factor productivity of 35,752 manufacturing establishments before and after management buyouts and find that MBO plants are less productive than comparable plants before the transfer of ownership, and experience a substantial increase in productivity after a buyout, which appears to be due to measures undertaken by new owners to reduce the labor intensity of production via outsourcing of intermediate goods and materials.
Abstract: We assess the total factor productivity of 35,752 manufacturing establishments before and after management buyouts (MBOs). MBO plants are less productive than comparable plants before the transfer of ownership. They experience a substantial increase in productivity after a buyout, which appears to be due to measures undertaken by new owners to reduce the labor intensity of production, via outsourcing of intermediate goods and materials. These findings, which are pervasive across industries, imply that MBOs reduce agency costs and enhance economic efficiency. Our evidence is consistent with Jovanovic and Rousseau (2002), who suggest that ownership changes shift resources to more efficient uses and to better managers.
TL;DR: The authors derived conditions under which a class of fixed-effects estimators consistently estimates the population-averaged slope coefficients in panel data models with individual-specific slopes, where the slopes are allowed to be correlated with the covariates.
Abstract: I derive conditions under which a class of fixed-effects estimators consistently estimates the population-averaged slope coefficients in panel data models with individual-specific slopes, where the slopes are allowed to be correlated with the covariates. In addition to including the usual fixed-effects estimator, the results apply to estimators that eliminate individual-specific trends. I apply the results, and propose alternative estimators, to estimation of average treatment in a class of nonlinear unobserved-effects models.
TL;DR: In this paper, a methodology for analyzing daily stock returns that relinquishes the assumption of global stationarity is presented, and the results show that most of the dynamics of this time series are concentrated in shifts of the unconditional variance.
Abstract: The paper outlines a methodology for analyzing daily stock returns that relinquishes the assumption of global stationarity. Giving up this common working hypothesis reflects our belief that fundamental features of the financial markets are continuously and significantly changing. Our approach approximates the nonstationary data locally by stationary models. The methodology is applied to the S&P 500 series of returns covering a period of over seventy years of market activity. We find most of the dynamics of this time series to be concentrated in shifts of the unconditional variance. The forecasts based on our nonstationary unconditional modeling were found to be superior to those obtained in a stationary long-memory framework and to those based on a stationary Garch(1, 1) data-generating process.
TL;DR: In this paper, the authors show that pollution abatement costs are a small component of total costs, and are unrelated to trade flows, and that those industries with the largest pollution costs also happen to be the least geographically mobile, or footloose.
Abstract: In numerous studies, economists have found little empirical evidence that environmental regulations affect trade flows. In this paper, we propose and test several common explanations for why the effect of environmental regulations on trade may be difficult to detect. We demonstrate that whereas most trade occurs among industrialized economies, environmental regulations have stronger effects on trade between industrialized and developing economies. We find that for most industries, pollution abatement costs are a small component of total costs, and are unrelated to trade flows. In addition, we show that those industries with the largest pollution abatement costs also happen to be the least geographically mobile, or footloose. After accounting for these distinctions, we measure a significant effect of pollution abatement costs on imports from developing countries, and in pollution-intensive, footloose industries.
TL;DR: In this article, the authors show that sellers are strongly rewarded for the first few reports that they have behaved honestly, but marginal returns to additional reports are severely decreasing, and that bidders give little or no reward to sellers who have better reputations.
Abstract: On the online auction site eBay, by convention, sellers do not ship goods to winning bidders until after they have received payment, so there is an opportunity for sellers to take advantage of bidders' trust. Realizing this, the designers of eBay created a system that relies on self-enforcement using reputation. Several recent studies have found that bidders give little or no reward to sellers who have better reputations. I show that in fact, sellers are strongly rewarded for the first few reports that they have behaved honestly, but marginal returns to additional reports are severely decreasing.
TL;DR: The authors studied the effect of nonmonetary incentives on soccer referees' behavior and found that referees systematically favor home teams by shortening close games where the home team is ahead and lengthening close games when the home side is behind.
Abstract: This paper is concerned with the effect of nonmonetary incentives on behavior, in particular with the study of social pressure as a determinant of corruption. We offer empirical evidence that shows how professional soccer referees favor home teams in order to satisfy the crowds in the stadium. Referees have discretion over the addition of extra time at the end of a soccer game to compensate for lost time due to unusual stoppages. We find that referees systematically favor home teams by shortening close games where the home team is ahead, and lengthening close games where the home team is behind. They show no such bias for games that are not close. We further find that when the rewards for winning games increase, referees change their bias accordingly. Lastly, we identify that the mechanism through which bias operates is to satisfy the crowd, by documenting how the size and composition of the crowd affect referee favoritism.
TL;DR: In this article, the authors study the determinants of average growth and its volatility as a two-equation system, and find that higher levels of democracy and diversification lower volatility, whereas volatility itself reduces growth.
Abstract: Growth stability is an important objective—because development requires sustained increases in income, because volatility is costly for the poor, and because volatility deters growth. We study the determinants of average growth and its volatility as a two-equation system, and find that higher levels of democracy and diversification lower volatility, whereas volatility itself reduces growth. Muslim countries instrument for democracy, and measures of diversification identify volatility. In contrast to the lack of consensus on the democracy—growth relationship, the democracy—stability link is robust. Rather than focus on growth, this paper forges an alternative link between democracy and development through the volatility channel.
TL;DR: This paper found that Wal-Mart entry increases retail employment by 100 jobs in the year of entry and half of this gain disappears over the next five years as other retail establishments exit and contract, leaving a long-run statistically significant net gain of 50 jobs.
Abstract: This paper estimates the effect of Wal-Mart expansion on retail employment at the county level. Using an instrumental variables approach to correct for both measurement error in entry dates and endogeneity of the timing of entry, I find that Wal-Mart entry increases retail employment by 100 jobs in the year of entry. Half of this gain disappears over the next five years as other retail establishments exit and contract, leaving a long-run statistically significant net gain of 50 jobs. Wholesale employment declines by approximately 20 jobs due to Wal-Mart's vertical integration. No spillover effect is detected in retail sectors in which Wal-Mart does not compete directly, suggesting Wal-Mart does not create agglomeration economies in retail trade at the county level.
TL;DR: In this paper, the effects of war on bilateral trade with available data extending back to 1870 were studied using the gravity model, and they found large and persistent impacts of wars on trade, national income, and global economic welfare.
Abstract: Conventional wisdom in economic history suggests that conflict between countries can be enormously disruptive of economic activity, especially international trade. We study the effects of war on bilateral trade with available data extending back to 1870. Using the gravity model, we estimate the contemporaneous and lagged effects of wars on the trade of belligerent nations and neutrals, controlling for other determinants of trade, as well as the possible effects of reverse causality. We find large and persistent impacts of wars on trade, national income, and global economic welfare. We also conduct a general equilibrium comparative statics exercise that indicates costs associated with lost trade might be at least as large as the conventionally measured direct costs of war, such as lost human capital, as illustrated by case studies of World Wars I and II.
TL;DR: In this article, a pronatalist transfer policy in the Canadian province of Quebec that paid up to C$8,000 to families having a child was investigated, finding a strong effect of the policy on fertility and some evidence of a heterogeneous response.
Abstract: This paper exploits the introduction of a pronatalist transfer policy in the Canadian province of Quebec that paid up to C$8,000 to families having a child. I implement a quasi-experimental strategy by forming treatment and control groups defined by time, jurisdiction, and family type. The incentive was available broadly, rather than to a narrow population as studied in previous work, providing an exceptional opportunity to investigate heterogeneous responses. I find a strong effect of the policy on fertility, and some evidence of a heterogeneous response that may help reconcile these results with previous estimates.
TL;DR: The authors analyzes the stability over time of the econometric process for euro-area inflation since 1970, focusing in particular on the behavior of the so-called persistence parameter (the sum of the coefficients on the lagged dependent variables).
Abstract: This paper analyzes the stability over time of the econometric process for euro-area inflation since 1970, focusing in particular on the behavior of the so-called persistence parameter (the sum of the coefficients on the lagged dependent variables). Perhaps surprisingly, in light of the Lucas critique, our principal finding is that there appears to be relatively little instability in the parameters of the euro-area inflation process. Full-sample estimates of the persistence parameter are generally close to 1, and we fail to reject the hypothesis that this parameter has been stable over time. We discuss how these results provide some indirect evidence against rational expectations models with strong forward-looking elements, such as the New Keynesian Phillips curve.
TL;DR: In this paper, the elasticity of affiliate wages to parent profits per worker is estimated to be approximately 0.03, which can explain over 20% of observed variation in affiliate wages.
Abstract: We use a unique firm-level panel of multinational parents and their foreign affiliates to analyze whether profits are shared across borders within multinational firms. Affiliate wages are estimated to respond to both affiliate and parent profitability. The elasticity of affiliate wages to parent profits per worker is approximately 0.03, which can explain over 20% of observed variation in affiliate wages. These results reveal a previously ignored aspect of rent sharing. They also reveal an important micro-level linkage with potential macro-level implications. International rent sharing can transmit economic conditions across countries, and can thereby provide an implicit risk-sharing mechanism.
TL;DR: The authors empirically investigated the behavior of mergers and acquisitions (M&A) both domestic and foreign, in East Asia during the crisis of 1997-1998 and found that M&A activity is consistent with the tightening of liquidity constraints for domestically owned firms.
Abstract: In this paper, we empirically investigate the behavior of mergers and acquisitions (M&A), both domestic and foreign, in East Asia during the crisis of 1997–1998. We find that M&A activity is consistent with the tightening of liquidity constraints for domestically owned firms. Specifically, nations suffering dramatic reversals in portfolio equity and debt flows simultaneously experience an increase in foreign acquisitions, particularly of liquidity-constrained
TL;DR: The authors examined the relationship between state populations of immigrant groups and the volume of state exports to the home country of the immigrant group and found that the network effects are greatest for newer immigrant groups.
Abstract: This study empirically investigates the structure of immigrant based networks, both internationally and intranationally within the United States and how they affect U.S. export volume. Specifically, we examine the relationship between state populations of immigrant groups and the volume of state exports to the home country of the immigrant group. We compare the estimated effects of local immigrant populations on state exports to the effects of out-of-state populations of the same immigrant group and find the former effect to be greater than the latter. In addition, we find that the network effects are greatest for newer immigrant groups.
TL;DR: In this paper, the authors estimate returns to human capital during communism and the transition using data on 2,284 men in the Czech Republic and show that extremely low and constant rates of return to education under the communist wage grid and dramatic increases in transition, which do not differ by firm ownership, radical changes in returns to several fields of study and “sheepskin effects” in both regimes, identical wage experience profile, and similar 1996 returns to the human capital obtained in communism and in transition.
Abstract: We estimate returns to human capital during communism and the transition using data on 2,284 men in the Czech Republic. We show: (a) extremely low and constant rates of return to education under the communist wage grid and dramatic increases in transition, which do not differ by firm ownership, (b) radical changes in returns to several fields of study and “sheepskin effects” in both regimes, (c) identical wage experience profile in both regimes, (d) similar 1996 returns to human capital obtained in communism and in transition, and (e) changes in the interindustry wage structure. A decomposition of the variance of wages finds individuals' unobservable effects from communism to persist into transition, but most of the variance is due to unobservable effects introduced in the transition.
TL;DR: A typical pattern for a new industry is to have an initial phase where a small number of firms each earn significant profits, followed by a phase in which rapid entry of new firms leads to increased competition and dissipation of some of those profits, often accompanied by a shakeout whereby only a few large firms remain this article.
Abstract: Both the economics literature and the business press suggest that a typical pattern for a “new” industry [or what Jovanovic and MacDonald (1994) call an invention ]i s to have an initial phase in which a small number of firms each earn significant profits, followed by a phase in which rapid entry of new firms leads to increased competition and dissipation of some of those profits, often accompanied by a shakeout, whereby only a few large firms remain (especially if subsequent innovations increase the optimal scale). Although this pattern seems to characterize many industries, the length of time during which early movers retain their profits, how prices adjust during the entry process, and the
TL;DR: This paper employed a matching and propensity score methodology to address this issue in a panel analysis of developing countries and found that, after controlling for sample selection bias, countries with liberalized capital accounts experience a lower likelihood of currency crises.
Abstract: Are countries with unregulated capital flows more vulnerable to currency crises? Efforts to answer this question properly must control for “self selection” bias since countries with liberalized capital accounts may also have more sound economic policies and institutions that make them less likely to experience crises. We employ a matching and propensity score methodology to address this issue in a panel analysis of developing countries. Our results suggest that, after controlling for sample selection bias, countries with liberalized capital accounts experience a lower likelihood of currency crises. That is, when two countries have the same likelihood of allowing free movement of capital (based on historical evidence and a very similar set of economic and political characteristics)—and one country imposes controls and the other does not-- the country without controls has a lower likelihood of experiencing a currency crisis. This result is at odds with the conventional wisdom and suggests that the benefits of capital market liberalization for external stability are substantial.
TL;DR: In this paper, the authors consider three views of the labor market and show that the behavior of flows in the labour market strongly favors the third view, i.e., wages are flexible and employment follows the principle of bilateral efficiency.
Abstract: I consider three views of the labor market. In the first, wages are flexible and employment follows the principle of bilateral efficiency. Workers never lose their jobs because of sticky wages. In the second, wages are sticky and inefficient layoffs do occur. In the third, wages are also sticky, but employment governance is efficient. I show that the behavior of flows in the labor market strongly favors the third view. In the modern U.S. economy, recessions do not begin with a burst of layoffs. Unemployment rises because jobs are hard to find, not because an unusual number of people are thrown into unemployment.