Showing papers in "The Review of Economics and Statistics in 2008"
TL;DR: In this article, the authors investigate inference using cluster bootstrap-t procedures that provide asymptotic refinement, including the example of Bertrand, Duflo, and Mullainathan.
Abstract: Researchers have increasingly realized the need to account for within-group dependence in estimating standard errors of regression parameter estimates. The usual solution is to calculate cluster-robust standard errors that permit heteroskedasticity and within-cluster error correlation, but presume that the number of clusters is large. Standard asymptotic tests can over-reject, however, with few (five to thirty) clusters. We investigate inference using cluster bootstrap-t procedures that provide asymptotic refinement. These procedures are evaluated using Monte Carlos, including the example of Bertrand, Duflo, and Mullainathan (2004). Rejection rates of 10% using standard methods can be reduced to the nominal size of 5% using our methods.
2,529 citations
TL;DR: This paper found that the slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequality and lower-tail inequality, even adjusting for changes in labor force composition.
Abstract: A recent “revisionist” literature characterizes the pronounced rise in U.S. wage inequality since 1980 as an “episodic” event of the first half of the 1980s driven by nonmarket factors (particularly a falling real minimum wage) and concludes that continued increases in wage inequality since the late 1980s substantially reflect the mechanical confounding effects of changes in labor force composition. Analyzing data from the Current Population Survey for 1963 to 2005, we find limited support for these claims. The slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequality—which has increased steadily since 1980, even adjusting for changes in labor force composition—and lower-tail (50/10) inequality, which rose sharply in the first half of the 1980s and plateaued or contracted thereafter. Fluctuations in the real minimum wage are not a plausible explanation for these trends since the bulk of inequality growth occurs above the median ...
2,095 citations
TL;DR: This paper examined the empirical role of difierent explanations for the lack of flow of capital from rich to poor countries, including differences in fundamentals across countries and capital market imperfections, and showed that during 1970-2000 low institutional quality is the leading explanation.
Abstract: We examine the empirical role of difierent explanations for the lack of ∞ows of capital from rich to poor countries|the \Lucas Paradox." The theoretical explanations include difierences in fundamentals across countries and capital market imperfections. We show that during 1970i2000 low institutional quality is the leading explanation. For example, improving Peru’s institutional quality to Australia’s level, implies a quadrupling of foreign investment. Recent studies emphasize the role of institutions for achieving higher levels of income, but remain silent on the speciflc mechanisms. Our results indicate that foreign investment might be a channel through which institutions afiect long-run development.
969 citations
TL;DR: The authors examined 1,467 distance effects estimated in 103 papers and found that the estimated negative impact of distance on trade rose around the middle of the century and has remained persistently high since then.
Abstract: One of the best-established empirical results in international economics is that bilateral trade decreases with distance. Although well known, this result has not been systematically analyzed before. We examine 1,467 distance effects estimated in 103 papers. Information collected on each estimate allows us to test hypotheses about the causes of variation in the estimates. Our most interesting finding is that the estimated negative impact of distance on trade rose around the middle of the century and has remained persistently high since then. This result holds even after controlling for many important differences in samples and methods.
875 citations
TL;DR: This article examined the effects of aid on growth in cross-sectional and panel data, after correcting for the possible bias that poorer (or stronger) growth may draw aid contributions to recipient co
Abstract: We examine the effects of aid on growth in cross-sectional and panel data—after correcting for the possible bias that poorer (or stronger) growth may draw aid contributions to recipient co
833 citations
TL;DR: In this article, a new measure of exogenous oil supply shocks is proposed, and it is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed to exogenous production disruptions.
Abstract: The paper proposes a new measure of exogenous oil supply shocks. The timing, the magnitude, and the sign of this measure may differ greatly from current state-of-the-art estimates. It is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed to exogenous oil production disruptions. Exogenous oil supply shocks cause a sharp drop of U.S. real GDP growth after five quarters rather than an immediate and sustained reduction in economic growth and a spike in CPI inflation after three quarters. Overall, exogenous oil supply shocks made remarkably little difference for the evolution of the U.S. economy since the 1970s, although they did matter for some historical episodes.
618 citations
TL;DR: This paper found that homes owned by real estate agents sell for 3.7% more than other houses and stay on the market 9.5 days longer than other homes, controlling for observables.
Abstract: Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real estate agents have an incentive to convince clients to sell their houses too cheaply and too quickly. We test these predictions by comparing home sales in which real estate agents are hired to when an agent sells his own home. Consistent with the theory, we find homes owned by real estate agents sell for 3.7% more than other houses and stay on the market 9.5 days longer, controlling for observables. Greater information asymmetry leads to larger distortions.
404 citations
TL;DR: The authors explored the role of U.S. ethnic scientific and entrepreneurial communities for international technology transfer to their home countries and quantified the responses by develop- ment stages in home countries, finding that knowledge diffuses through ethnic networks and manufacturing output in foreign countries increases with an elasticity of 0.1-0.3.
Abstract: This study explores the role of U.S. ethnic scientific and entrepreneurial communities for international technology transfer to their home countries. U.S. ethnic researchers are quantified through an ethnic- name database and individual patent records. International patent citations confirm knowledge diffuses through ethnic networks, and manufacturing output in foreign countries increases with an elasticity of 0.1-0.3 to stronger scientific integration with the U.S. frontier. Specifications ex- ploiting exogenous changes in U.S. immigration quotas address reverse- causality concerns. Exercises further differentiate responses by develop- ment stages in home countries. Ethnic technology transfers are particularly strong in high-tech industries and among Chinese economies. I. Introduction T HE adoption of new technologies and innovations is a primary engine for economic growth, improving worker productivity and spurring higher standards of living. Invention, however, is concentrated in advanced economies. OECD countries account for 83% of the world's R&D expenditure and 98% of its patenting (OECD, 2004). Even within the OECD, a disproportionate share of R&D is undertaken in the United States. Diffusion of new innova- tions from technologically leading nations to following economies is thus necessary for the economic development of poorer regions and the achievement of global prosperity. Economic models often describe a worldwide technology frontier, where new ideas and innovations travel quickly to all countries. 1 Rapid diffusion may be a good approximation for industrialized economies, but many advances are either not available or not adopted in poorer countries. Case studies in the business sociology and economic history literatures suggest this poor adoption may result from inad- equate access to the informal or practical knowledge that complements the codified details of new innovations. Be it between two people or two countries, knowledge transfer is much more complicated than sharing blueprints, process designs, or journal articles. Intellectual spillovers are often thought to be important for the formation of cities and high-tech clusters, and perhaps heterogeneous access to the codified and tacit knowledge associated with new innova- tions shapes the effective technology sets of following countries. 2
389 citations
TL;DR: This paper found that by increasing trade, the highways raised the relative demand for skilled manufacturing workers in counties with a high endowment of human capital and reduced it elsewhere, consistent with the predictions of the Heckscher-Ohlin model.
Abstract: Since changes in trade openness are typically confounded with other factors, it has been difficult to identify the labor market consequences of increased international trade. The advent of the United States Interstate Highway System provides a unique policy experiment, which I use to identify the effect of reducing trade barriers on the relative demand for skilled labor. The Interstate Highway System was designed to connect major metropolitan areas, to serve national defense and to connect the United States to Canada and Mexico. As a consequence–though not an objective–many rural counties were also connected to the highway system. I find that these counties experienced an increase in trade-related activities, such as trucking and retail sales, by 7-10 percentage points per capita. Most significantly, by increasing trade the highways raised the relative demand for skilled manufacturing workers in counties with a high endowment of human capital and reduced it elsewhere, consistent with the predictions of the Heckscher-Ohlin model.
372 citations
TL;DR: The authors investigates the remarkable extremes of growth experiences within countries and the changes that occur across growth transitions and finds that virtually all but the very richest countries experience both growth miracles and failures over substantial periods.
Abstract: This paper investigates the remarkable extremes of growth experiences within countries and the changes that occur across growth transitions. We find two main results. First, virtually all but the very richest countries experience both growth miracles and failures over substantial periods. Second, growth accelerations and collapses are asymmetric phenomena. Collapses typically feature reduced investment amidst increasing price instability, whereas growth takeoffs are primarily associated with large expansions in international trade. The results show that even very poor countries regularly grow rapidly, but sustaining growth is difficult and may pose a very different set of challenges than starting it.
353 citations
TL;DR: This article developed dynamic binary probit models and applied them for predicting U.S. recessions using the interest rate spread as the driving predictor, using lags of the binary response (a recession dummy) to forecast its future values.
Abstract: We develop dynamic binary probit models and apply them for predicting U.S. recessions using the interest rate spread as the driving predictor. The new models use lags of the binary response (a recession dummy) to forecast its future values and allow for the potential forecast power of lags of the underlying conditional probability. We show how multiperiod-ahead forecasts are computed iteratively using the same one-period-ahead model. Iterated forecasts that apply specific lags supported by statistical model selection procedures turn out to be more accurate than previously used direct forecasts based on horizon-specific model specifications.
TL;DR: In this paper, the authors provide a systematic analysis of the bilateral factors driving portfolio equity holdings across countries and find that bilateral equity holdings are strongly correlated with bilateral trade in goods and services.
Abstract: We provide a systematic analysis of the bilateral factors driving portfolio equity holdings across countries. We find that bilateral equity holdings are strongly correlated with bilateral trade in goods and services. Larger bilateral positions are also associated with proxies for informational proximity.
TL;DR: In this article, a nonparametric alternative to the Blinder-Oaxaca decomposition does not require the estimation of earnings equations and divides the gap into four additive elements, two analogous to the elements of the BO decomposition, while the other two account for differences in the supports.
Abstract: This paper presents a methodology that uses matching comparisons to explain gender wage differences. The approach emphasizes gender differences in the supports of the distributions of observable characteristics and provides insights into the distribution of unexplained gender pay differences. This nonparametric alternative to the Blinder-Oaxaca (BO) decomposition does not require the estimation of earnings equations and divides the gap into four additive elements. Two of these are analogous to the elements of the BO decomposition (but computed only over the common support of the distributions of characteristics), while the other two account for differences in the supports.
TL;DR: In this article, the authors estimate the impact of compulsory schooling on earnings using changes in compulsory schooling laws in West Germany after World War II and find no evidence that this is due to labor market institutions or the apprenticeship training system in Germany.
Abstract: We estimate the impact of compulsory schooling on earnings using changes in compulsory schooling laws in West Germany after World War II. Most estimates in the literature indicate returns in the range of 10% to 15%. While our research design is very similar to studies for various other countries, we find a zero return. We find no evidence that this is due to labor market institutions or the apprenticeship training system in Germany. The result might be due to the fact that the basic skills most relevant for the labor market are learned earlier in Germany than in other countries.
TL;DR: In this paper, the authors study the economic and social consequences of a major exogenous shift in the production of one such resource, coca paste, into Colombia, where most coca leaf is now harvested.
Abstract: Natural and agricultural resources for which there is a substantial black market, such as coca, opium, and diamonds, appear especially likely to be exploited by the parties to a civil conflict. Even legally traded commodities such as oil and timber have been linked to civil war. On the other hand, these resources may also provide one of the few reliable sources of income in the countryside. In this paper, we study the economic and social consequences of a major exogenous shift in the production of one such resource – coca paste – into Colombia, where most coca leaf is now harvested. Our analysis shows that this shift generated only modest economic gains in rural areas, primarily in the form of increased selfemployment earnings and increased labor supply by teenage boys. The results also suggest that the rural areas which saw accelerated coca production subsequently became more violent, while urban areas were affected little. The acceleration in violence is greater in departments (provinces) where there was a pre-coca guerilla presence. Taken together, these findings are consistent with the view that the Colombian civil conflict is fueled by the financial opportunities that coca provides, and that the consequent rent-seeking activity by combatants limits the economic gains from coca cultivation.
TL;DR: This article used a novel, age-dependent fatal risk measure to estimate age-specific hedonic wage regressions and found that workers' VSL exhibits an inverted-U-shaped relationship with age.
Abstract: To resolve the theoretical ambiguity in the effect of age on the value of statistical life (VSL), this article uses a novel, age-dependent fatal risk measure to estimate age-specific hedonic wage regressions. VSL exhibits an inverted-U-shaped relationship with age. In the year 2000 cross section, workers' VSL rises from $3.7 million (ages 18–24) to $9.7 million (35–44), and declines to $3.4 million (55–62). Controlling for birth-year cohort effects in a minimum distance estimator yields a peak VSL of $7.8 million at age 46, and flattens the age-VSL relationship. The value of statistical life-year also follows an inverted-U shape with age.
TL;DR: In this article, the authors argue that RTP will reduce the variance, both within-and across-days, in the quantity of electricity demanded, and estimate the short-run impacts of this reduction on SO 2, NO x, and CO 2 emissions.
Abstract: Real-time pricing (RTP) of electricity would improve allocative efficiency and limit wholesalers’ market power. Conventional wisdom claims that RTP provides additional environmental benefits. This paper argues that RTP will reduce the variance, both within- and across-days, in the quantity of electricity demanded. We estimate the short-run impacts of this reduction on SO 2 , NO x , and CO 2 emissions. Reducing variance decreases emissions in regions where peak demand is met more by oil-fired capacity than by hydropower, such as the Mid-Atlantic. However, reducing variance increases emissions in more U.S. regions, namely those with more hydropower like the West. The effects are relatively small.
TL;DR: In this paper, the authors developed two nonparametric tests of treatment effect heterogeneity, one for the null hypothesis that the treatment has a zero average effect for all subpopulations defined by covariates, and the second test for the average effect conditional on the covariates is identical for all subsets.
Abstract: In this paper we develop two nonparametric tests of treatment effect heterogeneity. The first test is for the null hypothesis that the treatment has a zero average effect for all subpopulations defined by covariates. The second test is for the null hypothesis that the average effect conditional on the covariates is identical for all subpopulations, that is, that there is no heterogeneity in average treatment effects by covariates. We derive tests that are straightforward to implement and illustrate the use of these tests on data from two sets of experimental evaluations of the effects of welfare-to-work programs.
TL;DR: This article studied the evolution of income concentration in Japan from 1886 to 2005 by constructing long-run series of top income shares and top wage income shares, using income tax statistics, and found that income concentration was extremely high throughout the pre-WWII period during which the nation underwent rapid industrialization.
Abstract: This paper studies the evolution of income concentration in Japan from 1886 to 2005 by constructing long-run series of top income shares and top wage income shares, using income tax statistics. We find that (i) income concentration was extremely high throughout the pre-WWII period during which the nation underwent rapid industrialization; (ii) a drastic de-concentration of income at the top took place in 1938–1945; (iii) income concentration remained low during the rest of the century but shows some sign of increase in the last decade; and (iv) top income composition in Japan has shifted dramatically from capital income to employment income over the course of the twentieth century. We attribute the precipitous fall in income concentration during WWII primarily to the collapse of capital income due to wartime regulations and inflation. We argue that the change in the institutional structure under the occupational reforms made the one-time income de-concentration difficult to reverse. In contrast t...
TL;DR: In this paper, the authors provide an answer to an important empirical puzzle in the retirement literature: while most people know little about their own pension plans, retirement behavior is strongly affected by pension incentives.
Abstract: This paper provides an answer to an important empirical puzzle in the retirement literature: while most people know little about their own pension plans, retirement behavior is strongly affected by pension incentives. We combine administrative and self-reported pension data to measure the retirement response to actual and perceived financial incentives and document an important role for self-reported pension data in determining retirement behavior. Well-informed individuals are far more responsive to pension incentives than the average individual. Ill-informed individuals seem to respond systematically to their own misperceptions of pension incentives.
TL;DR: This paper found that there is considerable segregation by race, ethnicity, education, and language in the workplace and that the role of education-related skill differentials in generating workplace segregation was examined.
Abstract: We study workplace segregation in the United States using a unique matched employer-employee data set that we have created. We present measures of workplace segregation by education and language, and by race and ethnicity, and we assess the role of education- and language-related skill differentials in generating workplace segregation by race and (Hispanic) ethnicity. Our results indicate that there is considerable segregation by race, ethnicity, education, and language in the workplace. Only a tiny portion of racial segregation in the workplace is driven by education differences between blacks and whites, but a substantial fraction of ethnic segregation in the workplace can be attributed to differences in English-language proficiency. Finally, additional evidence suggests that segregation by language likely reflects complementarity among workers speaking the same language.
TL;DR: In this article, the authors analyzed the automobile purchase behavior of all residents of two Finnish provinces over several years and found that the purchases of neighbors, particularly in the recent past and by those who are geographically most proximate, influence a consumer's purchases of automobiles.
Abstract: This study analyzes the automobile purchase behavior of all residents of two Finnish provinces over several years. Using a comprehensive data set with location coordinates at the individual consumer level, it finds that the purchases of neighbors, particularly in the recent past and by those who are geographically most proximate, influence a consumer's purchases of automobiles. There is little evidence that emotional biases, like envy, account for the observed social influence on consumption.
TL;DR: The authors examined the residential integration of the foreign born in the United States between 1910 and 2000 and found that recent immigrants tend to hail from countries with greater cultural distinctions from U.S. natives, whether economic, racial or linguistic.
Abstract: This paper uses decennial Census data to examine the residential integration of the foreign born in the United States between 1910 and 2000. Immigrant segregation declined in the first part of the century, but has been rising over the past few decades. Recent immigrants tend to hail from countries with greater cultural distinctions from U.S. natives, whether economic, racial, or linguistic. These factors explain much of the increase in segregation after 1970. Evidence also points to changes in urban form, particularly native-driven suburbanization and the decline of public transit as a transportation mode, as an explanation for the new immigrant segregation.
TL;DR: In this article, the authors investigated whether government support can act to increase exporting activity and found that if grants are large enough, they can encourage already exporting firms to compete more effectively on the international market.
Abstract: This paper investigates whether government support can act to increase exporting activity. We use a uniquely rich data set on Irish manufacturing plants and employ an empirical strategy that combines a nonparametric matching procedure with a difference-in-differences estimator in order to deal with the potential selection problem inherent in the analysis. Our results suggest that if grants are large enough, they can encourage already exporting firms to compete more effectively on the international market. However, there is little evidence that grants encourage nonexporters to start exporting.
TL;DR: In this article, the authors examined the consumption reaction to predictable increases in discretionary income following the final payment of a vehicle loan and found that a 10% increase in discretionary incomes due to a loan repayment leads to a 2% to 3% increase of non-durable consumption.
Abstract: Although the life cycle/permanent income hypothesis is the primary framework for understanding household consumption and savings decisions, only a few studies have used clearly identifiable income changes to test the basic predictions of the model. The estimates produced using this empirical strategy have yet to lead to a consensus of beliefs since the results have both favored and rejected the model. This paper contributes to this literature by examining the consumption reaction to predictable increases in discretionary income following the final payment of a vehicle loan. Using data from the Consumer Expenditure Survey, the results show that a 10% increase in discretionary income due to a loan repayment leads to a 2% to 3% increase in nondurable consumption. Additional analysis suggests that these findings may be explained by the presence of borrowing constraints.
TL;DR: In this article, the authors investigate the impact of institutions on financial development by analyzing the financial behavior of immigrants in the United States and find that immigrants from countries with institutions that more effectively protect private property are more likely to own stock in United States.
Abstract: We investigate the impact of institutions on financial development by analyzing the financial behavior of immigrants in the United States. We find that immigrants from countries with institutions that more effectively protect private property are more likely to own stock in the United States. The effect of home-country institutions is persistent and absorbed early in life. The impact of institutions is amplified for immigrants who live in metropolitan areas with many other immigrants from the same country. These findings are robust to alternative measures of institutional effectiveness and to various methods of controlling for unobserved individual characteristics, including specifications with country fixed effects.
TL;DR: In this article, the authors model merger waves as reallocation waves, and argue that mergers spread new technology in a way that is similar to that of entry and exit of firms.
Abstract: We model merger waves as reallocation waves, and argue that mergers spread new technology in a way that is similar to that of entry and exit of firms. We focus on two periods: 1890-1930 during which electricity and the internal combustion engine spread through the U.S. economy, and 1970-2000 — the Information Age. The model’s main implication — that exits should lead mergers — is supported by data from both epochs.
TL;DR: This article developed an alternative method that accounts for these constraints and applied it to the Pennsylvania, New Jersey, and Maryland market, finding that actual costs were only between 3% and 8% above the competitive levels.
Abstract: Restructuring electricity markets has enabled wholesalers to exercise market power. Using a common method to measure competition, several studies have found substantial inefficiencies. This method overstates actual welfare loss by ignoring production constraints that result in non-convex costs. I develop an alternative method that accounts for these constraints and apply it to the Pennsylvania, New Jersey, and Maryland market. For the summer following restructuring, the common method implies that market imperfections resulted in considerable welfare loss, with actual production costs exceeding the competitive model's estimates by 13%–21%. In contrast, my method finds that actual costs were only between 3% and 8% above the competitive levels.
TL;DR: In this paper, the authors examined the effect of corruption on foreign direct investment (FDI) and showed that corruption can have different effects on horizontal investments, which are primarily aimed at sales to the local market, compared with vertical investments which are made to access lower factor costs for export sales.
Abstract: We examine the effect of corruption on foreign direct investment (FDI). Starting out from the theory of FDI, we show that corruption can have different effects on horizontal investments, which are primarily aimed at sales to the local market, compared with vertical investments, which are made to access lower factor costs for export sales. Using Swedish firm-level data, we find that corruption reduces the probability that a firm will invest in a country. Moreover, when studying the different types of investments, we find that horizontal investments, measured by affiliate local sales, are deterred by corruption to a larger extent than are vertical investments. We are also able to establish a causal effect of corruption on FDI.
TL;DR: This article found that firms holding more dollar debt do not invest less than their peso-indebted counterparts following a depreciation and that these firms match the currency denomination of their liabilities with the exchange rate sensitivity of their profits.
Abstract: Emerging markets firms often carry foreign-currency debt on their balance sheets. Following a depreciation, the expanding “peso” value of “dollar” liabilities could, via a net-worth effect, offset the expansionary competitiveness effect. To assess which effect dominates, we use accounting data (including the currency composition of liabilities) for 450+ nonfinancial firms in five Latin American countries in the 1990s. We find that firms holding more dollar debt do not invest less than their peso-indebted counterparts following a depreciation. We also show that these firms match the currency denomination of their liabilities with the exchange rate sensitivity of their profits.