Showing papers in "The Review of Economics and Statistics in 2010"
TL;DR: In this article, the authors use policy discontinuities at state borders to identify the effects of minimum wages on earnings and employment in restaurants and other low-wage sectors, and show that traditional approaches that do not account for local economic conditions tend to produce spurious negative effects due to spatial heterogeneities in employment trends that are unrelated to minimum wage policies.
Abstract: We use policy discontinuities at state borders to identify the effects of minimum wages on earnings and employment in restaurants and other low-wage sectors. Our approach generalizes the case study method by considering all local differences in minimum wage policies between 1990 and 2006. We compare all contiguous county pairs in the United States that straddle a state border and find no adverse employment effects. We show that traditional approaches that do not account for local economic conditions tend to produce spurious negative effects due to spatial heterogeneities in employment trends that are unrelated to minimum wage policies. Our findings are robust to allowing for long-term effects of minimum wage changes.
610 citations
TL;DR: This article examined the case of Uganda, where rebel recruitment methods provided exogenous variation in conscription and found that schooling falls by nearly a year, skilled employment halves, and earnings drop by a third.
Abstract: Little is known about the impacts of military service on human capital and labor market outcomes due to an absence of data as well as sample selection: recruits are self-selected, screened, and selectively survive. We examine the case of Uganda, where rebel recruitment methods provide exogenous variation in conscription. Economic and educational impacts are widespread and persistent: schooling falls by nearly a year, skilled employment halves, and earnings drop by a third. Military service seems to be a poor substitute for schooling. Psychological distress is evident among those exposed to severe war violence and is not limited to ex-combatants.
485 citations
TL;DR: In this article, a new estimator of the number of factors in the approximate factor models is developed, which is based on the fact that any finite number of the largest idiosyncratic eigenvalues of the sample covariance matrix cluster around a single point.
Abstract: We develop a new estimator of the number of factors in the approximate factor models. The estimator works well even when the idiosyncratic terms are substantially correlated. It is based on the fact, established in the paper, that any finite number of the largest “idiosyncratic” eigenvalues of the sample covariance matrix cluster around a single point. In contrast, all the “systematic” eigenvalues, the number of which equals the number of factors, diverge to infinity. The estimator consistently separates the diverging eigenvalues from the cluster and counts the number of the separated eigenvalues. We consider a macroeconomic and a financial application.
470 citations
TL;DR: In this paper, the authors examined the role of migration networks in determining self-selection patterns of Mexico-U.S. migration and presented a simple theoretical framework showing how such networks impact on migration incentives at different education levels and consequently how they are likely to affect the expected skill composition of migration.
Abstract: The authors examine the role of migration networks in determining self-selection patterns of Mexico-U.S. migration. They first present a simple theoretical framework showing how such networks impact on migration incentives at different education levels and, consequently, how they are likely to affect the expected skill composition of migration. Using survey data from Mexico, the authors then show that the probability of migration is increasing with education in communities with low migrant networks, but decreasing with education in communities with high migrant networks. This is consistent with positive self-selection of migrants being driven by high migration costs, and with negative self-selection of migrants being driven by lower returns to education in the U.S. than in Mexico.
430 citations
TL;DR: This paper found that individuals who are more willing to take risks are more likely to migrate between labor markets in Germany, and this result is robust to stratifying by age, sex, education, national origin and a variety of other demographic characteristics, as well as to the level of aggregation used to define geographic mobility.
Abstract: Geographic mobility is important for the functioning of labor markets because it brings labor resources to where they can be most efficiently used. It has long been hypothesized that individuals' migration propensities depend on their attitudes towards risk, but the empirical evidence, to the extent that it exists, has been indirect. In this paper, we use newly available data from the German Socio-Economic Panel to measure directly the relationship between migration propensities and attitudes towards risk. We find that individuals who are more willing to take risks are more likely to migrate between labor markets in Germany. This result is robust to stratifying by age, sex, education, national origin, and a variety of other demographic characteristics, as well as to the level of aggregation used to define geographic mobility. The effect is substantial relative to the unconditional migration propensity and compared to the conventional determinants of migration. We also find that being more willing to take risks is more important for the extensive than for the intensive margin of migration.
388 citations
TL;DR: The authors applied a unified methodology to multiple data sets to estimate both the levels and trends in U.S. high school graduation rates and found that the true rate is substantially lower than widely used measures, and widening graduation differentials by gender help explain increasing male-female college attendance gaps.
Abstract: This paper applies a unified methodology to multiple data sets to estimate both the levels and trends in U.S. high school graduation rates. We establish that (a) the true rate is substantially lower than widely used measures, (b) it peaked in the early 1970s, (c) majority-minority differentials are substantial and have not converged for 35 years, (d) lower post-1970 rates are not solely due to increasing immigrant and minority populations, (e) our findings explain part of the slowdown in college attendance and rising college wage premiums, and (f) widening graduation differentials by gender help explain increasing male-female college attendance gaps.
342 citations
TL;DR: In this paper, the authors use a novel pricing model to imply time series of diffusive volatility and jump intensity from S&P 500 index options, which capture the ex ante risk assessed by investors.
Abstract: We use a novel pricing model to imply time series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex ante risk assessed by investors. Using a simple general equilibrium model, we translate the implied measures of ex ante risk into an ex ante risk premium. The average premium that compensates the investor for the ex ante risks is 70% higher than the premium for realized volatility. The equity premium implied from option prices is shown to significantly predict subsequent stock market returns.
335 citations
TL;DR: In the Chicago Public Schools, both the introduction of NCLB and similar district-level reforms in 1996 generated noteworthy increases in reading and math scores among students in the middle of the achievement distribution but not among the least academically advantaged students as mentioned in this paper.
Abstract: We show that within the Chicago Public Schools, both the introduction of NCLB in 2002 and the introduction of similar district-level reforms in 1996 generated noteworthy increases in reading and math scores among students in the middle of the achievement distribution but not among the least academically advantaged students. The stringency of proficiency requirements varied among the programs implemented for different grades in different years, and our results suggest that changes in proficiency requirements induce teachers to shift more attention to students who are near the current proficiency standard.
329 citations
TL;DR: In this article, the authors use a new approach for analyzing changes in the gender pay gap that uses direct measures of job tasks and give a comprehensive characterization of how work for men and women has changed in recent decades.
Abstract: The closing of the gender wage gap is an ongoing phenomenon in industrialized countries. However, research has been limited in its ability to understand the causes of these changes, due in part to an inability to directly compare the work of women to that of men. In this study, we use a new approach for analyzing changes in the gender pay gap that uses direct measures of job tasks and gives a comprehensive characterization of how work for men and women has changed in recent decades. Using data from West Germany, we find that women have witnessed relative increases in non-routine analytic tasks and non-routine interactive tasks, which are associated with higher skill levels. The most notable difference between the genders is, however, the pronounced relative decline in routine task inputs among women with little change for men. These relative task changes explain a substantial fraction of the closing of the gender wage gap. Our evidence suggests that these task changes are driven, at least in part, by technological change. We also show that these task changes are related to the recent polarization of employment between low and high skilled occupations that we observed in the 1990s.
321 citations
TL;DR: This paper examined the role of rainfall trends in poor growth performance of sub-Saharan African nations relative to other developing countries, using a new cross-country panel climatic data set in an empirical economic growth framework.
Abstract: We examine the role of rainfall trends in poor growth performance of sub-Saharan African nations relative to other developing countries, using a new cross-country panel climatic data set in an empirical economic growth framework. Our results show that rainfall has been a significant determinant of poor economic growth for African nations but not for other countries. Depending on the benchmark measure of potential rainfall, we estimate that the direct impact under the scenario of no decline in rainfall would have resulted in a reduction of between around 15% and 40% of today's gap in African GDP per capita relative to the rest of the developing world.
318 citations
TL;DR: The authors quantifies the relative importance of different channels of CPI responsiveness to exchange rates and import prices across 21 industrialized economies, concluding that the dominant channel for CPI sensitivity is through the costs arising from imported input use in goods production.
Abstract: This paper quantifies the relative importance of the different channels of CPI responsiveness to exchange rates and import prices across 21 industrialized economies. The paper provides new and rich cross-country and cross-industry details on the sensitivity to exchange rates of distribution margins; the extent of imported inputs use in different categories of consumption goods; and on their role in consumption of nontradables, home-produced tradables, and imported goods. The dominant channel for CPI sensitivity is through the costs arising from imported input use in goods production. This channel is more important than changes in prices of imported goods directly consumed.
TL;DR: In this paper, the authors compared economic outcomes across areas in India that were under direct British colonial rule with areas under indirect colonial rule and found that areas that experienced direct rule have significantly lower levels of access to schools, health centers, and roads in the postcolonial period.
Abstract: This paper compares economic outcomes across areas in India that were under direct British colonial rule with areas that were under indirect colonial rule. Controlling for selective annexation using a specific policy rule, I find that areas that experienced direct rule have significantly lower levels of access to schools, health centers, and roads in the postcolonial period. I find evidence that the quality of governance in the colonial period has a significant and persistent effect on postcolonial outcomes.
TL;DR: This article employed a unique data set and new time-series techniques to reexamine the existence of trends in relative primary commodity prices, spanning the seventeenth to the twenty-first centuries.
Abstract: We employ a unique data set and new time-series techniques to reexamine the existence of trends in relative primary commodity prices. The data set comprises 25 commodities and provides a new historical perspective, spanning the seventeenth to the twenty-first centuries. New tests for the trend function, robust to the order of integration of the series, are applied to the data. Results show that eleven price series present a significant and downward trend over all or some fraction of the sample period. In the very long run, a secular, deteriorating trend is a relevant phenomenon for a significant proportion of primary commodities. © 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.
TL;DR: The authors studied the impact of export demand shocks associated with the Asian financial crisis on Chinese exporters and found that firms whose export destinations experience greater currency depreciation have slower export growth and that export growth leads to increases in firm productivity and other firm performance measures.
Abstract: We ask how export demand shocks associated with the Asian financial crisis affected Chinese exporters. We construct firm-specific exchange rate shocks based on the precrisis destinations of firms' exports. Because the shocks were unanticipated and large, they are a plausible instrument for identifying the impact of exporting on firm productivity and other outcomes. We find that firms whose export destinations experience greater currency depreciation have slower export growth and that export growth leads to increases in firm productivity and other firm performance measures. Consistent with “learning-by-exporting,” the productivity impact of export growth is greater when firms export to more developed countries.
TL;DR: In this paper, the authors compare the asymptotic distributions of the two estimators and find that the commonly used TS2SLS estimator is more asypptotically efficient than the TSIV estimator.
Abstract: Following an influential article by Angrist and Krueger (1992) on two-sample instrumental variables (TSIV) estimation, numerous empirical researchers have applied a computationally convenient two-sample two-stage least squares (TS2SLS) variant of Angrist and Krueger's estimator. In the two-sample context, unlike the single-sample situation, the IV and 2SLS estimators are numerically distinct. We derive and compare the asymptotic distributions of the two estimators and find that the commonly used TS2SLS estimator is more asymptotically efficient than the TSIV estimator. We also resolve some confusion in the literature about how to estimate standard errors for the TS2SLS estimator.
TL;DR: The Linder hypothesis has attracted substantial empirical research over decades as mentioned in this paper, however, the evidence has failed to provide consistent support for it, and the authors of this paper explain the failure.
Abstract: The Linder hypothesis has attracted substantial empirical research over decades. However, the evidence has failed to provide consistent support for it. This paper explains the failure. Building a theoretical framework in which, as in Linder's theory, product quality plays the central role, I show that the Linder hypothesis is formally derived but holds only when formulated as a sector-level prediction. This prediction is then estimated using a sample of 64 countries in 1995. The results support the sectoral Linder hypothesis: controlling for the effect of intersectoral determinants of trade, countries of similar income per capita trade more intensely with one another.
TL;DR: This article studied the persistence of innovation and the dynamics of innovation output in Dutch manufacturing using firm data from three waves of the Community Innovation Surveys (CIS), pertaining to the periods 1994-1996, 1996-1998, and 1998-2000.
Abstract: This paper studies the persistence of innovation and the dynamics of innovation output in Dutch manufacturing using firm data from three waves of the Community Innovation Surveys (CIS), pertaining to the periods 1994-1996, 1996-1998, and 1998-2000. We estimate by maximum likelihood a dynamic panel data type 2 tobit model accounting for individual effects and handling the initial conditions problem. We find that there is no evidence of true persistence in achieving technological product or process innovations, while past shares of innovative sales condition, albeit to a small extent, current shares of innovative sales.
TL;DR: In this paper, the authors provide the first evidence on the patterns of multi-product firm production in a large developing country during a period (1989-2003) that spans large-scale trade and other market reforms.
Abstract: Recent theoretical work predicts that an important margin of adjustment to deregulation or trade reforms is the reallocation of output within firms through changes in their product mix. Empirical work has accordingly shifted its focus towards multi-product firms and their product mix decisions. Existing studies have however focused exclusively on the U.S. Using detailed firm-level data from India, we provide the first evidence on the patterns of multi-product firm production in a large developing country during a period (1989-2003) that spans large-scale trade and other market reforms. We find that in the cross-section, multi-product firms in India look remarkably similar to their U.S. counterparts, confirming the predictions of recent theoretical models. The time-series patterns however exhibit important differences. In contrast to evidence from the U.S., product churning – particularly product rationalization – is far less common in India. We thus find little evidence of “creative destruction”. We also find no link between declines in tariffs on final goods induced by Indian's 1991 trade reform and product dropping. The lack of product dropping is consistent with the role of industrial regulation in India, which, like in many other developing countries, may prevent an efficient allocation of resources.
TL;DR: In this paper, the authors examined land invasions in Brazil using a panel data set with over 50,000 municipality-year observations and found that adverse economic shocks, instrumented by rainfall, cause the rural poor to invade and occupy large landholdings.
Abstract: This study estimates the effect of economic conditions on redistributive conflict. We examine land invasions in Brazil using a panel data set with over 50,000 municipality-year observations. Adverse eco- nomic shocks, instrumented by rainfall, cause the rural poor to invade and occupy large landholdings. This effect exhibits substantial heterogeneity by land inequality and land tenure systems, but not by other observable variables. In highly unequal municipalities, negative income shocks cause twice as many land invasions as in municipalities with average land inequality. Cross-sectional estimates using fine within-region variation also suggest the importance of land inequality in explaining redistributive conflict. I. Introduction C ONFLICT over land is endemic to many rural econo- mies. In environments marked by a highly skewed distribution of property, incomplete land and credit markets, poorly or unevenly enforced property rights, and weak political institutions, agents often resort to extralegal means to improve their economic positions. The poor frequently invade private properties and occupy them until either forcibly expelled or granted official titles. Land conflict, which is prevalent in many countries such as Brazil, South Africa, Uganda, and Venezuela, may distort the allocation of resources in the agricultural sector away from productive uses and thereby contribute to the persistence of rural poverty. How do economic conditions affect this redistrib- utive conflict? This paper explores this question using a rich municipal- level data set of 5,299 land invasions from 1988 to 2004 in Brazil. We follow Miguel, Satyanath, and Sergenti (2004) by using rainfall as a source of exogenous variation to study the relationship between income and conflict, and we find that adverse economic shocks cause the rural poor to invade large landholdings. This effect exhibits considerable het- erogeneity by land inequality and land tenure systems. In highly unequal municipalities, negative income shocks cause twice as many land invasions as in municipalities with average land inequality. The effect of income shocks is even stronger in highly polarized municipalities, as measured by the degree of bimodality in the land distribution. Cross- sectional estimates using fine within-region variation also suggest the importance of land inequality in explaining redistributive conflict. We also find that income shocks cause significantly more land invasions in municipalities with a greater proportion of land under fixed-rent contracts. By contrast, we find no evidence of heterogeneity on a range of other political and socioeconomic variables, including political competition, sharecropping, police expenditures, and social welfare spending. Recent microeconometric studies have examined two
TL;DR: In this article, the authors developed a method to obtain smoothing of a stationary time series by using only contemporaneous values of a large data set, so that no end-of-sample deterioration occurs.
Abstract: Removal of short-run dynamics from a stationary time series to isolate the medium- to long-run component can be obtained by a bandpass filter. However, bandpass filters are infinite moving averages and can there- fore deteriorate at the end of the sample. This is a well-known result in the literature isolating the business cycle in integrated series. We show that the same problem arises with our application to stationary time series. In this paper, we develop a method to obtain smoothing of a stationary time series by using only contemporaneous values of a large data set, so that no end- of-sample deterioration occurs. Our method is applied to the construction of New Eurocoin, an indicator of economic activity for the euro area, which is an estimate, in real time, of the medium- to long-run component of GDP growth. As our data set is monthly and most of the series are updated with a short delay, we are able to produce a monthly real-time indicator. As an estimateofthemedium-tolong-runGDPgrowth,Eurocoinperformsbetter than the bandpass filter at the end of the sample in terms of both fitting and turning-point signaling.
TL;DR: This paper studied the effect of increased male incarceration on women through its effect on the marriage market and found that higher male imprisonment appears to have lowered the likelihood that women marry, modestly reduced the quality of their spouses when they do marry, and shifted the gains from marriage away from women and toward men.
Abstract: This paper studies how rising male incarceration has affected women through its effect on the marriage market. Variation in marriage-market shocks arising from incarceration is isolated using two facts: the tendency of people to marry within marriage markets defined by the interaction of race, location, and age and the fact that increases in incarceration have been very different across these three characteristics. Using a variety of estimation strategies, including difference and fixed effects models and TSLS models in which we use policy parameters to instrument for within-marriage market changes in incarceration, we find evidence that is, on the whole, consistent with the implications of the standard marriage-market model. In particular, higher male imprisonment appears to have lowered the likelihood that women marry, modestly reduced the quality of their spouses when they do marry, and shifted the gains from marriage away from women and toward men. The evidence suggests that women in affected...
TL;DR: This paper found that the age at which noted innovations are produced has increased by approximately 6 years over the 20th century, which is consistent with a shift in the life-cycle productivity of great minds.
Abstract: Great achievements in knowledge are produced by older innovators today than they were a century ago. Using data on Nobel Prize winners and great inventors, I find that the age at which noted innovations are produced has increased by approximately 6 years over the 20th Century. This trend is consistent with a shift in the life-cycle productivity of great minds. It is also consistent with an aging workforce. The paper employs a semi-parametric maximum likelihood model to (1) test between these competing explanations and (2) locate any specifi cs hifts in life-cycle productivity. The productivity explanation receives considerable support. I find that innovators are much less productive at younger ages, beginning to produce major ideas 8 years later at the end of the 20th Century than they did at the beginning. Furthermore, the later start to the career is not compensated for by increasing productivity beyond early middle age. I show that these distinct shifts for knowledge-based careers are consistent with a knowledgebased theory, where the accumulation of knowledge across generations leads innovators to seek more education over time. More generally, the results show that individual innovators are productive over a narrowing span of their life cycle, a trend that reduces — other things equal — the aggregate output of innovators. This drop in productivity is particularly acute if innovators’ raw ability is greatest when young.
TL;DR: The authors quantifies how adjuncts affect subsequent student interest and course performance relative to full-time faculty using an instrumental variable strategy that exploits variation in the composition of a department's faculty over time.
Abstract: Higher education has increasingly relied on part-time, adjunct instructors. Critics argue that adjuncts reduce educational quality because they often have less education than full-time professors. On the other hand, by specializing in teaching or being concurrently employed, adjuncts could enhance learning experiences. This paper quantifies how adjuncts affect subsequent student interest and course performance relative to full-time faculty using an instrumental variable strategy that exploits variation in the composition of a department's faculty over time. The results suggest that adjuncts often have a small, positive effect on enrollment patterns, especially in fields related to particular occupations.
TL;DR: In this article, the authors examine how foreign presence affects the growth and survival of domestic firms and analyze whether the crowding out effect is dynamic, that is, domestic firms cut production over time as foreign firms grow, or a static effect realized on foreign entry into the industry.
Abstract: I examine how foreign presence affects the growth and survival of domestic firms. Separating a negative crowding out and positive technology spillovers, I analyze whether the crowding out effect is dynamic, that is, domestic firms cut production over time as foreign firms grow, or a static effect realized on foreign entry into the industry. Using 1994–2001 firm-level Czech data, I find evidence of both technology spillovers and crowding out. However, crowding out is only short term; after initial entry shakeout, growing foreign sales increase domestic firm growth and survival, indicating domestic demand creation effect. However, I find no such benefits from domestic competition.
TL;DR: In this paper, the authors consider the effect of geography on wages using individual data from 56 Chinese cities and find that a significant fraction of the interindividual differences in returns to labor can be explained by the geography of market access.
Abstract: We consider the effect of geography on wages using individual data from 56 Chinese cities. We present a simple new economic geography model that links wages to individual characteristics and market access. The latter is calculated as a transport cost weighted sum of surrounding locations' market capacity. After controlling for individual skills and local factor endowments, we find that a significant fraction of the interindividual differences in returns to labor can be explained by the geography of market access. We further find greater wage sensitivity to market access for highly skilled workers and for workers in private and, particularly, foreign-owned firms.
TL;DR: This paper found that opening up to the international market led to net capital movements and higher investment in the first era of financial globalization (1880-1914) but it no longer does so today.
Abstract: Does international financial integration boost economic growth? The empirical literature has not yet established a robust link between openness to the international capital market and economic growth. In this paper, we turn to the economic history of the first era of financial globalization (1880–1914) for new insights. Using identical empirical models and techniques as contemporary studies, we find a significant growth effect in the historical period. A key difference between now and then is that opening up to the international market led to net capital movements and higher investment in the historical period, but it no longer does so today.
TL;DR: This paper showed that having a daughter makes people more likely to vote for left-wing political parties than having a son, and that having sons leads people to favor right-wing parties.
Abstract: What determines human beings' political preferences? Using nationally representative longitudinal data, we show that having daughters makes people more likely to vote for left-wing political parties. Having sons leads people to favor right-wing parties. The paper checks that our result is not an artifact of family stopping rules, discusses the predictions from a simple economic model, and tests for possible reverse causality.
TL;DR: In this article, the authors analyzed the impact of corruption on bilateral trade, highlighting its dual role in terms of extortion and evasion, and derived and estimated a corruption-augmented gravity model, where they showed that corruption taxes trade in the majority of cases, but in high-tariff environments, their marginal effect is trade enhancing.
Abstract: We analyze the impact of corruption on bilateral trade, highlighting its dual role in terms of extortion and evasion. Corruption taxes trade, when corrupt customs officials in the importing country extort bribes from exporters (extortion effect); however, with high tariffs, corruption may be trade enhancing when corrupt officials allow exporters to evade tariff barriers (evasion effect). We derive and estimate a corruption-augmented gravity model, where the effect of corruption on trade flows is ambiguous and contingent on tariffs. Empirically, corruption taxes trade in the majority of cases, but in high-tariff environments (covering 5% to 14% of the observations) their marginal effect is trade enhancing.
TL;DR: In this article, the authors study the strategic choice of effort in best-of-three tennis matches between equally skilled players and find that players strategically adjust their efforts during a best of three tennis match.
Abstract: We study strategic choice of effort in best-of-three contests between equally skilled players. Economic theory predicts such contests are more likely to end in two rounds than in three. If, however, a contest reaches a third round, each player is equally likely to win. We test these predictions with data from professional tennis matches, using betting odds to identify equally skilled opponents. The empirical results support the theoretical predictions, suggesting players strategically adjust efforts during a best-of-three contest.
TL;DR: This paper found that those born in affected regions were about 1.8 millimeters shorter than others at age 20, a significant effect since average heights grew by only 2 centimeters in the entire nineteenth century.
Abstract: Between 1863 and 1890, phylloxera destroyed 40% of French vineyards. Using the regional variation in the timing of this shock, we identify and examine the effects on adult height, health, and life expectancy of children born in the years and regions affected by the phylloxera. The shock decreased long-run height, but it did not affect other dimensions of health, including life expectancy. We find that those born in affected regions were about 1.8 millimeters shorter than others at age 20, a significant effect since average heights grew by only 2 centimeters in the entire nineteenth century.