Showing papers in "The Review of Economics and Statistics in 2011"

Trade Liberalization and Firm Productivity: The Case of India

Abstract: This paper exploits India's rapid, comprehensive, and externally imposed trade reform to establish a causal link between changes in tariffs and firm productivity. Pro-competitive forces, resulting from lower tariffs on final goods, as well as access to better inputs, due to lower input tariffs, both appear to have increased firm-level productivity, with input tariffs having a larger impact. The effect was strongest in import-competing industries and industries not subject to excessive domestic regulation. While we find no evidence of a differential impact according to state-level characteristics, we observe complementarities between trade liberalization and additional industrial policy reforms.

Inference with “Difference in Differences” with a Small Number of Policy Changes

Abstract: In difference-in-differences applications, identification of the key parameter often arises from changes in policy by a small number of groups. In contrast, typical inference assumes that the number of groups changing policy is large. We present an alternative inference approach for a small (finite) number of policy changers, using information from a large sample of nonchanging groups. Treatment effect point estimators are not consistent, but we can consistently estimate their asymptotic distribution under any point null hypothesis about the treatment. Thus, treatment point estimators can be used as test statistics, and confidence intervals can be constructed using test statistic inversion.

Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions

Abstract: Can one teach basic entrepreneurship skills, or are they fixed personal characteristics? Most academic and development policy discussions about microentrepreneurs focus on their access to credit, and assume their human capital to be fixed. The self-employed poor rarely have any formal training in business skills. However, a growing number of microfinance organizations are attempting to build the human capital of micro-entrepreneurs in order to improve the livelihood of their clients and help further their mission of poverty alleviation. Using a randomized control trial, we measure the marginal impact of adding business training to a Peruvian group lending program for female microentrepreneurs. Treatment groups received thirty to sixty minute entrepreneurship training sessions during their normal weekly or monthly banking meeting over a period of one to two years. Control groups remained as they were before, meeting at the same frequency but solely for making loan and savings payments. We find that the treatment led to improved business knowledge, practices and revenues. The program also improved repayment and client retention rates for the microfinance institution. Larger effects found for those that expressed less interest in training in a baseline survey. This has important implications for implementing similar market-based interventions with a goal of recovering costs.

Venture Capital, Entrepreneurship, and Economic Growth

Abstract: Using a panel of U.S. metropolitan areas, we find that increases in the supply of venture capital positively affect firm starts, employment, and aggregate income. Our results remain robust to a variety of specifications, including ones that address endogeneity. The estimated magnitudes imply that venture capital stimulates the creation of more firms than it funds, which appears consistent with two mechanisms: First, would-be entrepreneurs anticipating financing needs more likely start firms when the supply of capital expands. Second, funded companies may transfer know-how to their employees, thereby enabling spin-offs, and may encourage others to become entrepreneurs through demonstration effects.

Export Diversification: What's behind the Hump?

Abstract: HY should export diversification be taken as a policy objective per se? There are two reasons that it should not. First, according to Ricardo, countries should specialize, not diversify. Second, the Heckscher-Ohlin model implies that export patterns are largely determined by endowments, so, if anything, we should worry about factor accumulation, not diversification. Yet export diversification is a constant preoccupation of policymakers in developing countries. As de Ferranti et al. (2002) note, ‘‘A recurrent preoccupation of [Latin American] policymakers is that their natural riches produce a highly concentrated structure of export revenues, which then leads to economic volatility and lower growth’’ (p. 38). The notion that export patterns are fully determined by endowments is of course naive. The relationship of endowments, trade, and growth is a complex and imperfectly understood one. Intra industry trade models showed long ago that many factors other than endowments, including market failures and policies, can affect trade patterns. More recently, Hausmann, Hwang, and Rodrik (2007) argued that export patterns can display path dependence in the presence of externalities.

Do older investors make better investment decisions

Abstract: This paper examines the investment decisions of older individual investors. We find that older and experienced investors are more likely to follow rules of thumb that reflect greater investment knowledge. However, older investors are less effective in applying their investment knowledge and exhibit worse investment skill, especially if they are less educated, earn lower income, and belong to minority racial/ethnic groups. Overall, the adverse effects of aging dominate the positive effects of experience. These results indicate that older investors' portfolio decisions reflect greater knowledge about investing, but investment skill deteriorates with age due to the adverse effects of cognitive aging.

Do energy prices respond to u.s. macroeconomic news? a test of the hypothesis of predetermined energy prices

Abstract: We propose a formal test of the hypothesis that energy prices are predetermined with respect to U.S. macroeconomic aggregates. The test is based on regressing changes in daily energy prices on daily news from U.S. macroeconomic data releases. Using a wide range of macroeconomic news, we find no compelling evidence of feedback at daily or monthly horizons, contradicting the view that energy prices respond instantaneously to macroeconomic news and consistent with the commonly used identifying assumption that there is no feedback from U.S. macroeconomic aggregates to monthly innovations in energy prices.

Do small businesses create more jobs? new evidence for the united states from the national establishment time series

Abstract: We use a new database, the National Establishment Time Series (NETS), to revisit the debate about the role of small businesses in job creation. Birch (e.g., 1987) argued that small firms are the most important source of job creation in the U.S. economy. But Davis et al. (1996a) argued that this conclusion was flawed, and based on improved methods and using data for the manufacturing sector, they concluded that there was no relationship between establishment size and net job creation. Using the NETS data, we examine evidence for the overall economy, as well as for different sectors. The results indicate that small firms and small establishments create more jobs, on net, although the difference is much smaller than what is suggested by Birch’s methods. Moreover, in the recent period we study, a negative relationship between establishment size and job creation holds for both the manufacturing and services sectors.

The Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties

Abstract: I estimate the impact of hurricane strikes on local economic growth rates. To this end, I assemble a panel data set of U.S. coastal counties' growth rates and construct a novel hurricane destruction index that is based on a monetary loss equation, local wind speed estimates derived from a physical wind field model, and local exposure characteristics. The econometric results suggest that a county's annual economic growth rate falls on average by 0.45 percentage points, 28% of it due to richer individuals moving away from affected counties. I also find that the impact of hurricanes is netted out in annual terms at the state level and does not affect national economic growth rates at all.

Aggregate Income Shocks and Infant Mortality in the Developing World

Abstract: Health and income are strongly correlated both within and across countries, yet the extent to which improvements in income have a causal effect on health status remains controversial. The authors investigate whether short-term fluctuations in aggregate income affect infant mortality using an unusually large data set of 1.7 million births in 59 developing countries. The authors show a large, negative association between per capita GDP and infant mortality. Female infant mortality is more sensitive than male infant mortality to negative economic shocks, suggesting that policies that protect the health status of female infants may be especially important during economic downturns.

Inside the War on Poverty: The Impact of Food Stamps on Birth Outcomes

Abstract: This paper evaluates the health impacts of a signature initiative of the War on Poverty: the introduction of the modern Food Stamp Pro- gram (FSP). Using variation in the month FSP began operating in each U.S. county, we find that pregnancies exposed to FSP three months prior to birth yielded deliveries with increased birth weight, with the largest gains at the lowest birth weights. We also find small but statistically insig- nificant improvements in neonatal mortality. We conclude that the sizable increase in income from FSP improved birth outcomes for both whites and African Americans, with larger impacts for African American mothers. N this paper, we evaluate the health consequences of a sizable improvement in the resources available to Ameri- ca's poorest. In particular, we examine the impact of the Food Stamp Program (FSP), which in 2007 provided $34 billion in payments to about 13 million households, on infant health. Our paper makes two distinct contributions. First, although the goal of the FSP is to increase the nutri- tion of the poor, few papers have examined its impact on health outcomes. Second, building on work by Hoynes and Schanzenbach (2009), we argue that the FSP treatment represents an exogenous increase in income for the poor. Our analysis therefore represents a causal estimate of the impact of income on health, an important topic with little convincing evidence due to concerns about endogeneity and reverse causality (Currie, 2009). We use the natural experiment afforded by the nation- wide rollout of the modern FSP during the 1960s and early 1970s. Our identification strategy uses the sharp timing of the county-by-county rollout of the FSP, which was initially constrained by congressional funding authorizations (and ultimately became available in all counties by 1975). Speci- fically, we use information on the month the FSP began operating in each of the roughly 3,100 U.S. counties and examine the impact of the FSP rollout on mean birth weight, low birth weight, gestation, and neonatal mortality. Throughout the history of the FSP, the program para- meters have been set by the U.S. Department of Agriculture (USDA) and are uniform across states. In the absence of the state-level variation often leveraged by economists to eval- uate transfer programs, previous FSP research has typically resorted to strong assumptions as to the comparability of FSP participants and eligible nonparticipants (Currie, 2003). Not surprisingly, the literature is far from settled as to what casual impact (if any) the FSP has on nutrition and health. Hoynes and Schanzenbach (2009) use this county rollout to examine the impact of the FSP on food consumption using the PSID. They found that the introduction of the FSP increased total food spending and decreased out-of-pocket food spending. Importantly, consistent with the predictions of canonical microeconomic theory, the magnitude of the increase in food expenditures was similar to an equivalent- sized income transfer, implying that most recipient house- holds were inframarginal (that is, they would spend more on the subsidized good than the face value of the in-kind transfer). As one of the largest antipoverty programs in the United States—comparable in cost to the earned income tax credit (EITC) and substantially larger than Temporary Assistance to Needy Families (TANF)—understanding FSP effects is valuable both in its own right and for what it reveals about the relationship between income and health. 1

Help or Hindrance? The Effects of College Remediation on Academic and Labor Market Outcomes

Abstract: Providing remedial (also known as developmental) education is the primary way colleges cope with students who do not have the academic preparation needed to succeed in college-level courses. Remediation is widespread, with nearly one-third of entering freshmen taking remedial courses at an annual cost of at least $1 billion. Despite its prevalence, there is uncertainty surrounding its short- and longer-run effects. This paper presents new evidence on this question using longitudinal administrative data from Texas and a regression discontinuity research design. We find little indication that remediation improves academic or labor market outcomes.

Is Labor Mobility a Channel for Spillovers from Multinationals? Evidence from Norwegian Manufacturing

Abstract: Does hiring workers with experience from multinationals (MNEs) increase productivity in non-MNEs? Tracing worker flows between plants in Norwegian manufacturing during the 1990s, I find a positive correlation between the share of workers with MNE experience in non-MNEs and the productivity of these plants. Workers with MNE experience contribute 20% more to the productivity of their plant than workers without such experience, even after controlling for differences in unobservable worker characteristics. The private return to mobility is smaller than the productivity effect at the plant level, which suggests that labor mobility from MNEs to non-MNEs represents a true knowledge externality.

New Evidence on Emigrant Selection

Abstract: This paper examines the extent to which Mexican emigrants to the United States are negatively selected. Previous studies have been limited by the lack of nationally representative longitudinal data. This one uses a newly available household survey, that identifies emigrants before they leave. On average, U.S.-bound Mexican emigrants from 2000 to 2004 earn lower wages and have less (more for females) schooling than nonmigrant Mexicans, evidence of negative selection. This argues against Chiquiar and Hanson's (2005) findings. The discrepancy is primarily due to an undercount of unskilled migrants in U.S. sources and secondarily to the omission of unobservables in their methodology.

Voting after the Bombings: A Natural Experiment on the Effect of Terrorist Attacks on Democratic Elections

Abstract: Can terrorist attacks be timed to change the outcome of democratic elections? In this paper, we analyze the electoral impact of the terrorist attacks of March 11, 2004, in Madrid. Studies using individual level postelectoral survey data reach contradictory conclusions. We propose an alternative approach. Since the bombings took place only three days before the 2004 congressional election, we can find a control group of individuals who cast their vote before the terrorist attacks. The results indicate that the attacks had an important electoral impact, rejecting the hypothesis that the identity of the winner was unaffected by the terrorist attacks.

A Test of Conspicuous Consumption: Visibility and Income Elasticities

Abstract: This paper shows that, consistent with a signaling-by-consuming model a la Veblen, income elasticities can be predicted from the visibility of consumer expenditures. We outline a stylized conspicuous consumption model where income elasticity is endogenously predicted to be higher if a good is visible and lower if it is not. We then develop a survey-based measure of expenditure visibility, ranking different expenditures by how noticeable they are to others. Finally, we show that our visibility measure predicts up to one-third of the observed variation in elasticities across consumption categories in U.S. data.

Migration and Economic Mobility in Tanzania : Evidence from a Tracking Survey

Abstract: This study explores the extent to which migration has contributed to improved living standards of individuals in Tanzania. Using longitudinal data on individuals, the authors estimate the impact of migration on consumption growth between 1991 and 2004. The analysis addresses concerns about heterogeneity and unobservable factors correlated with both income changes and the decision to migrate. The findings show that migration adds 36 percentage points to consumption growth, during a period of considerable growth in consumption. These results are robust to numerous tests and alternative specifications. Unpacking the findings, the analysis finds that moving out of agriculture is correlated with much higher growth than staying in agriculture, although growth is always higher in any sector if one physically moves. Economic mobility is strongly linked to geographic mobility. The puzzle is why more people do not move if returns to geographic mobility are high. The evidence is consistent with models in which exit barriers are set by home communities (through social and family norms) that prevent migration of certain categories of people.

Too Young to Leave the Nest? The Effects of School Starting Age

Abstract: National Science Foundation; California Center for Population Research (CCPR); The Research Council of Norway

Offshoring Jobs? Multinationals and U.S. Manufacturing Employment

Abstract: Using firm-level data collected by the U.S. Bureau of Economic Analysis, we estimate the impact on U.S. manufacturing employment of changes in foreign affiliate wages. We show that the motive for offshoring and, consequently, the location of offshore activity, significantly affects the impact of offshoring on parent employment. In general, offshoring to low-wage countries substitutes for domestic employment. However, for firms that do significantly different tasks at home and abroad, foreign and domestic employment are complements. These offsetting effects may be combined to show that offshoring by U.S.-based multinationals is associated with a quantitatively small decline in manufacturing employment.

The impacts of international migration on remaining household members : omnibus results from a migration lottery program

Abstract: This brief summarizes the results of a gender impact evaluation study, entitled The impacts of international migration on remaining household members : omnibus results from a migration lottery program, conducted in 2002 in Tonga The study observed the impact of migration lottery program on the remaining household members of Tongan emigrants on the individual and intra-household level Income falls rapidly, by 22 to 25 percent, with a rise in remittances failing to offset a large fall in labor earnings Ownership of livestock, durable, and access to financial services is lower for the remaining household members Diets change to be less nutritious and more rice and root crops Immigration has a negative impact on household size There is no significant impact of migration on labor supply for men nor women Funding for the study derived from the World Bank, Stanford University, the Waikato Management School, and Mardsen Fund

The Effect of Power Plants on Local Housing Values and Rents

Abstract: This paper uses restricted census microdata to examine housing values and rents for neighborhoods in the United States where power plants were opened during the 1990s. Compared to neighborhoods with similar housing and demographic characteristics, neighborhoods within 2 miles of plants experienced 3%–7% decreases in housing values and rents, with some evidence of larger decreases within 1 mile and for large-capacity plants. In addition, there is evidence of taste-based sorting, with neighborhoods near plants associated with modest but statistically significant decreases in mean household income, educational attainment, and the proportion owner-occupied.

Mortality Risk and Human Capital Investment: The Impact of HIV/AIDS in Sub-Saharan Africa

Abstract: Over the past several decades, the HIV/AIDS epidemic has dramatically altered patterns of morbidity and mortality in sub-Saharan Africa, with potential consequences for human capital investment and economic growth. Using data from Demographic and Health Surveys for fifteen countries in sub-Saharan Africa, I estimate the relationship between regional HIV prevalence and the change in individual human capital investment over time. Consistent with a simple model of human capital investment incorporating mortality risk, I find that areas with higher levels of HIV experienced relatively larger declines in schooling.

Weakly relative poverty

Abstract: Prevailing measures of relative poverty are unchanged when all incomes grow or contract by the same proportion. This property stems from seemingly implausible assumptions about the disutility of relative deprivation and the cost of social inclusion. The authors propose ‘weakly relative’ lines that relax these assumptions. On calibrating our measures to national poverty lines and survey data, we find that half the population of the developing world in 2005 lived in poverty, only half of whom were absolutely poor. The total number of poor rose over 1981 to 2005 despite falling numbers of absolutely poor. With sustained economic growth, the incidence of relative poverty became less responsive to further growth. The number of relatively poor rose, just as the numbers of absolutely poor fell.

$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans

Abstract: We identify employees at seven companies whose 401(k) investment choices are dominated because they are contributing less than the employer matching contribution threshold despite being vested in their match and being able to make penalty-free 401(k) withdrawals for any reason because they are older than 59½. At the average firm, 36% of match-eligible employees over 59½ forego arbitrage profits that average 1.6% of their annual pay, or $507. A survey educating employees about the free lunch they are foregoing raised contribution rates by a statistically insignificant 0.67 percent of income among those completing the survey.

Gender, source country characteristics, and labor market assimilation among immigrants

Abstract: Using 1980–2000 Census data to study the impact of source country characteristics on married adult immigrants' labor supply assimilation profiles, we find that immigrant women from countries with high female labor supply persistently work more than those from low-female-supply countries. While both groups of women work less than comparable natives on arrival, women from high-female-participation countries eventually close the gap with natives entirely, and women from low-female-labor supply countries eliminate most of it. Men's labor supply is unaffected by source country female participation, suggesting that the findings on women reflect notions of gender roles.

License to sell : the effect of business registration reform on entrepreneurial activity in Mexico

Abstract: This paper studies the effect of business registration regulation on economic activity using micro-level data. The identification strategy exploits the fact that a recent business registration reform in Mexico was introduced in different municipalities at different points in time. Using panel data from the Mexican employment survey, I find that the reform increased the number of registered businesses by 5 percent in eligible industries. This increase was due to former wage earners opening businesses. Former unregistered business owners were not more likely to register their business after the reform. Moreover, employment in eligible industries went up by 2.8 percent, and people who were previously unemployed or out of the labor force were more likely to work as wage earners after the reform. Finally, the results imply that the competition from new entrants lowered prices by 0.6 percent and decreased the income of incumbent businesses by 3.2 percent.

Can Second-Generation Endogenous Growth Models Explain the Productivity Trends and Knowledge Production in the Asian Miracle Economies?

Abstract: Using data for six Asian miracle economies over the period from 1953 to 2006, this paper examines the extent to which growth has been driven by R&D and tests which second-generation endogenous growth model is most consistent with the data. The results give strong support to Schumpeterian growth theory but only limited support to semi-endogenous growth theory. Furthermore, it is shown that R&D has played a key role for growth in the Asian miracle economies.

The Falling Time Cost of College: Evidence from Half a Century of Time Use Data

Abstract: Using multiple data sets from different time periods, we document declines in academic time investment by full-time college students in the United States between 1961 and 2003. Full-time students allocated 40 hours per week toward class and studying in 1961, whereas by 2003, they were investing about 27 hours per week. Declines were extremely broad based and are not easily accounted for by framing effects, work or major choices, or compositional changes in students or schools. We conclude that there have been substantial changes over time in the quantity or manner of human capital production on college campuses.

Patent Protection, Market Uncertainty, and R&D Investment

Abstract: The real options investment theory shows that greater uncertainty about market revenues reduces current R&D investment by increasing the value of waiting. This paper presents empirical evidence that patent protection mitigates the effect market uncertainty on R&D investment.

Adaptation and the Boundary of Multinational Firms

Abstract: This paper offers the first empirical analysis of the impact of adaptation on the boundary of multinational firms. To do so, we develop a ranking of sectors in terms of "“routineness"” by merging two sets of data: ratings of occupations by their intensities in solving problems from the U.S. Department of Labor's Occupational Information Network and U.S. employment shares of occupations by sectors from the Bureau of Labor Statistics Occupational Employment Statistics. Using U.S. Census trade data, we demonstrate that the share of intrafirm trade tends to be higher in less routine sectors. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.