Knowledge that Transforms

The proliferation of R&D tax incentives among U.S. states in recent decades raises two questions: (i) Are these tax incentives effective in increasing in-state R&D? (ii) How much of any increase is due to R&D being drawn away from other states? This paper answers (i) “yes” and (ii) “nearly all.” The paper estimates an augmented R&D factor demand model using state panel data from 1981 to 2004. I estimate that the long-run elasticity of in-state R&D with respect to the in-state user cost is about –2.5, while its elasticity with respect to out-of-state user costs is about +2.5, suggesting a zero-sum game among states.

This paper identifies a new factor, the age of the housing stock, that affects where high- and low-income neighborhoods are located in U.S. cities. High-income households, driven by a high demand for housing services, tend to locate in areas of the city where the housing stock is relatively young. Because cities develop and redevelop from the center outward over time, the location of these neighborhoods varies over the city's history. The model predicts a suburban location for the rich in an initial period, when young dwellings are found only in the suburbs, while predicting eventual gentrification once central redevelopment creates a young downtown housing stock. Controlling for other determinants of where the poor live (e.g., proximity to amenities and public transit), empirical work indicates that if the influence of spatial variation in dwelling ages were eliminated, central-city/suburban disparities in neighborhood economic status would be reduced by up to 10 percentage points. Model estimates further predict that between 2000 and 2020, central-city/suburban differences in economic status will narrow in cities of all sizes, and especially in the larger metropolitan areas as American cities become more gentrified.

This paper examines 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. The analysis is conducted using panel data that collect these SES measures using a sample who were originally children and are now well into their adult years. Since all siblings are in the panel, unmeasured family and neighborhood background effects can be controlled for. With the exception of education, poor childhood health has a quantitatively large effect on all of these outcomes. Moreover, these estimated effects are larger when unobserved family effects are controlled.

This paper examines the mechanisms through which output volatility is related to trade openness using an industry-level panel data set of manufacturing production and trade. The main results are threefold. First, sectors more open to international trade are more volatile. Second, trade is accompanied by increased specialization. These two forces imply increased aggregate volatility. Third, sectors that are more open to trade are less correlated with the rest of the economy, an effect that acts to reduce overall volatility. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that the relationship between trade openness and overall volatility is positive and economically significant.

We document that countries with higher initial education levels experienced faster value-added and employment growth in schooling-intensive industries in the 1980s and 1990s. This effect is robust to controls for other determinants of international specialization and becomes stronger when we focus on economies open to international trade. Our finding is consistent with schooling fostering the adoption of new technologies if such technologies are skilled-labor augmenting, as was the case in the 1980s and the 1990s. In line with international specialization theory, we also find that countries where education levels increased rapidly experienced stronger shifts in production toward schooling-intensive industries.

Previous studies of recent U.S. trends in intergenerational income mobility have produced widely varying results, partly because of large sampling errors. By making more efficient use of the available information in the Panel Study of Income Dynamics, we generate more reliable estimates of the recent time series variation in intergenerational mobility. Our results, which pertain to the cohorts born between 1952 and 1975, do not reveal major changes in intergenerational mobility.

This paper analyzes welfare-state determinants of individual attitudes toward immigrants—within and across countries—and their interaction with labor market drivers of preferences. We consider two mechanisms through which a redistributive welfare system might adjust as a result of immigration. Under the first model, immigration has a larger impact on high-income individuals, while under the second one low-income individuals are those most affected. Individual attitudes are consistent with the first welfare-state model and with labor market determinants. In countries where immigration is unskilled, income is negatively correlated with pro-immigration preferences, while skill is positively correlated with them. These relationships are reversed in economies characterized by skilled migration.

We estimate the effect of extreme weather on life expectancy in the United States. Using high-frequency data, we find that both extreme heat and cold result in immediate increases in mortality. The increase in mortality following extreme heat appears mostly driven by near-term displacement, while the increase in mortality following extreme cold is long lasting. We estimate that the number of annual deaths attributable to cold temperature is 0.8% of average annual deaths in our sample. The longevity gains associated with mobility from the Northeast to the Southwest account for 4% to 7% of the total gains in life expectancy experienced by the U.S. population over the past thirty years.

This paper examines the effect of attending the flagship state university on the earnings of 28 to 33 year olds by combining confidential admissions records from a large state university with earnings data collected through the state's unemployment insurance program. To distinguish the effect of attending the flagship state university from the effects of confounding factors correlated with the university's admission decision or the applicant's enrollment decision, I exploit a large discontinuity in the probability of enrollment at the admission cutoff. The results indicate that attending the most selective state university causes earnings to be approximately 20% higher for white men.

Our goal is to show that contrary to the claims made in several recent papers, the effect of a large endowment of oil and other mineral resources on long-term economic growth of countries has been on balance positive. Moreover, the claims of a negative effect of oil and mineral wealth on the countries' institutions are called into question.