Knowledge that Transforms

FOREIGN direct investment which I shall associate with the multinational corporation varies greatly in its prominence from country to country and sector to sector. The analytical apparatus of international trade and industrial organization supplies some hypotheses to explain this variation, but they have not been drawn together and tested competitively. The purpose of this paper is to explain statistically the substantial inter-industry variance that we observe in the prevalence of multinational corporations. In the first section I review the hypotheses that have been advanced to explain this variance. The second and third sections report tests of these hypotheses on the shares of sales held by foreign-owned enterprises in Canadian and United Kingdom manufacturing industries.

ENTRY plays a crucial role in microecoIJi nomic models of market structure and performance. However there has been very little direct empirical investigation of entry and its determinants over a broad cross section of industries. In this paper we construct and estimate a model which assumes entry is a function of the incentives to enter relative to the level of entry barriers. The subject of the analysis is the cross-section differences in entry between the three-digit industries of the Canadian manufacturing sector. Previous studies of entry have either concentrated on only several industries or have attempted to make conclusions about entry conditions by regressing profit rates on variables representing entry barriers. Bain (1956) examined 20 (mostly four-digit) United States manufacturing industries and concluded that the most significant barriers to entry were product differentiation, economies of scale in plant or firm and control of patents or scarce resources, respectively. Mann's study (1966), which was limited to 30 of the United States manufacturing industries, did not examine the relative importance of the various barriers to entry. Mansfield's (1962) sample was limited to four industries. Capital requirements was the only barrier he considered. Most econometric investigations of entry barriers have been indirect tests. They have regressed the profit rate, rather than entry, on those structural characteristics considered to be barriers to entry (Comanor and Wilson 1967, Miller 1969). Unfortunately this specification does not permit reliable conclusions regarding the effectiveness of these variables in deterring entry. There are theoretical reasons for questioning the often assumed strong positive relationship between entry barriers and the true profit rate. Additionally of course, there is the infamous gap between true and measured profits. This paper's treatment of entry barriers has several important advantages over previous work. Those variables considered to be entry barriers are introduced directly as determinants of entry rather than the profit rate. This is a direct rather than indirect test of the propensity of these factors to deter entrants. A most important result is that our conclusions are less sensitive to those unavoidable measurement errors in the profit rate. Our estimating equations consider a more extensive list of entry barriers over a larger (71) sample, covering all types of manufacturing.

cizes us for not quantifying the effect of introducing our elasticities into consideration of Parker and Klein's questions (footnote 6). We avoided quantification because the effect was so large that it made Parker and Klein's questions meaningless, not because we wanted to stay at the level of generality adopted by Parker in his discussion of his assumptions.2 In addition, we found that our conclusions allowed us to suggest other implications of our findings. The pattern of slow adjustment to prices on the part of farmers is consistent with an interpretation of the Populist movement that sees the agricultural market out of equilibrium in the early 1890's. We do not wish as Professor Page appears to think to disassociate ourselves from this conclusion, but we did not want to claim it as a complete explanation of Populism either.3 The pattern of productivity change that shows up only dimly in our results is intriguing because it differs from the results of other investigators using other methods. We commented on it in the hope of encouraging further work. Our broader aim, in fact, was to encourage economic historians to use the tools of modern economics and econometrics in the analysis of historical questions. We agree that there is no substitute for accurate data and specification, and we continue to think we got as close to this ideal as we could within our budget constraint. We hope also that the controversy over wheat varieties will not obscure the real advances which can be made by the introduction of explicit estimates of the elasticity of supply of wheat into the discussion of late nineteenth century agriculture. 2 It should be noted also that Parker's awareness of some of the limitations of his assumptions does not mean that he did not use them in his research. His quantitative results came from his assumptions, not his reservations. 3 We said just this in the passage Page cites as well as in our original article. It is hard to see how this could have been misunderstood.

T HE New Deal years offer a laboratory for testing the hypothesis that political behavior a democracy can be understood as a rational effort to maximize the prospects of electoral success. This hypothesis is central to the theories of politics developed and elaborated since the publication of Downs' An Economic Theory of Democracy 1957, but systematic empirical verification has been meager.' One of the reasons for this paucity is that the United States political parties are rarely in power unambiguously, and actual policies result from the interaction of many competing objectives. But the 1930's the Democratic party had control of both houses of Congress, and during much of the period Congress was willing to follow Presidential lead on economic policy. At the same time federal spending rose to unprecedented levels, and considerable discretionary allocative authority was concentrated the executive branch. Most of the spending was carried out by new agencies under new programs which were clearly identified with the New Deal administration. At a time of grave economic distress, this Presidentially-dominated environment provided a stark simplification of the interaction between political and economic forces. This article focuses on the allocation of government expenditures among the states and argues that interstate inequalities per capita federal spending can be explained large part as the resultant of a process of maximizing expected electoral votes. Two recent articles (1969, 1970) by Leonard J. Arrington have raised this issue. Upon examination of a newlydiscovered set of figures for the years 19331939, Arrington was struck by the fact that the per capita distribution of loans and expenditures was not at all equal across the country, and furthermore that these inequalities seem perverse that they favor states with high income. In particular, the West seems to have received far more than its per capita share of benefits, while the South -far behind income received little.

In a recent note in this Review [1], R. A. Agnew derives some results about mixtures of normal variables and suggests that his new model may be useful as a representation of observed price series in speculative markets. Although his stability result for mixed normal variates is formally correct, it is somewhat tangential to the issue that is generally discussed as stability, and may therefore need clarification.

Journal Article A Note on “A Four-Flagged Lemma” Get access Karl Vind Karl Vind University of Copenhagen Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 4, October 1974, Page 571, https://doi.org/10.2307/2296707 Published: 01 October 1974

Journal Article The Quantitative Analysis of Distortions in a Simple General Equilibrium Model Get access John Pettengill John Pettengill Massachusetts Institute of Technology Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 1, January 1974, Pages 105–117, https://doi.org/10.2307/2296402 Published: 01 January 1974