Knowledge that Transforms

Recent export experience of some large, emerging economies has raised important questions about the trade determinants of the modern-services-driven sectors and the goods-production-driven sectors. In our empirical analysis of the determinants of Indian exports of software services and of the total Indian goods exports, we raise the following questions: How (dis)similar is the performance of the Indian exports of software from the determinants of India's total exports of goods? Are such differences significant? Is the pattern of the performance of the determinants stable over time? Our findings concerning the effects of size, distance, linguistic connections, and trade-facilitating networks enable us to make some important inferences of policy relevance.

A new stylized fact in development economics is the importance of social capital in promoting economic growth. This paper examines the effect of social capital on industrialization in Indonesia. We analyze a rich set of social capital and social interaction measures, including voluntary associational activity and levels of trust and informal cooperation. The main finding is that initial social capital does not predict subsequent industrial development across 274 Indonesian districts. Though these findings are for only a single nation and may not apply everywhere, they call into question recent claims regarding social capital and economic development.

We explore the effects of temporary help employment on welfare recipients' subsequent employment and welfare dynamics. We find that any employment—in temporary help services or other sectors—yields substantial benefits compared to no employment. Although welfare recipients who go to work for temporary help service firms have lower initial wages than those with jobs in other sectors, they experience faster subsequent wage growth. Two years later, they are no less likely to be employed, their wages are close to those of other workers, and they are only slightly more likely to remain on welfare.

This paper tests the rationality of retirement expectations, controlling for sample selection and reporting biases. We find that retirement expectations in the Health and Retirement Study are consistent with the rational expectations hypothesis. We also analyze how new information affects the evolution of retirement expectations and discover that, on average, individuals correctly anticipate most uncertain events when planning their retirement, except for some health shocks, the need for additional private health coverage, and the probability of a job change. Our results support a wide variety of models in economics that assume rational behavior.

Almost all research on the movement of stock prices on ex-dividend days has found that prices decline by less than the dividend. Though this is consistent with tax effects, several papers have argued that this phenomenon could be caused by market microstructure effects. In this paper we make use of a natural experiment that provides support for the tax explanations of ex-dividend behavior. Some closed-end funds have taxable, and some have nontaxable, dividend distributions. Both types are subject to taxes on capital gains. The implication of this for ex-dividendday price behavior is very different between these two types of funds if taxes matter. This paper demonstrates that the direction of ex-dividendday price behavior is consistent with a tax explanation and that ex-dividend-day price behavior changes, as theory would suggest, with changes in the tax law.

How much do sins visited upon one generation harm that generation's future sons, daughters, grandsons, and granddaughters? I study this question by comparing outcomes for former slaves and their children and grandchildren to outcomes for free blacks (pre-1865) and their children and grandchildren. The outcome measures include literacy, whether a child attends school, months spent in school, years of schooling, and two measures of adult occupation. Using a variety of different comparisons (for example, within versus across regions) I find that it took roughly two generations for the descendants of slaves to catch up to the descendants of free black men and women, for those outcomes that I observe. In other words, by 1920 the remaining legacy of slavery is such that all blacks are affected equally, not just the actual descendants of slaves. There is some evidence that this convergence was facilitated by intermarriage among slave and free families. The finding of convergence is consistent with modern estimates and interpretations of father-son correlations in income and socioeconomic status. The data used are from the 1880, 1900, 1920, and 1940 1% IPUMS samples, and a 100% sample of the 1880 Census.

We provide cross-country and time series evidence on the extent of exchange rate pass-through into the import prices of 23 OECD countries. We find compelling evidence of partial pass-through in the short run, especially within manufacturing industries. Over the long run, producer-currency pricing is more prevalent for many types of imported goods. Countries with higher rates of exchange rate volatility have higher pass-through elasticities, although macroeconomic variables have played a minor role in the evolution of pass-through elasticities over time. Far more important for pass-through changes in these countries have been the dramatic shifts in the composition of country import bundles.

Since the 1950s the Bureau of Economic Analysis (BEA) has grouped the states into eight regions based primarily on cross-sectional similarities in their socioeconomic characteristics. This paper groups states into regions based on the similarities in their business cycles. We applied k-means cluster analysis to the cyclical components of Stock-Watson-type indices estimated at the state level to group the 48 contiguous states into eight regions with similar cycles. We then compare the cohesion of the regions so defined with the cohesion of the BEA regions. Finally, we examine how that definition affects the results of some recent regional business cycle analysis.

We propose a statistical index of industrial localization based on the Kullback-Leibler divergence. This index is particularly well suited to cases where industrial data are available only at the regional level. Unlike existing regional-level indices, our index can be employed to test the significance of industrial localization relative to a hypothesized reference distribution of probable locations across regions. In addition, one can test relative degrees of localization among industries. Finally, as with all Kullback-Leibler divergence indices, our index can be decomposed into components representing localization at various levels of spatial aggregation.

This paper presents a new method to correct for measurement error in wage data and applies this method to address an old question: How much downward wage flexibility is there in the United States? We apply standard methods developed by Bai and Perron to identify structural breaks in time series data. Applying these methods to wage histories allows us to identify when each person experiences a change in nominal wages. The length of the period of constant nominal wages is left unrestricted and is allowed to differ across individuals, as are the size and direction of the nominal-wage change. We apply these methods to data from the Survey of Income and Program Participation. The evidence we provide indicates that the probability of a cut in nominal wages is substantially overstated in data that are not corrected for measurement error.