Knowledge that Transforms

Some scholars have argued that globalization should pressure firms to adopt a common set of the most efficient corporate governance practices, while others maintain that such convergence will not occur because of a variety of forms of path-dependence. With new data on governance in 24 developing countries as well as data on laws protecting shareholders and creditors in 49 developed and developing countries, we search for evidence that globalization is correlated with similarity in corporate governance. We find robust evidence of de jure similarity in governance. Interestingly, this is not driven by convergence to U.S. standards. Rather pairs of economically interdependent countries - especially if the countries are both economically developed - appear to adopt common corporate governance standards, even after accounting for the effects of common legal origin. In contrast to the de jure results, we find virtually no evidence of de facto similarity in corporate governance in a battery of estimations at the country, industry and firm levels. This is consistent with either the proposition that complementarities result in different national systems appropriately having different corporate governance systems, or the proposition that globalization is not strong enough to overcome local vested interests. We conclude that globalization may have induced the adoption of some common corporate governance standards but that there is little evidence that these standards have been implemented.

How does the quality of national institutions that enforce the rule of law influence international trade? Anderson and Marcouiller argue that bad institutions located in the importer's country deter international trade because they enable economic predators to steal and extort rents at the importer's border. We complement this research and show how good institutions located in the exporter's country enhance international trade, in particular, trade in complex products whose characteristics are difficult to fully specify in a contract. We argue that both exporter and importer institutions affect international as well as domestic transaction costs in complex and simple product markets. International transaction costs are a part of the costs of trade. Domestic transaction costs affect complex and simple products differently, thereby changing a country's comparative advantage in producing such goods.We find ample empirical evidence for these predictions: countries that have good institutions tend to export more complex products and import more simple products. Furthermore, institutions have a stronger influence on trade via production costs (comparative advantage) than through international transactions costs. International institutions seem to operate as substitutes for domestic institutions, because good domestic institutions are less important for promoting exports in those countries that have signed the New York Convention.

Legislation in the 1970s created a Notch in social security payments, with those born after January 1, 1917, receiving sharply lower benefits. Using restricted-use versions of the National Mortality Detail File combined with Census data, we use this quasi experiment to examine the income mortality link in an elderly population. Estimates from difference-in-difference and regression discontinuity models show the higher-income group has a statistically significantly higher mortality rate, contradicting the previous literature. We also found that younger cohorts responded to lower incomes by increasing postretirement work effort, suggesting that moderate employment has beneficial health effects for the elderly.

We investigate the empirical effect of violence, as compared to other trade impediments, on trade flows. Our analysis is based on a panel data set with annual observations on 177 countries from 1968 to 1999, which brings together information from the Rose data set, the iterate data set for terrorist events, and data sets of external and internal conflict. We explore these data with traditional and theoretical gravity models. We calculate that, for a given country year, the presence of terrorism together with internal and external conflict is equivalent to as much as a 30% tariff on trade. This is larger than estimated tariff-equivalent costs of border and language barriers and tariff-equivalent reduction through generalized systems of preference and WTO participation.

I report new evidence for localized knowledge spillovers identified by within-patent variations in the geographic matching rates of citations added by inventors and citations added by examiners. Evaluated at the mean citation lag, inventor citations are 20 percent more likely than examiner citations to match the country of origin of their citing patent, while US inventor citations are 25 percent more likely to match the state or metropolitan area of their citing patent. The localization of intranational knowledge spillovers declines with the passage of time, but international borders present a persistent barrier to spillovers.

Foreclosure laws govern the rights of borrowers and lenders when borrowers default on mortgages. In states with laws favoring the borrower, the supply of mortgage credit may decrease because lenders face higher costs. To examine the laws' effects, I compare approved mortgage applications in census tracts that border each other but are located in different states. Using a regression-discontinuity design and semiparametric estimation methods, I find that loan sizes are 3% to 7% smaller in defaulter-friendly states; this result suggests that defaulter-friendly laws impose material costs on borrowers at the time of loan origination.

We estimate the effects on employment and wages of wrongful-discharge protections adopted by U.S. state courts during the last three decades. We find robust evidence that one wrongful-discharge doctrine, the implied-contract exception, reduced state employment rates by 0.8% to 1.7%. The initial impact is largest for female and less-educated workers (those who change jobs frequently), while the longer-term effect is greater for older and more-educated workers (those most likely to litigate). By contrast, we find no robust employment or wage effects of two other widely recognized wrongful-discharge laws: the public-policy and goodfaith exceptions.

Using a detailed database of managerial job descriptions, reporting relationships, and compensation structures in over 300 large U.S. firms, we find that firm hierarchies are becoming flatter. The number of positions reporting directly to the CEO has gone up significantly over time while the number of levels between the division heads and the CEO has decreased. More of these managers now report directly to the CEO and more are being appointed officers of the firm, reflecting a delegation of authority. Moreover, division managers who move closer to the CEO receive higher pay and greater long-term incentives, suggesting that all this is not simply a change in organizational charts with no real consequences. Importantly, flattening cannot be characterized simply as centralization or decentralization. We discuss several possible explanations that may account for some of these changes. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Observers of Silicon Valley's computer cluster report that employees move rapidly between competing firms, but evidence supporting this claim is scarce. Job-hopping is important in computer clusters because it facilitates the reallocation of talent and resources toward firms with superior innovations. Using new data on labor mobility, we find higher rates of job-hopping for college-educated men in Silicon Valley's computer industry than in computer clusters located out of the state. Mobility rates in other California computer clusters are similar to Silicon Valley's, suggesting some role for features of California law that make noncompete agreements unenforceable. Consistent with our model of innovation, mobility rates outside computer industries are no higher in California than elsewhere.

We link farmland values to climatic, soil, and socioeconomic variables for U.S. counties east of the 100th meridian, the historical boundary of agriculture not primarily dependent on irrigation. Degree days, a nonlinear transformation of the climatic variables suggested by agronomic experiments as more relevant to crop yield, gives an improved fit and increased robustness. Estimated coefficients are consistent with the experimental results. The model is employed to estimate the potential impacts on farmland values for a range of recent warming scenarios. The predictions are very robust, and more than 75% of the counties in our sample show a statistically significant effect, ranging from moderate gains to large losses, with losses in the aggregate that can become quite large under scenarios involving sustained heavy use of fossil fuels.