Knowledge that Transforms

This paper investigates the association between population age structure, particularly the share of the population in the ‘prime saving years’ (40 to 64), and the returns on stocks and bonds. The paper is motivated by recent claims that the aging of the ‘baby boom’ cohort is a key factor in explaining the recent rise in asset values, and by predictions that asset prices will decline when this group reaches retirement age and begins to reduce its asset holdings. This paper begins by considering household age-asset accumulation profiles. Data from repeated cross sections of the Survey of Consumer Finances suggest that, whereas age-wealth profiles rise sharply when households are in their thirties and forties, they decline much more gradually when households are in their retirement years. When these data are used to generate ‘projected asset demands’ based on the projected future age structure of the U.S. population, they do not show a sharp decline in asset demand between 2020 and 2050. The paper considers the historical relationship between demographic structure and real returns on Treasury bills, long-term government bonds, and corporate stock, using data from the United States, Canada, and the United Kingdom. Although theoretical models generally suggest that equilibrium returns on financial assets will vary in response to changes in population age structure, it is difficult to find robust evidence of such relationships in the time series data. This is partly due to the limited power of statistical tests based on the few ‘effective degrees of freedom’ in the historical record of age structure and asset returns. These results suggest caution in projecting large future changes in asset values on the basis of shifting demographics. Although the projected asset demand does display some correlation with the price-dividend ratio on corporate stocks, this does not portend a sharp prospective decline in asset values, because the projected asset demand variable does not fall in future decades.

We use a sample of tenth-graders to test for peer-group influences on the propensity to engage in five activities: drug use, alcohol drinking, cigarette smoking, church going, and the likelihood of dropping out of high school. We find strong evidence of peer-group effects at the school level for all activities. Tests for bias due to endogenous school choice yield mixed results. We find evidence of endogeneity bias for two of the five activities analyzed (drug use and alcohol drinking). On the whole, these results confirm the findings of previous research concerning interaction effects at the neighborhood level.

Previous studies have found that importing goods from R&D-intensive countries raises a country's productivity. In this paper, we investigate econometrically whether foreign direct investment (FDI) also transfers technology across borders. The data indicates that FDI transfers technology, but only in one direction: a country's productivity is increased if it invests in R&D-intensive foreign countries—particularly in recent years—but not if foreign R&D-intensive countries invest in it. Other findings of the paper are that the ratio of foreign-R&D benefits conveyed by outward FDI to foreign R&D benefits conveyed by imports is higher for large countries than it is for small ones, that failure to account for international R&D spillovers leads to upwardly biased estimates of the output elasticity of the domestic R&D capital stock, and that there are much larger transfers of technology from the United States to Japan than there are from Japan to the United States.

We examine the effect of air quality regulation on productivity in some of the most heavily regulated manufacturing plants in the United States, the oil refineries of the Los Angeles (South Coast) Air Basin. We use direct measures of local air pollution regulation to estimate their effects on abatement investment. Refineries not subject to these regulations are used as a comparison group. We study a period of sharply increased regulation between 1979 and 1992. Initial compliance with each regulation cost $3 million per plant and a further $5 million to comply with increased stringency. We construct measures of total factor productivity using Census of Manufacturers output and materials data that report physical quantities of inputs and outputs for the entire population of refineries. Despite high costs associated with the local regulations, productivity in the Los Angeles Air Basin refineries rose sharply between 1987 and 1992, which was a period of decreased refinery productivity in other regions. We conclude that abatement cost measures may grossly overstate the economic cost of environmental regulation as abatement can increase productivity.

This paper uses three years of individual-level data to analyze the determinants of individual preferences over immigration policy in the United States. We have two main empirical results. First, less-skilled workers are significantly more likely to prefer limiting immigrant inflows into the United States. Our finding suggests that, over the time horizons that are relevant to individuals when evaluating immigration policy, individuals think that the U.S. economy absorbs immigrant inflows at least partly by changing wages. Second, we find no evidence that the relationship between skills and immigration opinions is stronger in high-immigration communities.

Previous studies that attempt to relate environmental to financial performance have often led to conflicting results due to small samples and subjective environmental performance criteria. We report on a study that relates the market value of firms in the S&P 500 to objective measures of their environmental performance. After controlling for variables traditionally thought to explain firm-level financial performance, we find that bad environmental performance is negatively correlated with the intangible asset value of firms. The average ‘intangible liability’ for firms in our sample is $380 million—approximately 9% of the replacement value of tangible assets. We conclude that legally emitted toxic chemicals have a significant effect on the intangible asset value of publicly traded companies. A 10% reduction in emissions of toxic chemicals results in a $34 million increase in market value. The magnitude of these effects varies across industries, with larger losses accruing to the traditionally polluting industries.

This paper employs recently developed techniques for testing hypotheses in cointegrated panels to test the strong version of purchasing power parity for a panel of post Bretton Woods data. We compare results using fully modified and dynamic OLS approaches, and strongly reject the hypothesis. We also introduce a new between-dimension dynamic OLS estimator and find that the between-dimension FMOLS and DOLS estimates of the long-run deviation from purchasing power parity are larger than the corresponding within-dimension estimates. Finally, we attempt to reconcile these rejections with the mixed findings that have been reported in panel unit root studies.

Journal Article Travel Fund Get access The Review of Economic Studies, Volume 68, Issue 1, January 2001, Page 231, https://doi.org/10.1111/restud/68.1.231 Published: 01 January 2001

Travel Fund The Review of Economic Studies, Volume 68, Issue 2, April 2001, Page 465, https://doi.org/10.1111/restud/68.2.465 Published: 01 April 2001

Journal Article Travel Fund Get access The Review of Economic Studies, Volume 68, Issue 4, October 2001, Page 905, https://doi.org/10.1111/1467-937X.00195 Published: 01 October 2001