Knowledge that Transforms

Research on the standard of living now emphasizes alternatives or supplements to the national income accounts. This paper reviews the results of two decades of research using stature as a measure of health aspects of human welfare. After comparing and contrasting stature with per capita income, I consider height patterns discovered by economic historians that challenge traditional beliefs about the past, including long-term trends, cycles in heights, and the dreadfully small stature of slave children that was followed by catch-up growth. The paper concludes with comparisons to work in development economics and suggestions for research.

We review and critique the empirical literature on the links between investments in children and children's attainments. The primary theoretical perspectives that dominate this literature form the framework for our review. The potential effects on children of family choices and neighborhood characteristics are emphasized. The outcomes of interest include educational attainment, fertility choices, and work-related outcomes such as earnings and welfare recipiency. A set of tables provides details on the existing empirical literature. The focus is on the economics literature, but relevant studies from other social sciences are included as well.

The relationship between economic development and health has received far less attention than the relationship between development and schooling. However, recent studies indicate that better health is associated with improved labor market outcomes, particularly in low-income settings. Difficulties in disentangling the causal mechanisms underlying these associations are discussed, highlighting the role of behaviors and measurement of health. The empirical literature is reviewed, and implications of results for the functioning of markets are drawn out. The discussion includes an evaluation of the empirical evidence in support of the nutrition (health) efficiency wage hypothesis: we conclude that it is thin.

This survey assesses evidence on the linkage between environmental regulation and competitiveness, and finds little support for the conventional wisdom that environmental regulations have large adverse effects on competitiveness. Studies examining the effects of environmental regulations on net exports, overall trade flows, and plant-location decisions have produced estimates that are small, statistically insignificant, or not robust. We also find no systematic evidence supporting the revisionist hypothesis that environmental regulations stimulate innovation and improved competitiveness. Overall, the evidence suggests that the truth regarding the relationship between environmental protection and international competitiveness lies in between the extremes of the current debate.

Using the marginal value of characteristics, we show how to construct bounds on the exact hedonic price index. When prices are above marginal costs then our bounds still apply, but the value of characteristics cannot be measured so easily from a hedonic regression. Since the price--cost markups are an omitted variable, they will bias the coefficients obtained. For a special class of utility functions, we argue that a linear regression will still provide a measure of the marginal value of characteristics, but a log-linear regression will overstate these values.

D. S. Prasada Rao, E. Anthony Selvanathan, Dirk Pilat, Generalized Theil-Tornqvist Indices with Applications to International Comparisons of Prices and Real Output, The Review of Economics and Statistics, Vol. 77, No. 2 (May, 1995), pp. 352-360

This paper studies the responsiveness of firm investment to shocks in the input factor and output prices (the market conditions) by using stock market information on excess returns. The 'q' theory of investment is modified to allow for heterogeneous capital, ex post inflexible technology, and irreversible investment. A structural model linking the excess returns to a firm's equity to the firm's investment history and the evolution of the market conditions is estimated using a panel of U.S. manufacturing firms. The estimates of the cost of adjusting tile capital stock are economically sensible. They imply a high degree of sensitivity of investment to fundamental variables that affect the profitability of capital such as the market conditions and the purchase price of capital. Copyright 1995 by MIT Press.

The gains and losses to factors of production from trade are discussed primarily within the context of the Stolper-Samuelson theorem which focuses on factor rewards. But policy makers are more concerned about employment effects of trade. This paper focuses on the short-run effects of trade on the incidence of layoffs in U.S. manufacturing industries. A probit model with endogenous switching is employed to estimate the effects of trade shocks and explore the role of comparative advantage on layoffs. The evidence suggests that trade shocks play a minor role in the incidence of layoff spells. However, net importing industries tend to adjust their labor force through layoffs to a greater extent than net exporting industries. Copyright 1995 by MIT Press.

This article provides general formulas for the computation of opportunity costs (or forgone earnings) of unchosen alternatives in sample selection models with polychotomous choices. With observed choice probabilities and outcomes of alternatives chosen by some individuals, the opportunity costs for individuals who do not choose those alternatives can be evaluated. For the probability indexed sample selection models with legit choice probabilities, which include the polychotomous choice model of Lee (1983), the formulas are simple and reveal restrictions implicitly imposed on those models. These formulas can be useful for empirical studies.