Knowledge that Transforms

T HE response of income-velocity of money to economic growth has implications for monetary planning in a developing economy. Velocity is the ratio of nominal income to money stock and decreases only if money stock rises at a faster rate than nominal income. A well-known hypothesis in this context is that of Friedman (1959) which states that ... in countries experiencing a secular rise in real income per capita, the stock of money generally rises over long periods at a decidedly higher rate than does money i.e., velocity declines. Ezekiel and Adekunle (1969) and Melitz and Correa (1970), in their international crosscountry comparisons, have found evidence largely in favour of the Friedman hypothesis. This, in its turn, has strengthened the hope for active growthoriented monetary planning-the extent of resources that can be transferred for investment purposes through non-inflationary monetary expansion increases as development proceeds.' Cross-section studies involving developed and developing economies do not provide satisfactory indications of what happens to velocity over time in any individual developing economy. Firstly, velocities have not behaved uniformly in all the developing economies. Secondly, international cross-country comparisons do not adequately explain why velocity changes in any individual economy. Is it because money is a luxury good (i.e., income-elasticity of demand for money is greater than unity) to the agents in the economy? Is it because economic development brings about structural changes in the economy which lead to the observed behaviour of velocity? Is it because monetary habits change in a systematic way? It is important to have time-series analyses of developing economies to provide answers to such questions. For example, in a study of Malaysia and Singapore, Short (1973) found that though velocity did move inversely to per capita income, this negative impact ... was overpowered by the change in monetary habits which the increase in bank offices caused... . The aim of this paper is to analyse the temporal behaviour of income-velocity of money in agricultural developing economies. In the literature on velocity and demand for money in developing economies, attention is focussed mainly on three issues: (i) the incomeelasticity of demand for money and in particular whether money is a luxury good or not; (ii) the growth of monetisation and changes in monetary habits, and (iii) the effect of the cost of holding money. One important factor which has suffered total neglect is the role of sectoral differences in money demand behaviour and the structural shifts in the sectoral composition of income that accompany development. Money demand behaviour may vary across sectors. This is true not only in developing economies but also in developed economies. For example, Goldfeld (1976) has found that the business sector and the household sector in the United States have different money demand functions. An implicit specification error is committed in the aggregative money demand or velocity equation whenever the sectoral-income-composition factor is omitted. On a priori grounds this factor should have special significance in developing economies where sectoral shares in national income change over time. In the absence of flow-offunds accounts and adequate data on sectoral money holdings for most of the developing economies, direct estimation of sectoral demand functions is not possible. Thus, an aggregative specification which incorporates the sectoral-income-composition factor is necessary to analyse the behaviour of velocity.

THE X-inefficiency costs of protection and industrial concentration have been topics of considerable interest in the literature on economic development. Balassa (1975) and Bergsman (1974), for example, have argued that protection, by increasing X-inefficiency, generates a major welfare cost which is not captured by traditional costs of protection calculations, and White (1976) has examined the relationship between inappropriate factor intensities which he associates with Xinefficiency and industrial concentration. The common theme which emerges from each of these studies is that public policy can have a major impact on economic performance not only by influencing factor proportions, but also by influencing the intensity with which a non-measurable input, X-efficiency, is employed. Despite the intuitive appeal of the X-efficiency concept there have been very few empirical tests of this hypothesis. This partly reflects the imprecise nature of the basic concept but also the lack of adequate micro economic data. X-efficiency clearly relates to efficiency within firms so that the most appropriate tests would rely on data on firm-level efficiency. In this paper we propose a direct test of the X-efficiency hypothesis using firm-level data. We build on previous work by Corden (1970, 1974) and Martin (1978) who showed how to model X-efficiency effects using the concept of managerial leisure. We extend these simple models of managerial behavior, emphasizing the role of the external managerial labor market. The model is then used to explore the relationship between changes in public policy, managerial effort and X-inefficiency. Certain predictions of the model are tested using cross-section data from a survey of firms in two subsidized industries in Ghana. Efficiency indices are computed on the basis of a translog frontier production function. Variations in relative efficiency are then correlated with several explanatory variables including the presence or absence of subsidy payments to the firm. Subsidized firms in both industries are found to exhibit higher relative levels of X-inefficiency.

M. Anne Hill, Female Labor Force Participation in Developing and Developed Countries-- Consideration of the Informal Sector, The Review of Economics and Statistics, Vol. 65, No. 3 (Aug., 1983), pp. 459-468

A LTHOUGH public policy analysts are revaluating income maintenance and income support programs, economists have devoted little attention to empirical research on one such program. Workers' Compensation (WC), a program in search of quantitative researchers, is about the same size as the Unemployment Insurance (UI) and Social Security Disability Insurance (SSDI) programs, and WC may have stronger supply effects than the UI program.' The state and federal no-fault insurance programs which constitute America's WC insurance system cost over $25 billion in 1980, and they covered, approximately, 90% of all wage and salary workers.2 During the period 1972 to 1978, the cost of WC as a percentage of covered payroll doubled and was probably equal to 2% of covered payroll.3 The WC program has enjoyed the support of both labor and industry. Employers favor this form of no-fault insurance because it guarantees a limit on the liabilities that they will incur due to the work-related injuries and diseases of their employees, and employees value the guaranteed medical expenses and payments that they receive under the program.4 Labor can view Workers' Compensation as a vast improvement over either the common law, which seemed to be designed to provide employees with strong safety incentives rather than to replace their lost income, or the employer liability laws that prevailed in most states until the early part of this century. Perhaps another reason for the position that the Workers' Compensation program has held in American social insurance has been that it is specialized in nature, and has constituted a relatively small share of the employers' overall cost. However, in recent years as the claim frequency under Workers' Compensation has risen dramatically and as policymakers and practitioners alike have consistently underestimated the cost consequences of liberalized Workers' Compensation benefits, analysts are beginning to reevaluate this very important form of social insurance. In this paper we analyze the two classes of Workers' Compensation injuries which account for most of the Workers' Compensation costs in the United States: temporary total and permanent partial injuries. In the next section we briefly describe some of the rudiments of the program after which we sketch an economic model of injury rates and suggest how they interact with wages and hours of work as levels of benefit change. In the fourth section of the paper we present empirical results which indicate that recent changes in the Workers' Compensation laws have had subReceived for publication April 1, 1982. Revision accepted for publication December 1, 1982. * Brigham Young University and Rutgers University, respectively. We wish to thank Steve Zrebiec for competent research assistance, and Monroe Berkowitz, Tom Brown, John F. Burton, Jr., Jennifer Field, and Fred Siskind for comments on an earlier draft. The views expressed herein are our own, and do not necessarily reflect those of Brigham Young University. ' Danziger, Haveman, and Plotnick (1981) guesstimate the reduction of work hours by transfer recipients as a percentage of total work hours of all workers as 1.2%, 0.7%, and 0.3% for SSDI, WC, and UI, respectively. 2 Dan Price's estimate (1981) that the WC program cost $20 billion in 1979 is a conservative one. He correctly attributes the full premium paid to private insurers, $14.3 billion, and to state funds to that year's cost, but he attributes only the benefits paid in 1979 by federal programs and firms that were selfinsured plus a 5%-to-10% markup for administrative cost to 1979 costs. This is equivalent to assuming that the federal programs and the firms which self-insure incur all of their WC losses during a calendar year. Actually, 1979 losses may be paid over many years, and injury or illness claims may arise many years after the end of calendar year 1979. These incurred losses and future claims should be fully reflected in current costs, but are so only to the extent that the actuarial price (premium) paid to private carriers and state funds is fully reflected in premiums collected. In addition, Price did not include the federal black lung benefits program funded by general revenues. 3Elson and Burton (1981) have examined the increasing trend in Workers' Compensation insurance. They present evidence which indicates that costs have doubled, for homogeneous classes of employers, in most states over the 1972 to 1978 period. 4There has been erosion of the certainty aspect of benefit payments due to litigation of claims. Vroman (1978) pointed out that certain permanent partial disability claims would be litigated with probability one. The high incidence of controversion has played a prominent role in calls for reform of the WC system and certainly was a factor in the state of Florida's decision to institute a wage loss system on August 1, 1979.

FOR at least the last two decades the South and Southwest have been the fastest growing regions in the United States. During this period we have witnessed considerable shifts in the location of economic activity and, overall, the movement has been decidedly toward the South. Since the early sixties, when this southern migration began to accelerate, an increasing amount of public attention has been directed to this topic; so much so that it is now popularly referred to as the Sunbelt phenomenon. Numerous explanations have been advanced to account for this rapid growth in the South, but three explanations have persistently evoked an impressive level of debate. First, many have argued that a significant portion of this regional redistribution can be attributed to differentials in state and local taxing policies; in particular the state corporate income tax. These rates vary considerably across states, but even more important is the observation that there have been significant changes in the structure of corporate taxes over the last few decades. Beginning in the early 1950s the relative tax rate' for several southern states, particularly those in the East South Central and West South Central divisions, began to decline sharply. On the other hand, relative tax rates for three divisions, New England, the East North Central and the MidAtlantic, rose in the early sixties. By 1970 the relative tax rate ranged from 0.60 in the West South Central (down from 1.20 in 1950) to 1.37 in the Mid-Atlantic (up from 1.15 in 1950). Notwithstanding these stylized facts, the consensus from previous empirical work on industry location suggests that state taxes have not influenced the direction or magnitude of industry migration. However, there are reasons to believe that acceptance of this conclusion may be premature. For example, in the early body of work, results were based on simple correlations of tax levels and changes in either value added or employment.2 More recent attempts to empirically model corporate tax effects have arrived at somewhat ambiguous results. Carlton (1977), examining three 4-digit industries, found that corporate tax differentials failed to explain any of the variation in new births of firms across SMSAs. Hodge (1979), while confirming Carlton's results for the same industries, discovered that taxes have significantly affected regional investment patterns in another industry not covered in Carlton's study.3 Why taxes mattered in one industry and not in the other three remained a matter of ad hoc speculation. A second explanation alleges that states in the South have begun to exhibit a more favorable business climate. Although it is difficult to measure directly a state's business climate, one important manifestation of that climate is its position with respect to the division of power between union and management in the collective bargaining process. Legal obstacles to union organization and bargaining power will be viewed by firms as a positive signal of a pro-business environment. The creation of legislative obstaReceived for publication October 29, 1981. Revision accepted for publication April 16, 1982. Miami University. The author is especially indebted to Michael Ward at the Rand Corporation for numerouls helpful discussions throughout the preparation of this study. Also, the author benefited from the advice and comments of John Antel, Robert Cotterman. Lee Lillard, John Lunn, William J. Moore, James Smith, Finis Welch and two referees of this REVIEW. Financial suppoI-t was provided by the Foundation for Research in Economics and Education at UCLA and the University of British Columbia Humanities and Social Sciences Committee. I The relative tax is defined as a state's tax rate divided by the average for all states. As in most economic discussions, it is relative price that matters. 2 For a review of earlier work see Due (1961). Some of the studies reviewed include Bloom (1955), Campbell (1958), Floyd (1952), and Larson (1957). See also Garwood (1952). 3 Most of the other empirical work focused exclusively on intt--urban location decisions and hence had no reason to examine state corporate taxes. However, they found local tax differentials (inter-zonal) were unimportant in determining intra-urban movement. For example, see Moses and Williamson (1967) and Schmenner (1978).

During the last two decades the issue of equality according to sex and race has become one of increasing importance to economists. An extant literature on the economics of discrimination began with the pioneering work of Becker (1957). This paper is an attempt to shed further light on the extent of employer discrimination by sex and race by comparing the earnings of self-employed workers to their wage and salary counterparts. In short, if employer discrimination is a principal source of discrimination against blacks and women, then we would expect the black/white and female/male earnings ratios to be higher for the self-employed compared to their wage and salary counterparts. No discrimination of this type is applicable to self-employed workers. In addition, blacks and women should be relatively overrepresented among the self-employed compared to wage and salary workers in the economy. Section II of this paper further elaborates on this indirect method to estimate the extent of employer discrimination in the labor market for blacks and women. In section III, the results of this method are presented using the 1978 Current Population Survey as the data source. Results indicate the black/white and female/ male earnings ratios are no larger for the self-employed compared to their wage and salary counterparts, even after making various attempts to adjust for differences in other variables that affect earnings, and to limit the influence of consumer discrimination on the results.

THE study of merger activity has been of long-standing interest to economists as well as the financial community. References to merger activity in American industry generally acknowledge three major merger movements. The first one occurred during the turn of the century, the second one during the 1920s. Stigler (1950) describes the second merger wave as being for oligopoly in contrast with the earlier for monopoly movement. Increased market power through consolidation and corporate concentration and operating economies of scale were identified as motives for mergers during these two waves. Horizontal mergers (i.e., mergers between direct competitors) were relatively more important during the first merger wave with vertical mergers (i.e., mergers between firms with prior buyer-seller relationships) being significant in the second wave.' Currently the United States is in the midst of its third major merger wave which began after the end of World War II. This has become known as the conglomerate merger wave because of the emphasis on mergers between unrelated firms or firms seeking product extension objectives (i.e., mergers between firms functionally related in terms of distribution and/or production facilities but whose products are not directly competing).2 The direction of the current merger wave can be partially explained by the fact that the Celler-Kefauver amendment to the Clayton Act in 1950 discourages horizontal and vertical mergers. While many authors have engaged in the study of mergers in the United States, the empirical examination of changes in aggregate merger activity has been limited both as to type and time period covered. Nelson (1959) first examined changes in quarterly merger activity during the 1895-1920 period and found a high positive correlation between changes in merger activity and changes in stock prices, and a positive but lower correlation between mergers and industrial activity. Further study by Nelson, however, showed that for the 1919-1954 period the relationship between mergers and stock prices was considerably weaker. In a follow up study, which extended aggregate merger data through 1962, Nelson (1966) concluded that merger activity exhibited a positive and highly consistent response to changes in business activity (as measured by the reference or business cycle). In addition to the efforts by Nelson, Weston (1961) examined annual changes in merger activity during the interwar period (between World War I and World War II). Using a multiple regression model, Weston found merger activity to be significantly related to stock prices but not significantly related to industrial production activity. Previous studies provide only limited insights into the structural (especially lead-lag) relationships between aggregate merger activity and macroeconomic/market factors. The literature is particularly void of empirical studies which investigate such relationships during the current merger period.3 It is this subject which we address in this paper. We employ a data-based multiple time series approach to develop an explanatory model for describing changes in the incidence of Received for publication July 14, 1981. Revision accepted for publication December 17, 1982. * University of Colorado, University of Iowa, and University of Denver, respectively. Computer facility support from the University of Iowa along with multiple time series programs provided by the University of Wisconsin-Madison are gratefully acknowledged. We also wish to thank the referees for their helpful comments. ' These two merger waves or movements were extensively studied, either separately or together, by Eis (1969), Markham (1955), Nelson (1959), Stigler (1950), Thorp (1941), and Weston (1961), as well as others. 2 The current merger movement, either separately or in conjunction with the earlier movements or waves, was analyzed by Lintner (1971), Lynch (1971), Markham (1973), Nelson'(1966), Reid (1968), and Steiner (1975). 3 International investigation of aggregate merger activity during the 1960s and 1970s is reported in Mueller (1980). Visual examination of the movement of mergers, GNP, and stock prices in Belgium suggested generally positive relationships. Aggregate merger activity was compared individually against economic activity (GDP), gross fixed investment, and share prices in West Germany. During the 1960s mergers tended to move in step with changes in economic activity and investment while lagging share prices. However, in the 1970s merger activity tended to lead the other aggregate measures. The best overall relationship was between merger activity and share prices.

Laura Blanciforti, Richard Green, An Almost Ideal Demand System Incorporating Habits: An Analysis of Expenditures on Food and Aggregate Commodity Groups, The Review of Economics and Statistics, Vol. 65, No. 3 (Aug., 1983), pp. 511-515

THIS paper models and estimates import demand and demand for export functions for 19 industrial countries. Although primary emphasis is placed on the period of generalized floating exchange rates, 1972 through 1980, estimates are also provided for the fixed exchange rate years (1957-1970), thus making possible a comparison between the two eras. Aside from the conventional income and price variables, the paper assesses the effect of variations in the exchange rate and in the expected exchange rate, on real trade flows. Additionally, it estimates an unrestricted lag structure of the effect of price and exchange rate variations on imports.