Knowledge that Transforms

The X-efficiency concept was developed in a landmark article by Harvey Leibenstein (1966). Essentially, the theory explains that, for a variety of reasons, neither organizations nor people work as efficiently or effectively as they could. Leibenstein points out that competition, in an important way, affects the intensity with which firms and people work; where competitive pressure is light, many people trade the disutility of greater effort, of search, and the control of other peoples' activities for the utility of feeling less pressure and of better interpersonal relations. The theory postulates the tendency for a firm's costs to be lower whenever it faces competition because of variable performance with a given level of inputs. The purpose of this article is to examine the competitive aspect of the X-efficiency theory and to assess its validity. This additional study is justified because in neither the studies cited by Leibenstein nor in subsequent studies was the impact of competition on firm costs evaluated empirically. This deficiency seems to be significant because Leibenstein emphasized the importance of the competitive effects in the theory of X-efficiency.

A country's exports are conventionally explained by its export prices relative to competitors' prices and by importing countries' real income. Except for its export prices, the demand for its exports is determined by factors beyond its control. It is thus usually assumed that the country passively responds to the multiplier effect that export demand generates in its domestic economy. This view is common both in macroeconomic theories of short-run income determination and long-run growth of an open economy. However, competition is imperfect in international trade. Apart from barriers set up artificially by importing countries, there are non-price factors in product quality, marketing, and services that make competition imperfect in international markets. Just as sellers can influence their demand curves in domestic markets by advertising, exporters can affect foreign demand through non-price competitive activities, e.g., export promotion. Moreover, imperfect availability of information gives a strong edge to well-established trading connections, which should become firmer as the exporting country expands in scale. In a dynamic world, process and product innovations are continually introduced; old goods are improved in quality and new goods come into existence. A country that leads others in initiating these innovations enjoys a dynamic comparative advantage. Thus, we can make a strong case that non-price competitiveness is significantly associated with an exporting country's growth performances. This argument suggests that domestic growth is an important determinant of the growth potential of a country's industrial exports. A fast-growing country could increase its exports more rapidly than a slow-growing country. While the former enjoys trade surpluses, the latter suffers from trade deficits. The balance of trade could be divergent rather than convergent in the process of growth. The experiences of industrial countries in the two decades preceding 1971 seem to be consistent with this interpretation. We wish to test our hypothesis and to evaluate how far it can account for differences in individual countries' export performances. This article presents such an empirical test by examining export records of major industrial countries over the 1955-1970 period through estimating a cross-country export demand function. Our investigation indicates that domestic factors were a particularly important determinant of export demand. We emphasize that the omission of these factors from the export demand function can make trade projections err and, consequently, lead to wrong policy prescriptions. We introduce export demand and supply functions in section II, examine data and variables in section III, present cross-country estimates of the export demand function in section IV, account for intercountry variations in the conventionally estimated world-income elasticity of export demand in section V, discuss a few econometric problems in section VI, and give concluding remarks in section VII.

A4MONG the many problems raised by the X'Wactual construction of empirical input-output tables two key issues are often singled out: (1) what industrial classification scheme should be adopted and (2) how the data should be structured. Actually, these problems of industry definition and data structuring are two facets of a more fundamental problem: Given external constraints on data gathering (availability and format) which make the industry concept mostly unobservable, how can we best group the available data into an input-output table. Ideally, each industry would be defined by a single well-defined product and a separate industry should be used for different, but possibly 6closely related, products.1 A widely accepted notion of best grouping is one which minimizes the bias, i.e., the difference between the gross output forecast obtained with a disaggregated table and the forecast obtained with an aggregated table, for any final demand bill. Historically, a theoretical condition for zero aggregation bias was first derived by Hatanaka (1952).2 Briefly stated, let A denote the (n x n) disaggregated direct coefficient matrix; x denote the n-dimensional column vector of gross outputs; y denote the n-dimensional column vector of final demands; I denote the (n X n) unit matrix; S denote the aggregation operator where S is (M X n) and reads

THE critical nature of the demand for money in macroeconomic analysis has generated a considerable amount of theoretical and empirical research, although much controversy remains. The conventional theoretical frameworks have resulted in two basic money demand models: one an asset demand model and the other a transactions demand model. For the most part, empirical evidence has tended to favor the asset demand formulation.' This paper will report evidence that strongly suggests that the previous empirical studies of the transactions demand for money were misspecified, and that as a result, the conclusions drawn do not usefully discriminate between the asset and transactions theories. The misspecifications are twofold. First, either GNP or NNP has typically been used as a proxy for transactions although there are strong a priori reasons to believe that neither is an adequate measure of transactions.2 Second, as many authors have recognized, technological change could affect the demand for money and regression estimates might be biased if structural changes due to technological innovations are not taken into account. Even so, researchers have dismissed technological change from their studies, typically relegating their observations to footnotes. In this paper, debits to demand deposit accounts (adjusted for currency transactions) are used to replace income as the measure of transactions, and time, which provides a crude estimate of the mean rate of technological change over the sample period, is incorporated into both the theoretical and empirical model. The results demonstrate that the transactions theory of money demand outperforms the asset demand formulation, contrary to much of the currently available empirical evidence. This study also suggests that technological change reduces money demand, ceteeris paribus. by about 1.5% to 2.5% per year. In addition, other issues such as the speed of adjustment to changes in the desired level of money balances and economies of scale in holding money are also addressed. The empirical findings suggest that at least 75%, and as much as 100%, of the gap between desired and actual money holding is closed within one year and that there are substantial economies of scale in holding money, as suggested by monetary theory.

F OREIGN private direct investment has a number of economic effects on the capitalreceiving country. Although these have usually been assumed to be beneficial, several recent papers suggest that the issue may be more complex.' While much of the attention to this subject has come from those concerned with developing countries, these issues have applicability in all countries receiving foreign investment. This article examines foreign investment's effect on the quantity of private investment in the capital-receiving country. Many development models simply assume that a dollar of foreign investment produces an equal increase in investment.2 However, microeconomic analysis suggests that the increase in resources will be split between an increase in investment and an increase in consumption.3 Several recent empirical studies provide support for the latter approach.4 In addition to affecting investment in this way, foreign investment can cause an increase in investment beyond the size of the resource inflow through complementary effects. Moreover, to the extent that investment depends on income through an accelerator type of mechanism, changes in expenditure produced by foreign investment will cause still further changes in investment through changes in income. The purpose of this article is to measure the size of foreign investment's effect on investment in Canada. Moreover, the nature of foreign direct investment's impact will be clarified by tracing through its effect on consumption, exports and imports, as well as on investment. Such an approach not only makes possible a better assessment of the desirability of foreign investment, but suggests ways in which policy makers can effect change.

Michael J. Boskin, Martin Feldstein, Effects of the Charitable Deduction on Contributions by Low Income and Middle Income Households: Evidence From the National Survey of Philanthropy, The Review of Economics and Statistics, Vol. 59, No. 3 (Aug., 1977), pp. 351-354

T HE conglomerate activity of the sixties has generated considerable interest in the effects of corporate diversification. Enquiry has centered on two related questions-how well do diversified firms perform vis-a-vis specialized companies, and if they perform differently, why do they do so? With respect to these questions, this paper presents qualified evidence which suggests that diversified firms outperform their specialized counterparts, other things equal, and that the source of the superior performance is the synergy that arises from diversification.'

James A. Dunlevy, Henry A. Gemery, The Role of Migrant Stock and Lagged Migration in the Settlement Patterns of Nineteenth Century Immigrants, The Review of Economics and Statistics, Vol. 59, No. 2 (May, 1977), pp. 137-144