Knowledge that Transforms

Theoretical and empirical analyses of international commodity trade patterns have developed in several directions since Wassily Leontief's article on the validity of the Heckscher-Ohlin theory. Robert B aldwin's recent article in this Review provides a comprehensive survey of the important issues in contemporary trade literature. His efforts at location and consolidation of data from many sources have shed new light on several competing hypotheses attempting to explain trade patterns. This paper will attempt to improve Baldwin's statistical results by combining his data with some developed by Gary Hufbauer in a parallel study of the industrial characteristics of trade. Also, the relationship between export performance and technological innovation will be explored by a new approach which focuses on actual change in the production function and not merely potential improvement by Research & Development (R&D) efforts. Finally, economic and industry characteristics of several countries other than the United States will be used to provide additional information concerning the relationship of technological change and economies of scale to trade flows.

Over the recent past, economists have increasingly pursued research on the question of financial instability and financial crisis, reflecting, of course, the growing seriousness of these issues in the real world, both domestically and internationally. One important aspect of this research has been the effort to establish a set of empirical relationships through which tendencies toward instability and crisis may be accurately observed, and thus better understood. This paper has a dual purpose: first, to consider empirical measures of financial activity in the U.S. economy, specifically the trend relationship between nonfinancial debt and GNP; then, based on the empirical discussion, to offer an approach toward understanding some of the sources of contemporary financial instability. In the latter aim, I pay particular attention to the issue of federal government deficits.

This paper reports on the development and preliminary analysis of a unique data file that includes matched employee-employer data for a sample of illegal aliens and parallel data on the establishment and workforce for employers randomly selected from industry directories. It is shown how these data can be used to address substantive issues regarding the labor market adjustment and impact of illegal aliens through 2 examples analyses of wages and on-the-job training. In addition to the myriad of specific conclusions that have been developed from the methodological and data analyses 2 general conclusions emerge from this project. 1 is that the methodology is successful for investigating the labor market adjustment and impact of illegal aliens. More generally it demonstrates the feasibility of developing employee-employer matched data files for other demographic groups or the labor force as a whole. The other is that the illegal alien labor market appears to be well-functioning; i.e. it is competitive fluid and flexible and provides opportunities for economic advancement and job mobility even for low-skilled foreign-born workers in this country illegally. (authors)

The predominant approach to empirical analyses of the balance of trade has been to estimate demand equations for quantities of imports and of exports, employing as explanatory variables relative prices and real incomes. This approach, referred to as the elasticities approach, is most notably exemplified by the work of Hendrick Houthakker and Stephen Magee, although other examples can be found discussed in the survey of such work by Magee (1975). In contrast, contemporary work falling under the rubric of the monetary approach to the balance of payments has emphasized that the balance of payments is determined by the net excess supply or demand for money. But because the balance of payments is identically the sum of the balance of trade, the capital account, and the service account, the monetary approach additionally implies that these subaccounts must be influenced in some way by the net excess supply or demand for money. The empirical work of Pentti Kouri and Michael Porter and of Kouri could be interpreted as combining in one model elements of both the elasticities approach to the balance of trade and the monetary approach to the balance of payments. In these studies, the current account (the sum of the balance of trade and service account) is assumed to be exogenous to the model while the behavior of the capital account is determined by the net excess supply or demand for money. In such a framework the balance of trade could be viewed as being determined by relative prices and real incomes, and the capital account could be viewed as that component of the balance of payments which is

During the 1980's, equal pay for comparable worth has emerged as a major legislative issue, especially at the state and local level. In the wake of increasing implementation of comparable worth in the public sector, efforts have been made to estimate the probable effect of nationwide implementation of comparable worth-type legislation on the earnings gap between women and men (see, for example, George Johnson and Gary Solon, 1984). These analyses have generally concluded that a comprehensive comparable worth policy would have very little effect on the sex-based earnings gap. This paper offers alternative estimates of the effect of comparable worth on the male-female earnings gap, based upon examination of four statelevel comparable worth studies (Iowa, Michigan, Minnesota and Washington).

In March 1966 issue of this Review, Belton Fleisher proposed an analytical framework for assessing relationship between income and juvenile delinquency and has attempted to measure effect of income on delinquency. In a series of multiple regression analyses, he finids a general pattern of behavior. . in which the overall effect of income on delinquency appears to be negative... although there is a partial off-setting effect as a result of positive influence of income on payoff for property crimes. He also finds that unemployment appears to be a cause of delinquent behavior... (p. 132), which is consistent with his previous work on subject. Fleisher's results, however, depend heavily on choice of variables used to represent tastes for delinquency. It is purpose of this comment to show that, at least for only set of published data used by Fleisher, which is also data regarded by him as niost useful for investigating delinquency (74 community areas within Chicago): a more accurate measure of one important taste concept is available, and its inclusion substantially alters Fleisher's results. Secondlv, Fleisher's economic variables are highly collinear with additionial variables, reflecting other aspects of taste for delinquency, which might reasona'bly be included in his regressions. XVhen these variables are added, Fleisher's results are further modified and his conclusions, particularlIy those with policy implications, are vitiated.

The title of this paper is somewhat inappropriate, for it may suggest that finance is a study separate from economics. In fact, most researchers in finance refer to themselves as financial economists, and many have done their graduate work in departments of economics. A more appropriate (but longer) title would refer to the interrelations of financial economics and other fields in economics. Given finance is a field within economics, it is not surprising that finance has borrowed heavily from other disciplines within economics and that the reverse has occurred as well-although the latter is a newer phenomenon than the former. Financial economics has a long tradition of empirical work which will be the focus of this paper. I categorize the cross fertilization between finance and economics in the next four sections. The first section discusses the sharing of econometric methods. Section II focuses on situations where other fields in economics also attempt to explain prices of financial securities. Because of the quality and quantity of financial data, finance has served as an empirical laboratory for other fields in economics; this is discussed in the third section. Finally, since security prices are governed in part by expectations about future economic variables, there have been attempts to extract these expectations (as well as other unobservables) from the observed prices of financial assets. Section IV notes some examples of where unobservables have been extracted from prices of securities. Using financial data to measure the economic impact of certain events or to extract unobservables presumes that the participants in the financial market are rational. To the extent that this rationality assumption is violated calls into question the usefulness of financial data. Section V discusses some of the recent empirical anomalies in financial economics as well as their ramifications for employing financial data. This paper is not an exhaustive survey of all the interrelations between finance and economics. Instead the paper only attempts to illustrate some of the interrelations by relying on a few examples.