Knowledge that Transforms

Data from a pooled sample of 48 less developed countries on the relationship between population density/acre cultivated land and the proportion of cultivated land that has been irrigated were analyzed to determine the effect of population growth on irrigation investment. The data indicate that population density has a positive effect on the building of irrigation systems. This relationship was somewhat strengthened by the addition of variables such as the cultivated area as a proportion of the total area per capita income geographic dummies and the population density with respect to the countrys entire land area. In addition historical data suggest that population growth stimulates land clearing. An average of 18.4% of cultivated land in the countries analyzed is irrigated indicating a 1% increase in population density would produce a 0.48% increase in the stock of irrigated land. This 0.48% population growth elasticity for irrigation systems contrasts with Leiffs -.56 elasticity of national income savings. Additional research is required to determine the direction of the net effect of population growth on total investment; however it can be assumed that the effect on agricultural investment is positive.

Charles R. Link, Edward C. Ratledge, The Influence of the Quantity and Quality of Education on Black-White Earnings Differentials: Some New Evidence, The Review of Economics and Statistics, Vol. 57, No. 3 (Aug., 1975), pp. 346-350

A substantial portion of the United Kingdom's .11.international transactions in long-term capital is comprised of inflows and outflows of direct investment in foreign subsidiaries and branches, whether by acquisition of share and loan capital, retention of profits, changes in branch indebtedness, or by changes in intercompany accounts. These transactions have historically been very large. On average, since 1961 U. K. firms have invested abroad in direct investments about 11.5%o as much as they have invested at home. On a per capita basis, the U. K. is one of the world's largest foreign investors. These flows are of considerable importance for the balance of payments. The quarterly value of the deficit on direct investment account has averaged ?28 million since 1961, compared with an average surplus on current account of ?34 million, and the variance of the balance on direct investment is about 1 1% of the variance of the balance on current account. Section II describes a model of direct investment flows. This model is tested in section III. The final section assesses some of the implications of the estimated model.

In a recent article in this journal, Professors Sinai and Stokes (1972) presented a very interesting test of the hypothesis that money enters the production function, and they suggest that real balances could be a missing variable that has contributed to the unexplained 'residual' being attributed to technological The theory of induced innovation, as presented by Fellner (1961) and Schmookler (1966), suggests that market conditions affect the demand for innovation and the realized technological changes. Since money may be regarded as a proxy for short-run fluctuations in the aggregate demand, this theory suggests that money affects output and technological changes as a demand factor rather than as a factor of production. In this note, we suggest the appropriate tests to distinguish between the two alternative hypotheses, and present some empirical results.

SINCE and nondurable goods are consumed quickly but durable goods last for some years, many economists adjust the concept of durable goods spending in the National Income Accounts (NIA) to allow for the element of saving in expenditures for durable goods.' Validly, a distinction is thus made between current consumption and outlays which are partly consumption and partly saving. Unfortunately, as commonly estimated with fixed life and straight-line depreciation assumptions, a of services definition of durable consumption may lead to misleading theoretical conclusions and affect the accuracy of economic forecasts.2 For theory, this treatment of durable stocks implies improvident consumption of durables during cyclical downturns and affects the case for money illusion. In forecasting, use of this concept in the consumption block of the FRB-MIT-Penn econometric model causes biases around cyclical turning points. In the first section of this article, it is shown that higher prices induce additional saving in the context of a consumption function with NIA definitions. The moving weight personal consumption deflator from the NIA and the fixed weight consumer price index are compared to confirm the positive effect of higher prices on saving and to suggest that inflation may force substitutions among customary purchases. Supporting data from consumer surveys are cited to illustrate that the price influenced changes in family expenditure patterns are associated with downgrading in the quality of purchases. The addition of several measures of price anticipations to our consumption equation suggests that the amount of inflation anticipated by households has a negative impact on saving but that this effect is less important in explaining variations in the saving rate than the positive saving associated with a rising consumer price index. In the second section, the saving rate consistent with the flow of definition of durables is contrasted with the NIA saving rate at times of heightened inflation and cyclical downturns by an analysis of the movements of the two time series on a graph. Some implications of the choice of net financial assets or total household net worth in consumption functions are examined. Finally, the predictions of the FRB-MITPenn econometric model are evaluated and the results are compared with a well-known consumption function and with the model presented in the first section. The flow of definitions of consumption, income, and wealth are found to generate overpredictions of consumption around cyclical turns.

Glenn P. Jenkins, Brian D. Wright, Taxation of Income of Multinational Corporations: The Case of the United States Petroleum Industry, The Review of Economics and Statistics, Vol. 57, No. 1 (Feb., 1975), pp. 1-11