Knowledge that Transforms

Despite the critical analysis of Pagan (1984) and several subsequent applied studies, empirical models characterized by expectations are often estimated with regressor proxies that are treated as ordinary nonstochastic This paper offers a Generalized Least Squares estimator designed to cope with the nonscalar disturbance matrix precipatated by generated The approach is designed as a natural extension of Pagan's analysis and the author demonstrates how it may be applied to multi-equation models. Experimentation with numerical examples reveals the potential severity of ignoring the problem. These results also suggest an easily calculated indicator of potential inference distortion in models that fail to account for regressors.

Goedde, Alan G., U.S. Multinational Manufacturing Firms: Determinants and Effects of Foreign Investment, Ph.D. dissertation, Duke University (1978). Grubaugh, Stephen G., The Process of Direct Foreign Investment, working paper, Bentley College, Aug. 1986. Helpman, Elhanan, Simple Theory of International Trade with Multinational Corporations, Journal of Political Economy 3 (June 1984), 451-471. Horst, Thomas, Firm and Industry Determinants of the Decision to Invest Abroad: An Empirical Study, this REVIEW 54 (Aug. 1972), 258-266. ____,_ At Home Abroad: A Study of Domestic and Foreign Operations of the A merican Food-Processing Industry (Cambridge, MA: Ballinger, 1974). Hymer, Stephen H., The International Operations of National Firms: A Study of Direct Foreign Investment, Ph.D. dissertation, M.I.T. (published by M.I.T. Press, 1976). Judge, George G., R. Carter Hill, William E. Griffiths, Helmut Lutkepohl, and Tsoung-Chao Lee, Introduction to the Theory and Practice of Econometrics (New York: John Wiley and Sons, 1982). Macdougal, G. D. A., The Benefits and Costs of Private Investment from Abroad: A Theoretical Approach, Economic Record 36 (Mar. 1960), 13-35. Markusen, James R., Multinationals, Multiplant Economies, and the Gains from Trade, Journal of International Economics 3/4 (May 1984), 205-226. Pindyck, Robert S., and Daniel L. Rubinfeld, Econometric Models and Economic Forecasts, second edition (New York: McGraw-Hill, 1981). Rugman, Allen M., Inside the Multinationals: Economics of Internal Markets (New York: Columbia University Press, 1981). Vaupel, James W., and Joan P. Curhan, Making of Multinational Enterprise (Cambridge: Division of Research, Graduate School of Business Administration, Harvard University, 1969).

Gerard Anderson, Jane Erickson, Susan Feigenbaum, Examining the Relationship between Capital Investment and Hospital Operating Expenditures, The Review of Economics and Statistics, Vol. 69, No. 4 (Nov., 1987), pp. 709-713

The correlation between a real appreciation of the U.S. dollar and a decline in U.S. relative primary commodity prices does not imply that such an appreciation leads to a deterioration in the terms of trade of commodity producing LDCs. In fact, empirical results reported in this note suggest that the dollar appreciation has had a beneficial impact on these countries' terms of trade.

In this paper Lilien's (1982) hypothesis that sectoral shifts in employment raise aggregate unemployment is tested using Canadian quarterly data. Lilien's framework is extended to investigate regional labour market rigidities and to distinguish between industry shifts that are correlated with changes in aggregate activity, and those which are exogenous to the overall level of activity. The robustness of the results to various changes in model specification is also investigated. I find that in Canada exogenous shifts in employment between sectors do not have a significant effect on the aggregate unemployment rate. (This abstract was borrowed from another version of this item.)

Pooling consumption data from different countries for demand system estimation is attractive because it increases both sample size and therange of v ariation of relative prices and income. The major objection to pooling is that d ifferent countries may have different demand system parameters. This paper propo sed and estimates specifications that permit pooling while allowing both short-r un andlong-run demand systems to differ across countries. Using data from Belgi um, the United Kingdom, and the United States, the authors findthat, although p ooling was accepted for some pairs of countries and some specifications, it was rejected for most. They conclude that caution is appropriate in pooling internat ional consumption data.

Douglas W. Caves, Joseph A. Herriges, Kenneth E. Train, Robert J. Windle, A Bayesian Approach to Combining Conditional Demand and Engineering Models of Electricity Usage, The Review of Economics and Statistics, Vol. 69, No. 3 (Aug., 1987), pp. 438-448

From a probit model of enrollments, estimates of the expected net present value of post secondary education are developed for a sample of high school graduates, based e xclusively on individual expectations of the relevant costs and benefits at the time of the enrollment decision. The results are very plausible and consistent w ith rate-of-return estimates from studies which rely on ex post income data. Thi s suggests that students have rational expectationsand relatively good informat ion about future employment opportunities and other factors which determine the returns to educational investment.

Using an effort-regulation type of efficiency wage model, it is demonstrated that a firm may respond to slackening labor markets by acting to increase the intensity with which workers work. The magnitude of this work intensity effect depends on the structure of employment relations. Where long-term employment relations are prevalent, the effect of labor market slack on work intensity may be diminished. These propositions are tested empirically by estimating the effects unemployment and long-term employment have on productivity growth in two-digit manufacturing industries.