Knowledge that Transforms

A large empirical literature finds that there is too little international trade and too much intranational trade to be rationalized by observed international trade costs, such as tariffs and transport costs. This paper investigates whether a model in which the nature of production can change in response to trade costs—a framework with multistage production—can better explain the home bias in trade. The calibrated model can explain about two-fifths of the Canada border effect, about two-and-one-half times that of a model with one production stage. The model also explains a significant fraction of Canada-US “back-and-forth,” or vertical specialization, trade.

Investigating Income Effects in Scanner Data: Do Gasoline Prices Affect Grocery Purchases? by Dora Gicheva, Justine Hastings and Sofia Villas-Boas. Published in volume 100, issue 2, pages 480-84 of American Economic Review, May 2010

Changes in Transportation Infrastructure and Commuting Patterns in US Metropolitan Areas, 1960-2000 by Nathaniel Baum-Snow. Published in volume 100, issue 2, pages 378-82 of American Economic Review, May 2010

A long tradition in macroeconomics dating back to Arthur Okun (1965) and Walter Oi (1962) regards cyclical productivity fluctuations as an artifact, a residual generated from the incomplete and lagged response of employment and labor hours to demand-driven fluctuations in real output. In Okun’s version a one percent decline in output relative to trend is divided up into a reduction of 1 ⁄3 point in productivity and 2 ⁄3 point in aggregate hours. The latter is further subdivided into a reduction of 1 ⁄3 point in the employment rate, with the remaining adjustment taking the form of lower hours per employee and in the labor force participation rate (hereafter LFPR). Yet this tradition of regarding cyclical productivity fluctuations as a byproduct of demand-driven output cycles has been almost forgotten over the past three decades as a result of widespread adoption of the real business cycle (RBC) model in which productivity shocks are treated as exogenous, as unexplained, as unrelated to aggregate demand, and as the sole driver of business cycles. Even in the more enlightened modern macro work on Dynamic Stochastic General Equilibrium Models, aggregate demand and sticky prices have reappeared, but most recent papers still include an autonomous “technology shock” as one of several causes of short-term business cycle fluctuations. Revisiting and Rethinking the Business CyCle †

The literature on school choice assumes that families can submit a preference list over all the schools they want to be assigned to. However, in many real-life instances families are only allowed to submit a list containing a limited number of schools. Subjects' incentives are drastically affected, as more individuals manipulate their preferences. Including a safety school in the constrained list explains most manipulations. Competitiveness across schools plays an important role. Constraining choices increases segregation and affects the stability and efficiency of the final allocation. Remarkably, the constraint reduces significantly the proportion of subjects playing a dominated strategy

Cyclicality in the supply of business credit has been the focus of a considerable amount of research. This cyclicality can stem from shocks to borrowers’ collateral, which affect firms’ ability to raise capital if agency and information problems are significant (Ben S. Bernanke and Mark Gertler, 1989). Or it can stem from shocks to bank capital, which affects the supply of bank loans if agency and information problems limit the ability of banks to raise additional capital (Bernanke, 1983). In this paper, we examine cyclicality in the supply of credit in the context of modern forms of banking, often referred to as the “originate-to-distribute” model. In particular, we focus on the role of syndicated lending.

Wal-Mart, Toys R Us, and other large retail chains are often identified with cheap imports. We use data from the Census of Retail Trade and the International Trade Commission over the period 1997-2002 to test whether big chains serve as platforms for imports from LDCs. Using difference-in-difference specifications we show that Chinese and other LDC imports have increased disproportionately in retail sectors with the sharpest consolidation into chains. To quantify the importance of chain growth to import growth we apply a numerical algorithm that generates marginal propensities to import by firm size. The largest retail firms' propensity to import from China is 17 percentage points higher than that of smaller retailers; the corresponding difference in import propensities from LDCs as a whole is 27 points. The disproportionate growth of large retailers between 1997 and 2002 explains 5% of the overall growth in consumer goods imports, 20% of the growth in consumer goods imports from China, and 22% of the growth in consumer goods imports from LDCs..

Coping with Political Instability: Micro Evidence from Kenya's 2007 Election Crisis by Pascaline Dupas and Jonathan Robinson. Published in volume 100, issue 2, pages 120-24 of American Economic Review, May 2010

This reply responds to a comment that correctly identifies an invalid assumption in our original article that antidumping (AD) duties are subtracted from the U.S. price when calculating AD duties in administrative reviews. While this point invalidates our theoretical explanation and empirical evidence on the magnitude of AD duty pass-through, it does not affect our original article's theory or empirical evidence on the magnitude of exchange rate pass-through, or the presence of structural breaks in both the AD duty and exchange-rate pass-through coefficients stemming from AD investigations and orders.

Why do firms cluster near one another? We test Marshall's theories of industrial agglomeration by examining which industries locate near one another, or coagglomerate. We construct pairwise coagglomeration indices for US manufacturing industries from the Economic Census. We then relate coagglomeration levels to the degree to which industry pairs share goods, labor, or ideas. To reduce reverse causality, where collocation drives input-output linkages or hiring patterns, we use data from UK industries and from US areas where the two industries are not collocated. All three of Marshall's theories of agglomeration are supported, with input-output linkages particularly important.