Knowledge that Transforms

The history of developing economnies indicates that rural-urban migration accompanies economic progress [2, 3, 8, 15]. The migration is considered to take place between the agricultural and industrial sectors as well as the farm and the city. In the Japanese development experience it would be inaccurate to label migration as a physical movement of labor to the city [11, 13]. The peasant was culturally tied to his rural surrounding by strong family ties. But certainly the migration can be labeled as one of moving the labor force out of agricultural and into industrial pursuits where the culturally immobile labor force resulted in rural location of many industries. An analysis of the economic determinants of the Japanese style of migration may shed some light on potential development strategy in terms of the effort required to achieve sustained industrialization, that is, a sustained rise in the industrial-agrarian labor and real output ratios. The theoretical models, which purport to explain the rural-urban migration where sectorial and location changes occur simultaneously, range from the simple wage differential models of Jorgenson [6], Lewis [7], and Ranis-Fei [11] to the more recent expectations models of Todaro [17] and Harris-Todaro [5]. The latter models stress the importance of both the income ratio and the probability of urban employment when analyzing the determinants of urban labor supplies. On the demand side, Eckaus' [4] famous factor proportions model is the most notable attempt to analyze the problem of labor absorption. In contrast, there have been few attempts to estimate a model reflecting the simultaneous impact of both supply and demand determinants of the distribution of labor between agricultural and industrial sectors. The objective of this paper is to construct and estimate a simple econometric model of the sectorial labor migration for a classic case of development, the Japanese economy. The basic sample on which the model is based extends from 1878 to 1937. The choice of Japan as a case study is predicated upon data availability [1, 9, 12] and recent interest in the development experience of that country. The interesting feature of the model is that it simultaneously considers the relative supply and relative demand determinants of the sectorial distribution of labor. Further, the dynamic properties of the model permit an analysis of the effort(s) required to achieve a sustained rise in the income and employment ratios which have been associated with economic progress through industrialization. In part II the basic model is specified, while in part III the Japanese economy is analyzed in terms of the basic model. In part IV the study is summarized and concluded.

V faL-e + [p(L1 K) -e]K-e} -l/e (1) where 4 is an arbitrary function. In the particular case where 4' 4 (L11K) is constant and e--O, the production function becomes V = r1 KA L1(L1/L)X. (2) While testing the ability of the production function (2) to explain the international pattern of labor productivity and wages, Mitchell does not present all properties of that function. Indeed, one special feature of the function (2) is to be easily workable for empirical purposes, if we have statistical data on physical quantities of the inputs and output, or on relative shares. Another main feature lies in the properties of that function, concerning the partial elasticities of substitution between pairs of inputs. This note considers those two points, with emphasis laid on the second one. We show that some of these partial elasticities of substitution are not constant. Uzawa [6] has characterized the class of constant Allen elasticity of substitution production functions (CAES), and McFadden [3] the class of constant direct partial elasticity of substitution production functions (CDES) as well as the class of constant shadow partial elasticity of substitution production functions. The function (2) is neither of the CAES class, nor of the CDES class. Hence, we must calculate the partial elasticities of substitution, according to each of the two conventional definitions. We begin with the Allen partial elasticity of substitution, as reformulated by Uzawa [6, p. 293] c a2 C

More specifically, section I develops a model for the analysis of the effect of changes in consumer demand on average educational requirements under rather restrictive assumptions. Some quantitative conclusions, based on income elasticities, input-output coefficients and capital-output ratios in the Israeli economy, are presented. Section II deals with the effect of changes in the composition of consumption on the demand for different levels of education, and their effect, in turn, on wage differentials. The discussion is based on the analysis and calculations of section I.

Economic historians should thank Larry Neal for his careful revision of the United States railroad investment series for the period between 1897 and 1914 [5]. However, the second major part of his article concerning the determinants of investmenit behavior over this period suffers from deficiencies of interpretation and requires further analysis which is the object of this note. Neal's thesis is that financial models, incorporating interest rates and cash flow variables, better explain railroad investment expenditures over this period than crude acceleration type mechanisms. In fact, he argues the time period 1897 to 1914 logically can be divided into two periods at the year 1907. In the earlier period (1897-1907) Neal argues that both easy access to external funds and the better use of internal funds are the primary explanations for investment behavior, while this was not the case after 1907. This thesis directly contradicts the earlier discussion of railroad investment made by Jan Kmenta and Jeffrey Williamson (K-W) [4]. The K-XV hypothesis purports that external costs were not important during this period and some sort of acceleration mechanism can best explain investment behavior. It is demonstrated below that the dominant determinant of long run railroad investment behavior over this period is the acceleration principle as asserted by K-W but that outside (as opposed to Neal's inside) financial conditions (the demand for financial instruments) contributed to the cyclical fluctuations of investment expenditures in the period prior to 1907.

[1] Ezekiel, H., and J. Adekunle, Secular Behavior of Income Velocity: An Intermational Cross Section Study, IMF Staff Papers, vol. XVI, no. 2, July 1969, 224-239. [2] Goldsmith, R. W., The Determinants of Financial Structure, Organization for Economic Cooperation and Development, Paris, 1966, 27-30. [3] Khazzoom, J. D., The Currency Ratio in Developing Countries (New York: Frederick A. Praeger, 1966). [4] Melitz, J. and H. Correa, International Differences in Income Velocity, this REviEW LII (Feb. 1970), 12-17. [5] Wallich, H. C., Theory and Quantity Policy, Ten Economic Studies in the Tradition of Irving Fisher (New York: John Wiley & Sons, Inc., 1967), 257-280.

[1] Bogue, A. G., From Prairie to Corn Belt (Chicago: University of Chicago Press, I963). [2] Fisher, F. M., and P. Temin, Regional Specialization and the Supply of Wheat in the United States, 1867-1914, this Review, LII (May 1970), 134149. [3] U.S. Department of Agriculture, Agricultural Marketing Service, Wheat. Acreage, Yield and Production, by States 1866-1943, Statistical Bulletin No. 158 (February 1955).

I NTEREST rates on long term United States Federal government bonds stood at 214 per cent as World War II ended in 1946. Now, in 1970, they are 6' 2 per cent. Treasury bill rates have increased from Y8 per cent to as high as 8 per cent. This rise in rates has been shared by all types of securities: corporate bond yields have risen from 23/4 per cent to 8%4 per cent today, state and local government bond yields from 112 per cent to 6X2 per cent, mortgage rates from 4 per cent to over 8 per cent, etc., and the upward trend has been interrupted only for brief periods during these years. Why has this rise in rates occurred? The principal explanation given by the empirical studies and econometric models is that interest rates have risen because liquidity has fallen; investors have relinquished their liquidity only to higher interest rates.' Liquidity is a sufficiently vague term to render the theory highly imprecise. Happily for its proponents, however, it can be defined in a number of ways all of which will show a decline and at least one of the ways should satisfy nearly everyone else. However, I must object for I do not believe that these commonly used ratios measuring liquidity do any more than register certain structural changes in the economy, particularly in the financial intermediary system, and cannot explain the rise in interest rates. My purpose here, therefore, is to argue this point, and secondly, to outline what I regard as a better explanation. My principal contention is that basic demand forces have caused the upward trend: the nortfolio changes are resDonses to. not causes of this trend and, in fact, have helped mitigate it. To document and examine the various hypotheses, data on the financial asset acumulation in the United States since 1945 are collected in tables 1 and 2, giving dollar amounts and percentages of total, respectively. The principal source of this data is the Federal Reserve Flow of Funds Accounts, Year-End Assets and Liabilities [2 ]. Seven basic categories of assets are defined in table 1: currency outside banks, cash reserves of commercial banks, primary bonds, trade credit, financial intermediary bonds, nonfinancial corporate stock and financial intermediary corporate stock. These categories include all of the forms of financial assets available.2 Two categories may not be clear in meaning: primary bonds and financial intermediary bonds. Primary bonds are bonds issued by the ultimate borrowers in the economy, households, business and government. Financial intermediary bonds (see table 3) are claims issued by financial intermediaries against themselves: demand and time deposits, savings and loan shares, insurance and pension reserves, etc. Financial intermediaries are defined in the customary way to include commercial banks. As shown in tables 1 and 2, all of these assets have increased in dollar terms but their relative proportions have changed. Currency, reserves, and primary bonds have not grown as rapidly as trade credit or both nonfinancial and financial corporate stocks. Financial intermediary bonds have maintained a relatively steady share of total financial assets.3' '

Franklin M. Fisher, Peter Temin, Regional Specialization and the Supply of Wheat in the United States, 1867-1914: A Reply, The Review of Economics and Statistics, Vol. 53, No. 1 (Feb., 1971), pp. 102-103

PLANNING for agricultural development usually places primary emphasis on an efficient allocation of resources. Programming models have been used extensively for this purpose in recent years [2, 9, 11, 13]. However, for many developing countries with export oriented agricultures, the problem of agricultural policy formulation is further complicated by uncertain foreign demand. In these cases, policy makers must take into account both international demand factors, such as trade restrictions and block trading agreements, and domestic factors affecting internal resource allocation such as technological innovation and structural changes which may alter relative production costs and supply possibilities. This paper illustrates the use of a programming model as a tool for the evaluation of price policies t necessary to meet alternative hypothesized foreign demand situations for Argentina. The measurement of the resultant interrelated side effects of these policies is also presented. The inclusion of international factors in the analysis is particularly relevant for Argentina given that (1) balance of payments restrictions have been shown to be a major bottleneck to growth [4, 5]; and (2) recent developments in traditional Argentine markets, such as the formation of the European Economic Community (EEC) and the incomplete implementation of the Latin American Common Market, have raised important questions regarding alternative export strategies. If the agricultural producers are reasonably responsive to relative product prices as recent evidence suggests [4, 13, 14], general price policies may be one of the simplest and most effective tools at the disposal of government to manage production to meet expected domestic and foreign demands. But it also must be recognized that price policies have other wide and varied impacts on an agriculturally oriented export economy. Among these are the impact on farm incomes and resource use in agriculture, foreign exchange earnings and government export revenues, consumer prices and agriculture's contribution to national growth. Given these multiple effects, the policy maker is forced to examine trade-offs between the potentially undesirable as well as desirable effects of an agricultural price policy. The approach contained here gives some insights into the trade-off process. Specifically, vectors of demand quantities, representing alternative export strategies in 1975, are introduced into a spatial equilibrium programming model as quantity restraints. The r sults of the analysis are then used to investigate the following series of related questions: (1) What constellation of product prices (minimum price guarantees) would be necessary to induce an efficiently organized Argentine agriculture to produce the alternative quantities once possible technological innovations have been accounted for? (2) How much land would be required for these levels of production? (3) What would be the labor requirements for each strategy? (4) How would each strategy affect consumer food costs? (5) How would each strategy affect agriculture's contribution to national product? (6) What would be the effects on governmental export earnings? Section I of this paper describes the method of analysis and the model used. Section II presents the alternative output specifications. Section III discusses prices required to meet specified demand levels while section IV describes the resulting impact on the agricultural sector with respect to farm incomes, land use, and labor requirements, and the indirect impacts on consumer welfare, net real aggregate value of production, and government export revenues and earnings. Section V draws some tentative conclusions. The major objective of this article is to demonstrate the usefulness of this type of analytical method for the analysis * Research upon which this article is based was supported by the Agricultural Development Council and the University of California. It appeared as Giannini Foundation Research Paper No. 305. 'The use of programming analysis for output price determination has been largely restricted to the United States [9, 101.