Knowledge that Transforms

John R. Baldwin, Paul K. Gorecki, The Determinants of Small Plant Market Share in Canadian Manufacturing Industries in the 1970s, The Review of Economics and Statistics, Vol. 67, No. 1 (Feb., 1985), pp. 156-161

This study examines institutional production of higher education. An interesting aspect of this production process is that two of the more important inputs, students and faculty, enter upon considerable self-selection. To address this interdependence, the production relationship is specified by a three-equation simultaneous model in which the quality of college output, faculty, and students are treated endogenously. The significance of simultaneity is demonstrated in an empirical model estimated via three-stage least-squares for a sample of 174 private undergraduate institutions. The results offer clear implications regarding the allocation of institutional resources across the basic factors in educational production. This paper examines the input-output relationship for private undergraduate education. The study falls generally within the economic literature that has analyzed the educational process via a production function specification (Astin, 1968; Bowles, 1970; Summers and Wolfe, 1977; Hanushek, 1979; McGuckin and Winkler, 1979). However, we extend the argument that research assessments of the educational process are not dealing with a production function in the classic sense. For example, the purchaser of the product-the student-is also one of the more important inputs. Further, the non-profit orientation of most universities reduces incentives for cost minimization.' The implication is that the educational process is far more complicated than a simple, production-functional rendering indicates. To demonstrate this point, we estimate a three-equation simultaneous model in which the quality of students, faculty, and college output are treated endogenously.2 This study's broad objective is to identify more clearly the relative contribution of the many human and nonhuman resources combining to produce quality under-

Ray-homotheticity is proposed as a fruitful way of modelling scale economies. It permits scale economies to vary with the rate of output and the input mix, thus allowing ideal output to be input mix-dependent. Our empirical results illustrate the value of ray-homotheticity as a generalization of both homotheticity and ray-homogeneity. They also shed some light on the use of Wald and likelihood ratio tests for hypothesis testing in nested nonlinear models. We find instances of conflict between the two tests, and of reversal of the ordering that holds in linear models.

This paper extends the effective rate of protection measure to include the effect of investment incentives on resource allocation when capital is mobile internationally. This measure illustrates how investment incentives (such as capital grants and tax holidays) serve as another form of non-tariff barrier that may be substituted for tariffs in the protection package. Calculations made for the case of Ireland indicate that the substitution of investment incentives for tariffs after Ireland's entry into the EEC left the ranking of industries on the basis of effective protection to labor unaffected by the tariff cuts. R ECENT work on commercial policy has suggested that the pattern of tariff and non-tariff protection is the outcome of a political process, and reflects the profitability of protection to domestic producers and the costs of organizing producers.' In such an environment, reductions in tariff barriers negotiated outside the domestic political process (as in multilateral tariff reductions or entry into a free trade area) should result in political pressure by producers for the substitution of non-tariff barriers in the protection package. For example, Marvel and Ray (1983) argue that the Kennedy Round tariff cuts overstate the amount of trade liberalization that has occurred in the United States because of the erection of nontariff barriers that have partially reduced the effect of the tariff cuts. The purpose of this paper is to develop a comprehensive measure of protection, capturing the extent to which trade policies (tariffs and quotas) and investment incentives provide protection to domestic resources, and to present an illustration of the substitution of investment incentives for tariff protection following Ireland's entry into the Common Market. Investment incentives provide an alternative form of protection which may be important in countries where governments are constrained from altering tariffs, or where subsidies to export industries are limited by the likelihood of countervailing duties. Section I presents the rental cost of capital model, which can be used to combine the effects of various types of investment incentives (such as capital grants, tax holidays, and accelerated depreciation allowances) into a single measure that indicates the effect of these incentives on the cost of capital services to firms. This measure extends earlier work by Kopits (1975), Hufbauer (1975), and Guisinger and Kazi (1978), and can be used to make international comparisons of the level of investment incentives. Section II incorporates the rental cost of capital index into Corden's (1966) effective rate of protection measure when capital is mobile internationally. The resulting effective rate of protection to labor includes both output market distortions (tariffs and quotas) and factor market distortions for mobile factors (investment incentives). Therefore, reductions in tariff protection can be offset by increases in factor incentives to maintain the same effective rate of protection to labor in an industry.2 Section III provides a calculation of effective rates of protection to labor in eleven Irish manufacturing industries in 1966 and in 1977. Between these two years, tariff protection declined substantially following Ireland's accession to the Common Market. During the same interval, Ireland undertook a major reorganization of the Industrial Development Authority, armed with a wide array of fiscal incentives and charged with increasing industrial investment. We demonReceived for publication January 26, 1984. Revision accepted for publication July 5, 1984. *The Pennsylvania State University and University of Texas at Dallas, respectively. The authors wish to acknowledge useful comments from Malcolm Gillis, Ed Tower, Bee Roberts, and two anonymous referees on an earlier draft. We are particularly grateful to Dermott MacAleese, who provided us with unpublished data on protection in Ireland. The authors began work on this topic while serving as consultants to the International Finance Corporation. The views expressed .are not necessarily those of the World Bank or its affiliates. 1 Caves (1976) and Pincus (1975) find some support for the role of political pressure groups in tariff policy, and Ray (1981) broadens the analysis to include both tariff and non-tariff barriers. Takacs (1981) and Finger, Hall, and Nelson (1982) also find political variables important in escape clause and less than fair value cases. 2A recent study of the investment strategies of multinational corporations conducted for the World Bank (Guisinger (1983)) found that in the majority of cases examined, host country incentives were the determining factor in the location decision. The World Bank study defined incentives broadly to include both tariff protection and investment incentives, as our measure suggests. For previous work on the effect of tariffs on multinational location decisions see Horst (1972) and Orr (1975).

This paper presents a macroeconomic model to explain the dynamics of Chilean inflation during 1976-82. The model extends the Australian and Scandinavian open economy models by making a finer distinction between tradables and nontradables and by introducing more elaborate expectations formation. Results of the model supplied to quarterly Chilean data over the period reject the homogeneity of the system indicating that a devaluation does indeed affect the relative price between tradables and nontradables in the Chilean context. The results cast doubt on the stabilization policies pursued during the period 1979-82, which implicitly relied upon a model in which full homogeneity obtains.

This paper examines the Tokyo Round negotiation (1973-1979) under various cooperative game solution concepts. Out of the many tariff-cutting proposals in the Tokyo Round, the Swiss proposal was finally agreed upon by all major players. The choice of the Swiss proposal suggested that egalitarian considerations are important for this type of cooperative game. Since the Kalai-Smorodinsky solution, the Shapley value (modified) and the nucleolus solution have this egalitarian property, they all predict the outcome of the negotiation very well. THIS paper investigates the types of cooperative game solution concepts that best describe the tariff reduction negotiations in the Tokyo Round (1973-1979). Since the objective is to infer the type of game that can closely model the actual negotiation, the best game concept for our purposes is the one which predicts the actual outcome (the Swiss tariff-cutting formula) most successfully under periodic resurgence of protectionist ideology as occurred during the Tokyo Round negotiations. There are various cooperative solution concepts: Some emphasize the egalitarian nature of the outcome, some the efficiency nature of the outcome and some emphasize both aspects (see section II). The present paper concludes that when the change in a country's trade balance becomes an important consideration for negotiators, the egalitarian aspect emerges as the most important cooperative game solution concepts. An interesting finding of the present paper is the bargaining powers of the four major players (United States, EEC, Japan, and Canada) were roughly equal. As shall be explained, this is because each of these players was equally destructive to the Tokyo Round negotiation. There are currently four simulation studies on the impacts of the Tokyo Round (Deardorff and Stern (1983), Baldwin et al. (1980), Brown and Whalley (1980), and Cline et al. (1978)). The present paper uses the simulation studies by Cline et al. for our analysis for three reasons: (1) The Brookings study is based on Keynesian short-run impacts of the Tokyo Round, which seems to fit the objectives of negotiators; (2) it represents the most complete welfare analysis of various proposals; and (3) it was the most influential study done around that time; perhaps it can reflect the conventional wisdom of negotiators in that period.' The present paper is organized as follows: Section I discusses the basic assumptions. Section II examines various game solution schemes or concepts. Section III presents the case of the five major proposals. Section IV extends the result of section III to twelve proposals. Section V discusses the robustness of various assumptions followed by a conclusion in section VI.

A bstract-An eight-region numerical general equilibrium model of global trade is used to investigate the impacts of various geographically discriminatory trade policy arrangements (GDAs) on regional trade and welfare. Results suggest that the important factors determining gains and losses in any GDA are such issues as whether initial levels of protection are asymmetric, the relative sizes of participating regions, and the pattern of trade between participating and non-participating countries. Results also appear to confirm the implication of Wonnacott and Wonnacott (1981) that the gain from reducing a partner's tariff is typically a more important consideration in evaluating potential benefits from a customs union, than the traditional concerns of trade creation and trade diversion.

This paper presents an approach to defining a market using the notion of instantaneous causality. The market for which the approach is empirically implemented is the flour market in the United States over the period January 1979 through October 1982. One anomaly over this period was the deregulation of railroad rates in October 1980. The empirical results based on three spatially diffuse cities suggest that the market is national in scope and that after railroad deregulation the price interrelationship between cities was strengthened.