Knowledge that Transforms

Utilizing a Granger causality approach, the authors test whether there has been a causal rela tion between public sector growth and real economic growth rates for the OECD countries. Special emphasis is laid on feedback effects from economic growth to government growth that result from macroeconomic policy. The authors find that government growth has had mixed effects on economic growth rates, positive for some countries and negative f or others. However, for the majority of the OECD countries, there was no discernable impact of government growth on the rate of real econo mic growth. Copyright 1988 by MIT Press.

Using 1980 state Census data, the Gini ratio, Theil index, coefficient of variation, Atkinson measure (four values), and Nelson index as separate measurements of income inequality are regressed with nineteen SES variables traditionally found significant with Gini in past research. The standard deviation of educational attainment is dominant among all independent variables as the strongest predictor of inequality. Mean family income, dominant in prior research, is a distant second in predictiveness. More diversity than commonality is evident among the nineteen SES variables as they predict income inequality measured by the eight different techniques. Copyright 1988 by MIT Press.

Alan L. Tucker, Lallon Pond, The Probability Distribution of Foreign Exchange Price Changes: Tests of Candidate Processes, The Review of Economics and Statistics, Vol. 70, No. 4 (Nov., 1988), pp. 638-647

The strategic groups hypothesis is tested using cluster analysis in -16 selected banking markets and based on portfolio composition in 1978, 1981, and 1984. The results indicate that approximately six strategic groups exist in banking and are stable over time. Strategy choices are similar across markets. Implications of the results are (1) intraindustry profit differences may be due to strategic groups rather than efficiency differences, (2) markets may generally be defined too broadly, (3) investigations for collusion need to focus on homogeneous groups in an industry rather than the whole industry, and (4) there is no simple strategy choice for banks between retail and wholesale banking.

Recent reports of negative capital intensity coefficients in struct ure-performance equations support allegations of gross measurement error in accounting-based measures of economic profitability. This paper explores whether specification errors, rather than measurement errors alone, may explain this anomalous empirical result. Within a simultaneous equations model of capital intensity, cost of capital, and price-cost margins, the author employs Hausman specification tests to demonstrate a negative bias on capital intensity and a positive bias on concentration when one omits firm-specific cost of capital from price-cost margin equations. The roles of cost of capital and capital intensity are derived from formal structure-performance theory. Copyright 1988 by MIT Press.

Over the period 1979-85, the petroleum industry offers a unique test of the agency theory of corporat e restructuring. A panel data set for twenty-five firms indicates con siderable support for a hybrid free cash flow model in which explorat ion expenditures appear guided by neoclassical profitability measures , but at the margin, cash flow also exerts an independent influence. The magnitude of the parameter estimates suggests that the free cash flow hypothesis does not fully explain the gains from restructuring. Copyright 1988 by MIT Press.

Evidence on cost savings from reorganizing township low-volume, rural-road systems into larger units is presented in the study of technical efficiencies in producing local government services. Data are from a sample of midwestern townships. Heterogeneity of surface types is accounted for by specifying a multiple output translog cost function. Examination of economies of size suggest that cost savings could be realized by reorganizing townships into larger units. The presence of economies of scope suggest that jurisdictions should not specialize in maintenance responsibilities due to the joint use of inputs. Copyright 1988 by MIT Press.