Knowledge that Transforms

A number of economists find that growth and schooling are highly correlated across countries. A model is examined in which the ability to build on the human capital of one's elders plays an important role in linking growth to schooling. The model is calibrated to quantify the strength of the effect of schooling on growth by using evidence from the labor literature on Mincerian returns to education. The upshot is that the impact of schooling on growth explains less than one-third of the empirical cross-country relationship. The ability of reverse causality to explain this empirical relationship is also investigated.

We provide a simple explanation for the observation from the U.S. manufacturing sector that the job destruction rate fluctuates more than the job creation rate. In our model, proportional plant-level costs of creating and destroying jobs cause shrinking plants to be more sensitive to aggregate shocks than growing plants. We describe circumstances in which this microeconomic asymmetry is preserved in the aggregate and show that it can account for much of the observed asymmetries in gross job flows. This is so even though we abstract from job matching frictions, incomplete contracts, and aggregate congestion effects.

Few would doubt the proposition that political institutions matter for economic development. Yet we lack robust generalizations and systematic evidence on how exactly they do so. In this short paper, I draw attention to a regularity in the cross-national data that has received little attention to date: participatory political regimes are associated with significantly lower levels of aggregate economic instability. After presenting some of the evidence in the next section, I speculate that the reason has to do with the propensity of democracy to moderate social conflict and induce compromise. I discuss three distinct arguments as to why this may be the case. I. Some evidence The relationship between democracy and economic growth has been studied extensively. The data tend to show that democracy has no systematic effect on long-run growth rates. The top panel of Figure 1 shows a typical result: the partial correlation between an index of democracy during the 1970s and subsequent economic growth is virtually zero. The relationship between democracy and volatility in economic performance, on the other hand, is negative, statistically significant, and quantitatively large. This is shown in the bottom panel of Figure 1:

The U.S. economy has expanded rapidly in recent years, with total factor productivity (the source of growth most closely identified with technological gains) rising sharply since the mid-1990’s (see e.g., Bureau of Labor Statistics, 1999; William Gullickson and Michael J. Harper, 1999; Mun S. Ho et al., 1999; Daniel E. Sichel, 1999). This strong aggregate performance and the well-documented explosion of investment in computers and other high-tech equipment have led many to believe that the United States has experienced a permanent, technology-led growth revival. It is essential, however, to disaggregate estimates of economic growth to the industry level to understand the new trends in the U.S. economy. Productivity growth, the ability to produce more outputs from the same inputs, differs widely among industries. For the economy as a whole, negative productivity growth in one industry can offset positive productivity growth in another, and Jorgenson (1990) shows that a measure of productivity based solely on aggregate data is valid only under very stringent conditions. We avoid the limitations of an aggregate measure of productivity by decomposing U.S. growth across industries for the period 1958–1996. By breaking down the U.S. economy into 37 industries (35 private industries, private households, and general government), we identify the contribution of each industry to aggregate productivity growth. This enables us to isolate the underlying sources of gains in productivity and provides a better understanding of the forces driving the U.S. economy. Economy-wide productivity from an aggregate production function increased 0.45 percent per year during 1958–1996, while methodology developed by Evsey Domar (1961) for aggregating over industries yields an aggregate estimate of 0.48 percent. Over the same period, however, industry productivity growth ranged from 1.98 percent in Electronic and Electric Equipment to 20.52 percent in Government Enterprises, highlighting fundamental differences in technology and productivity growth across industries. These results show that the aggregate production function provides a reasonable estimate of productivity trends over long periods but also masks important differences among industries.

Per-capita income in many sub-Saharan African countries, such as Chad and Niger, is less than 1/30th of that of the United States. Most economists and social scientists suspect that this is in part due to institutional failures that stop these societies from adopting the best technologies. A particularly interesting historical example comes from the di®usion of railways in the nineteenth century. While railways are regarded as a key technology driving the industrial revolution, there were large lags in its di®usion. For example, in 1850 the United States had 14,518km of track, Britain 9,797km and Germany 5,856km, in the Russian and Hapsburgh Empires there were just 501km and 1,357km, respectively (all data from Mitchell, 1993). Why do societies, as in this example, fail to adopt the best available technologies? One answer is that existing powerful `interest groups ' block the introduction of new technologies in order to protect their economic rents, and societies are able to make technological advances only if they can defeat such groups. Economic monopolies may be one example. A monopolist might wish to block the intro-

Can Downstream Waste Disposal Policies Encourage Upstream "Design for Environment"? by Paul Calcott and Margaret Walls. Published in volume 90, issue 2, pages 233-237 of American Economic Review, May 2000

This paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political “fundamentals” can sustain such different systems of social insurance, fiscal redistribution, and education finance as those of the United States and Western Europe. With imperfect credit and insurance markets some redistributive policies can improve ex ante welfare, and this implies that their political support tends to decrease with inequality. Conversely, with credit constraints, lower redistribution translates into more persistent inequality; hence the potential for multiple steady states, with mutually reinforcing high inequality and low redistribution, or vice versa.

This paper develops a unified growth model that captures the historical evolution of population, technology, and output. It encompasses the endogenous transition between three regimes that have characterized economic development. The economy evolves from a Malthusian regime, where technological progress is slow and population growth prevents any sustained rise in income per capita, into a Post-Malthusian regime, where technological progress rises and population growth absorbs only part of output growth. Ultimately, a demographic transition reverses the positive relationship between income and population growth, and the economy enters a Modern Growth regime with reduced population growth and sustained income growth.

The growth of nonmarital fertility, together with greatly increased divorce rates and an increased proportion of children living in femaleheaded households, has provoked considerable alarm about the demise of the traditional family and concern about potentially harmful effects on the well-being of women and children. In this paper, I briefly summarize recent attempts by myself and others to develop a coherent theoretical framework to integrate economic theories of fertility and marriage in order to better understand why the same men who play the breadwinner role within marriage may fail to support their children following a divorce or who, despite the “gains to marriage,” may prefer to father children out of wedlock rather than within marriage. I argue that such behaviors of men can be understood within a framework that takes into account the selfinterests of both men and women as they interact within a given sexual or marital match and as they interact in a broader “market” for sexual and marriage partners. At the level of a given match, the theory provides hypotheses about the determinants of voluntary child support by fathers who are divorced from or have never married the mother. It also suggests reasons why voluntary child support is likely to be inadequate and, consequently, provides some insight about the role of laws and administrative procedures designed to establish paternity, determine the size of childsupport awards, and enforce collection of awards. At the level of the market, under certain circumstances, theory produces results similar to those emphasized by William Wilson and Katherine Neckerman’s (1987) theory of outof-wedlock childbearing among the underclass.