Knowledge that Transforms

This paper considers whether the paucity of bank branches in heavily African-American communities and the lack of a robust AfricanAmerican banking sector may be among the factors impeding these communities' economic development. While activists often claim that these factors reduce credit flows in African-American communities, there are reasons to think that such claims may lack merit. For one thing, technological advances have permitted banks to make loans geographically distant from their branch offices and also have allowed many nonbanks to enter credit markets. Further, many immigrants, especially from East Asia, have succeeded on the basis of informal financial arrangements nurtured in ethnic enclaves. Therefore, informal intraethnic resources, not banks per se, may be the key to ethnic groups' access to credit and capital. Ethnic enclaves are of undoubted historical importance for many ethnic groups, but they may no longer be an important forn of social organization (Roger Waldinger, 1993). Timothy Bates ( 1997), in turn, has shown that successful Asian-American small businesses rely more on equity capital and formal financial institutions' credit than on family or lending-circle funds. Are formnal banking structures important in minorities' access to credit? This question is answered here by examining recent experience in multi-ethnic Los Angeles. Los Angeles has seen a sizable inflow of Asian immigrants, who no longer cluster in the inner city but have been expanding into suburban communities. Several Asian ethnoburbs (Wei Li, 1997) have arisen, in part due to the formal economic institutions spawned by ethnic business networks, including many Asian-American banks (Yu Zhou, 1996). Dymski et al. (1998) suggest the termn ethnobank to denote banks that are owned or controlled by members of ethnic minority groups and which primarily provide financial services to ethnic businesses and residents. Why might ethnobanks play a special role in ethnic communities' economic activities? Until the Civil Rights era, etimic banks fell into two categories: African-American banks focused on customers left unserved because of segregation and racial discrimination (Lisa Ammons, 1996) while Asian-American banks supported exportimport activities (Peter Kwong, 1987). Civilb rights laws and desegregation made mainstrea banks more accessible to minority customers. Before deregulation and the informationprocessing revolution, banks delivered credit and other financial services through multipurpose branches; these solved the principal-agent problems inherent in credit contracts by building up localized knowledge rooted in sustained bank-customer relationships. But banks have increasingly established centralized loandecision processes emphasizing standardized public information, not informal private information. For many banks, bank branches are now primarily venues for selling financial products, not hubs for gathering information and making loan decisions. Consequently, banks now open and maintain branches in what Angela Chang et al. ( 1997) ternm rational herding' pattems; t Discussants: Robert Avery, Federal Reserve Board; Elijah Brewster, Federal Reserve Bank of Chicago; Darryl Getter, U.S. Naval Academy; Sonya Williams Stanton, Ohio State University.

The industrial revolution in several East Asian countries over the last three decades is one of the most important economic events in the postwar era. Several recent growthaccounting exercises have found that their extraordinary rate of output growth was due primarily to an equally impressive rate of factor accumulation, with little due to technological progress (see Alwyn Young, 1992, 1995; Jong-Il Kim and Lawrence Lau, 1994; Susan Collins and Barry Bosworth, 1996 ) . Since these studies suggest that factor accumulation has been the lead actor in East Asia’s growth, many economists have reached the conclusion that the industrial revolution in East Asia can largely be explained in terms of transition dynamics in a neoclassical growth framework (see e.g., Paul Krugman, 1994; N. Gregory Mankiw, 1995). If this view is correct, the lesson from East Asia’s experience is that there are no easy solutions for a poor country that seeks to join the league of wealthy nations. Low levels of investment and education may be the result of bad policies. But once proper policies are enacted, a poor country faces the grim prospect of a further decline in its already low standards of living as it devotes more resources to investment and education. The central point of this paper is that, if East Asia’s growth was largely driven by capital accumulation with little technological progress, the return to capital should have fallen dramatically as capital accumulation encounters diminishing returns. For example, the capital–output ratio for Korea computed from the national accounts has increased at an average rate of 3.4 percent per year from 1966 to 1990 while that of Singapore has increased at an average rate of 3.7 percent per year from 1968 to 1990. By dividing the share of payments to capital in total income by the capital–output

This paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions. Under certain conditions, free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare. Moreover, greater inequality in asset distribution results in a greater number of lobbies and, in most cases, more protection for each of these lobbies. Furthermore, industries with higher levels of capital stock, fewer capitalists, more inelastic demand, and smaller geographical dispersion are the ones that get organized.

This paper presents a dynamic general equilibrium model of R&D-based trade between two structurally identical countries in which both innovation and skill acquisition rates are endogenously determined. Trade liberalization increases R&D investment and the rate of technological change. It also reduces the relative wage of unskilled workers and results in skill upgrading within each industry when R&D is the skilled-labor intensive activity relative to manufacturing of final products. Time-series evidence from the United States and simulation analysis support the empirical relevance of the model, which offers a North–North trade explanation for increasing wage inequality.

This paper discusses some major categories of nonpecuniary income: noncash benefits for lower-income households and for the elderly, and the imputed rent of owner-occupied housing. These are three of the 15 categories in the comprehensive income definition developed by Timothy M. Smeeding and Daniel H. Weinberg (1998). They are certainly important, and their measurement has been controversial. Government outlays on Medicare in 1998 totaled $190 billion; outlays on the three major low-income benefit programs (Medicaid, food stamps, and housing subsidies) were $145 billion. The rental value of owneroccupied housing is harder to measure, but larger; as of 1995 the market sales value of the stock may have been over $10 trillion (Arthur B. Kennickell and R. Louise Woodburn, 1997), and conventional rules of thumb in the housing industry yield an annual rental value of at least $1 trillion. The paper considers both conceptual issues and their policy significance. Economists and policymakers are most interested in three statistics of income: the well-being of the average American, the well-being of those at the bottom of the income distribution, and the overall distribution of income, usually measured as median household or family income, the poverty rate, and the Gini ratio. As many economists have noted, we as a society are most interested in how these measures change over time and differ between groups. Such comparisons provide the context for the current numbers. When the data are announced, the media immediately compare the current income and poverty figures to last year, the last cyclical peak or trough, or the all-time best or worst; and also compare households by race, ethnicity, and gender of household head. (The Gini ratio attracts less attention because it has no intuitive explanation for the layman.) In this paper, I focus on how the measurement issues affect these statistics.

Social Distance and Other-Regarding Behavior in Dictator Games: Reply by Elizabeth Hoffman, Kevin McCabe and Vernon L. Smith. Published in volume 89, issue 1, pages 340-341 of American Economic Review, March 1999

Using information on job changes and search behavior of workers and controlling for endogenousnmobility we study firm-size wage differentials in Switzerland. We find that the observed crosssectionalnfirm size premium cannot be explained exclusively by worker heterogeneity. Almost 50n% of the cross-section differential is a firm-size effect.

We present a dynamic model of adverse selection to examine the interactions between new and used goods markets. We find that the used market never shuts down, the volume of trade can be large, and distortions are lower than previously thought. New cars prices can be higher under adverse selection than in its absence. An extension to several brands that differ in reliability leads to testable predictions of the effects of adverse selection. Unreliable brands have steeper price declines and lower volumes of trade. We contrast these predictions with those of a model where brands physically depreciate at different rates.

Theory restricts short-run job creation and destruction responses and cumulative employment and job reallocation responses to allocative and aggregate shocks. We formulate these restrictions and implement them for postwar data on U.S. manufacturing. Allocative shocks are the main driving force behind cyclical movements in job reallocation, but their contribution to employment fluctuations varies greatly across alternative identification assumptions. Also, the data compel one or both of the following inferences: aggregate shocks greatly alter the shape and not just the mean of the cross-sectional density of employment growth rates; allocative shocks cause short-run reductions in aggregate employment.