In contemporary data, the measured factor content of trade is far smaller than its predicted magnitude in the pure Heckscher-Ohlin-Vanek framework, the so-called 'missing trade' mystery. Authors wonder if this problem has been there from the beginning: that is, authors ask if the Heckscher-Ohlin theory was so much at odds with reality at its time of conception. Authors apply contemporary tests to historical data, focusing on the major trading zone that inspired the factor abundance theory, the Old and New Worlds of the pre-1914 'Greater Atlantic' economy. This places autor's analysis in a very different context than contemporary studies: an era with lower trade barriers, higher transport costs, a more skewed global distribution of the relevant factors (especially land), and comparably large productivity divergence. These conditions might seem more favorable to the theory, but the results are still very poor.
Contrary to simple theoretical predictions, existing evidence suggests that federal grants do not crowd out state government spending. A legislative bargaining model with endogenous grants documents a positive correlation between grant receipts and preferences for public goods; this correlation has likely biased existing work against measuring crowd-out. To correct for such endogeneity, the model motivates instruments based on the political power of state congressional delegations. Exploiting this exogenous variation in grants, the instrumental variables estimator reports crowd-out that is statistically and economically significant. This endogeneity may explain the flypaper effect, a nonequivalence between grant receipts and private income.
Do Women Pay More for New Vehicles? Evidence from Transaction Price Data by David W. Harless and George E. Hoffer. Published in volume 92, issue 1, pages 270-279 of American Economic Review, March 2002
Reservation Wages: An Analysis of the Effects of Reservations on Employment of American Indian Men by J. Gitter and Patricia B. Reagan. Published in volume 92, issue 4, pages 1160-1168 of American Economic Review, September 2002
Antidumping Investigations and the Pass-Through of Antidumping Duties and Exchange Rates by Bruce A. Blonigen and Stephen E. Haynes. Published in volume 92, issue 4, pages 1044-1061 of American Economic Review, September 2002
Colombia used lotteries to distribute vouchers which partially covered the cost of private secondary school for students who maintained satisfactory academic progress. Three years after the lotteries, winners were about 10 percentage points more likely to have finished 8th grade, primarily because they were less likely to repeat grades, and scored 0.2 standard deviations higher on achievement tests. There is some evidence that winners worked less than losers and were less likely to marry or cohabit as teenagers. Benefits to participants likely exceeded the $24 per winner additional cost to the government of supplying vouchers instead of public-school places.
The Bell Curve (Richard Herrnstein and Murray, 1994) presented data on the independent effect of IQ on a wide variety of social and economic outcomes for members of the National Longitudinal Survey of Youth (NLSY). To control for socioeconomic background, we constructed an index using the standard three indicators: parental education, occupation, and income. Among the many threads in the response to The Bell Curve, the following question arose: How much would the independent effect of IQ have been attenuated if a broader set of family background variables had been used as controls? To test this, Sanders Korenman and Christopher Winship conducted a fixedeffects analysis of the large number of siblings within the NLSY, in effect controlling not just for socioeconomic status, but for everything in the shared environment of the family. The results were that [w]ith a few exceptions, the fixed-effects for AFQT [the cognitive test used in the NLSY] are remarkably similar to the standard OLS and logit estimates (Korenman and Winship, 2000 p. 146). The independent effect of IQ is robust across methods. I subsequently conducted my own analysis of the NLSY siblings for a publication on income inequality and IQ (Murray, 1998). In the course of that work, another aspect of sibling analysis struck me. The procedure, which is used in this paper as well, begins by identifying every sibling pair in which one sibling had scored in the normal range, defined as a tested IQ of 90-109, and the other member of the pair had scored somewhere outside that range. Those in the normal range were used as the reference group against which sibling outcomes were compared. I then limited the sample to full biological siblings, to take genetics out of the picture, and further limited the sample to sibling pairs in which the siblings had lived with both biological parents for at least seven years after birth, to minimize differential family backgrounds arising from divorce and remarriage. Both limits on the sample were essential to preserve the virtues of the sibling comparison. But notice what had been done in the process. In applying those conditions, the sibling sample represented a population in which all parents were wed when the child was born (zero illegitimacy) and all young children were brought up by both biological parents during their most formative years (zero early divorce). Such a population is one that has achieved much of what we ideally want to achieve through social policy. The thought occurred to me: why not complete the process? Having already created a sample without illegitimacy and early divorce, why not slay as well the great beast of social policy, poverty? To achieve that, I lopped off the sibling pairs whose parents were anywhere in the bottom 25 percent of the income distribution as of 1978-1979, when the NLSY began. This produced a sample of 733 sibling pairs who grew up in households which, by 1978-1979, had a median parental family income of $64,586 and a minimum income of $30,486 (expressed in 2000 dollars). For practical purposes, I had by this process nearly achieved the utopia of income distribution as defined by many, one in which the lowest income is half the median income. I hereby dub these 733 pairs the utopian sample. It is utopian not just because it has virtually no illegitimacy, divorce, and poverty. The way it has been selected has also necessarily effected drastic improvements in the neighborhoods, peers, and educational systems which the youths attended. The members of the utopian sample had a big edge in their potential access to college, both economically and because the sample is highly selected for the kind of parents who actively encourage their children to continue their educations. The same selection factors mean that I have created a sample in * American Enterprise Institute, 1150 17th Street, N.W., Washington, DC 20036.
American Economic Review200292(5), 1606-1617open access
Estimating Individual Discount Rates in Denmark: A Field Experiment by Glenn W. Harrison, Morten I. Lau and Melonie B. Williams. Published in volume 92, issue 5, pages 1606-1617 of American Economic Review, December 2002
Intergenerational Risk-Sharing via Social Security when Financial Markets Are Incomplete by Dirk Krueger and Felix Kubler. Published in volume 92, issue 2, pages 407-410 of American Economic Review, May 2002