Knowledge that Transforms

In a recent paper, Rati Ram (1986a) derived an equation for economic growth from two separate production functions, one for the government sector and the other for the nongovernment sector.' Three different specifications of the growth equation were estimated using data for 115 countries covering the period 1960-80. International cross-section regressions for 1960-70 and 1970-80 as well as time-series regressions for individual countries were considered. The following were the main results (Ram, 1986a, pp. 191-92): (1) the overall impact of government size on growth is positive in almost all cases; (2) the (marginal) externality effect of government size is generally positive; (3) compared with the rest of the economy, factor productivity in the government sector appears to be higher, at least during the 1960s; and (4) there is a broad harmony between the estimates obtained from crosssection and time-series data. From a policy standpoint, Ram's results, if widely accepted, have important implications, especially in regard to the economic development of the lowand middle-income developing countries. For instance, the results can be interpreted to favor a relatively large role for governments in the economies of developing countries, especially if the factor productivity in the government sector is higher than in the nongovernntent sector. The results of Ram, however, are in contrast to the findings of Daniel Landau (1986). Landau used a regression model within the framework of a pooled cross-section (65 LDCs) and time-series (1960-80) to assess the impact of a wide variety of government expenditure variables on the rate of economic The regressors included not only measures of government expenditure but also the level of per capita product, indicators of international economic conditions, human and physical capital variables, the structure of production, historical-political factors, geo-climatic factors, and others. On the impact of government on economic growth, Landau's (1986, p. 68) conclusions are: consumption expenditure' excluding military and educational expenditure... appears to have noticeably reduced economic Military and transfer expenditures do not appear to have had much impact on economic Governmental educational expenditures seem to be inefficient at generating actual education.... Government capital development expenditure appears to do nothing to accelerate economic growth. The conclusions of Ram and Landau are in sharp contrast to each other largely due to significant differences in their models and in the specification of government-size variables. Ram's model has a better theoretical foundation compared to the multiple-regression approach of Landau. On the other hand, Landau used a variety of government expenditure components as against aggregate government consumption which Ram used. Their models and results, therefore, need to be carefully evaluated in further research on the subject. This paper is an attempt in that direction and is aimed at a critical review of Ram's model and reexamination of his results. *Department of Economics and Statistics, National University of Singapore, Kent Ridge, Singapore 0511. The author is grateful to Ganesha and Sai Gayathri for inspiration, to Koh Lin Ji for computing assistance, and to Basant Kapur, Tse Yiu Kuen, Dudley Luckett, and Mukul Asher for comments and advice. Special thanks are due to the four referees of the Review for substantial comments on the earlier versions of this paper. IRam adapted the two-sector growth model of Gershon Feder (1983). Feder examined the relationship between exports and economic

A central question in development economics is, how can we account for differences in the levels of income and the rates of growth between the developed and less developed economies?

N identical stores compete by choosing prices for a homogeneous good with constant marginal costs. Consumers search sequentially with perfect recall for the lowest price. One class of consumers, called shoppers, have zero search costs, while all other consumers have a positive search cost, c. There is a unique symmetric Nash equilibrium price distribution with the property that it changes smoothly from "marginal cost pricing" when all consumers are shoppers and/or c = 0 and "monopoly pricing" when no consumers are shoppers. Remarkably, as the number of stores increases, the Nash equilibrium becomes more monopolistic.

The apparent convergence of OECD income levels since 1950 is subjected to rigorous testing that suggests that there has occurred a systematic process of catching up in levels of total factor productivity. An econometric model of relative economic growth exhibits parameter stability over three decades, including the period after 1973, and statistical robustness, particularly with respect to sample selection. A reassessment is made of OECD comparative economic growth performance.

About 4.2 million men and women operate businesses on a full-time basis. Comprising more than a tenth of all workers, they run most of our nation’s firms and employ about a tenth of all wage workers. The fraction of the labor force that is self-employed has increased since the mid-1970s after a long period of decline.1 This paper examines the process of selection into self-employment over the life cycle and the determinants of self-employment earnings using data from the National Longitudinal Survey of Young Men (NLS) for 1966–1981 and the Current Population Surveys for 1968–1987.

The existence of geographically mediated "spillovers" from university research to commercial innovation is explored using state-level time-series data on corporate patents, corporate R&D, and university research. A significant effect of university research on corporate patents is found, particularly in the areas of drugs and medical technology, and electronics, optics, and nuclear technology. In addition, university research appears to have an indirect effect on local innovation by inducing industrial R&D spending.

Self-employment rates and incomes differ significantly by race. We show that these differentials arise in markets with consumer discrimination and incomplete information about the price of the good and the race of the seller. Equilibrium income distributions have two properties: mean black incomes are lower than mean white incomes, and the returns to ability are lower for black than for white sellers. Able blacks, therefore, are less likely to selfselect into the self-employment sector than able whites. Using the 1980 Census data, we find that observed differences in the self-employment income distributions are consistent with the theoretical predictions.