Knowledge that Transforms

A vast literature uses cross-country regressions to search for empirical linkages between long-run growth rates and a variety of economic policy, political, and institutional indicators. This paper examines whether the conclusions from existing studies are robust or fragile to small changes in the conditioning information set. The authors find that almost all results are fragile. They do, however, identify a positive, robust correlation between growth and the share of investment in GDP and between the investment share and the ratio of international trade to GDP. The authors clarify the conditions under which there is evidence of per capita output convergence.

This paper presents new empirical evidence in support of the view that a significant fraction of total saving is motivated by the desire to leave bequests. Specifically, the author finds that social security annuity benefits significantly raise life insurance holdings and depress private annuity holdings among elderly individuals. These patterns indicate that the typical household would choose to maintain a positive fraction of its resources in bequeathable forms, even if insurance markets were perfect. Evidence on the relationship between insurance purchases and total resources reinforces this conclusion.

In a recent issue of this Journal, Carr and Mathewson (1988) test a model of the impact of limited and unlimited liability regimes on the nature of firms by comparing the performance of law firms operated as partnerships and sole proprietorships (and therefore subject to unlimited liability) with that of law firms operated as corporations (and therefore subject to limited liability).' In their model, "unlimited liability by raising the cost of ownership rights discourages investment in the firm, causing legal firms to be inefficiently small" (p. 779). The peculiar history of organizational form in the legal profession seemed to provide an opportunity to test their model's prediction. Prior to the 1960s, state law prevented law firms from incorporating, with the effect that unlimited liability was mandated. During the 1960s and early 1970s, a large number of states passed statutes that allowed law and other professional service firms to incorporate, thereby giving such firms the option to elect either an unlimited or a limited liability regime. The result was a universe that included some law firms that were subject to unlimited liability and some that were subject to limited liability.