Recent literature, as it has been developing in this journal and others, suggests that a significant change has taken place in the field of finance. The “new finance” has broader and deeper analytic and empirical content. Its relevant characteristics are: (1) a weakening of the traditional distinction between security analysis and corporation finance; (2) an increased emphasis upon financial management as an integral part of the overall management function; (3) greater emphasis upon the relevance of economic theory in the analysis of financial relations; and (4) more attention to the measurement and testing of hypotheses.

,3, of course, is the estimate of _qTY in the logarithmic form of (2). This technique characteristically yields high estimates of qTy. For example, Soltow [7] and Groves and Kahn [3] both estimated that for Wisconsin during the 1933-1951 period of constant (quite progressive) state tax rates, rjTY was at least 1.75. Harris [4] estimated elasticities of about 1.22.4 for different states by applying constant state tax rates to distributions of federal adjusted gross income by states, and derived an overall income-elasticity of 1.8 for aggregate state income tax revenues. In an earlier study [6], I used dummy-variable techniques to estimate elasticities of 1.4-2.2 for a selected group of states. These estimates of state income-tax elasticities have not gone unnoticed by public officials. When Maryland adopted a new income-tax law in 1967, the State's Board of Revenue Estimates issued a set of revenue forecasts that showed an annual growth rate of approximately 15 per cent, compared to a growth rate of about 10 per cent in aggregate personal income. The implicit elasticity estimate of 1.5 was well within the range of estimates made for Maryland and other states with similar tax laws. Experience with the tax in calendar years 19671969, however, has shown the actual incomeelasticity of revenues to be much closer to 1.0, although actual collections appear to be very sensitive to the rate of price inflation and variations in collections procedures. These observations underlie the model presented below.

T HIS is an empirical study of what determines the flotation of Canadian municipal and provincial bonds denominated in States dollars. The determinants of foreignpay flotations are important for two reasons: (1) States purchases of these flotations result in a significant inflow of capital to Canada from the States; and (2) a large part of States portfolio investment abroad is States purchases of new Canadian securities denominated in States dollars. This paper presents an analysis of individual issue data in order to establish the determinants. Many empirical studies of international portfolio investment have been conducted. Some of them are based largely on the Canadian-United States flows while others concentrate on the aggregate flows in and out of the States.' They are founded completely on aggregate economic data and are devoted to the analysis of time series. This paper is the first study to the author's knowledge that uses micro-economic data and cross-section analysis to investigate portfolio capital flows. If Canadian bond issuers behave rationally they will float their securities to enable their costs for any given issue to be minimized. These costs include both underwriting fees and interest payments. If the security is floated in the States and is denominated in States dollars, a subjective adjustment factor is included in the cost calculations to incorporate exchange rate risks. When Canadian issuers do make use of the States capital market to raise capital, they are expressing their preference for this market over the domestic market for these issues.2 During any given period does the States capital market appeal to a particular group of Canadian issuers or is the economic incentive to raise funds abroad spread evenly across Canadian issuers? If the incentive to raise funds abroad is equally great for each Canadian issuer, then foreign-pay issues will be selected from domestically floated issues by a random process; they will have no characteristics which distinguish them from domestic flotations. Alternatively, foreign flotations may appeal to a distinguishable group of issuers. If so, then what are the characteristics differentiating these issuers from domestic issuers? In part II of this paper foreign bond flotations are found to be statistically distinguishable from domestic bond flotations, and their differentiating characteristics are discussed. What factors give rise to the groupings observed in part II? The Canadian capital market may subject issues with certain characteristics to cost premiums so that the States market is especially attractive to these issues. Alternatively, the States market may offer these issues particular cost advantages. Thus, the grouping arises as a result of market characteristic configurations in Canada and in the States. * This article is based on the author's doctoral dissertation, United States Investment in Canadian Securities, 1958-1965, Harvard University, 1969 (unpublished). The research for this dissertation was financed by the Ford Foundation and by the National Science Foundation. The author accepts complete responsibility for the views expressed in the paper. 'For example see Robert Baguley, International Capital Flows and Canadian Monetary and Fiscal Policies, 1951-1962, unpublished Ph.D. dissertation, Harvard University, 1969; Gerald K. Helliner, Connections Between the States' and Canadian Capital Markets, 19521960, Yale Economic Essays, II (No. 2, 1962), pp. 351400; William Branson, Financial Capital Flows in the U.S. Balance of Payments (Amsterdam: North-Holland Press, 1968). 2 The distinction between the States capital market and the Canadian capital market is one between two regional markets. Each market is part of the world capital market but has characteristics which differentiate it from other components of the world market. This paper discusses the movement of capital from one regionally defined market to another.

R. L. Thomas, P. J. M. Stoney; A Note on the Dynamic Properties of the Hines Inflation Model, The Review of Economic Studies, Volume 37, Issue 2, 1 April 1970,

Transfers from Developed to Underdeveloped Areas, Study Week on the Econometric Approach to Development Planning, Pontificiae Academie Scientiarum Scripts Varia (Amsterdam: NorthHolland Publishing Company, 1965). [4] Hinrichs, H. H., Determinants of Government Revehue Share Among Less Developed Countries, Economic Journal (Sept. 1965), 546-556. [5] Lall, S., Note on Government Expenditure in Developing Countries, Economic Journal (June 1969), 413-416. [6] Rahman, Md. Anisur, Foreign Capital and Domestic Savings: A Test of Haavelmo's Hypothesis with Cross-Country Data, this REVIEW (Feb. 1968), 137-138. [7] Roe, A. R., The Government-Revenue Share in Poorer African Countries -A Comment, Economic Journal (June 1968), 479-481.

Introduction, 85. — The conventional bilateral monopoly, 86. — The government procurement process, 88. — Sole source contracts, 89. — Multisource procurement, 95.