Knowledge that Transforms

N this paper, I will generalize the modified Newton method previously applied in Chow (1968) to the computation of full-information maximum likelihood estimates of parameters of a system of linear structural equations to the case of a system of nonlinear structural equations. The success of that method for linear systems 1 has stimulated my present attempt to generalize it for nonlinear systems. The subject of maximum likelihood estimation of nonlinear simultaneous equation systems has been studied by Eisenpress and Greenstadt (1966). There are three main differences between their approach and ours. First, their basic formulation is more general, assuming that all parameters in the system may appear in every equation,2 whereas we assume as the basic setup that there is a distinct set of parameters belonging to each equation. Second, partly because of the first, we are able to obtain simpler and more explicit expressions for the derivatives of likelihood function required in the calculations. Third, and also partly because of the first, we can conveniently deal with the important problem of linear restrictions on the parameters in the same equation or in different equations. A fourth feature of this paper, and a feature which has partly motivated it, is the contrast of the linear with the nonlinear case. As it will be shown, there are many similarities in the computations of both. This demonstration can enhance our understanding of the nature of the estimation equations. Two additional features of this paper are the treatments of identities in the system and of residuals which may follow an autoregressive scheme. We will derive in section II the estimation equations for nonlinear systems, under the assumptions that each structural equation contains a distinct set of parameters, that the parameters are not subject to any linear restrictions, and that the (additive) residuals are serially uncorrelated. Section III treats the special case when some equations are linear, and contrasts this case with the nonlinear case. Section IV deals with identities and linear restrictions on the parameters. Section V is concerned with the problem of autoregressive residuals.

T HE basic purpose of this paper is to show that an improved understanding of longswing mechanisms in economic-demographic interactions may be attained with cross-spectral analysis even though spectral analysis has, to date, cast only doubt on the existence of such long swings. The superiority of crossspectral analysis to simple estimation of power spectra stems from its emphasis upon examining relationships among economic and other variables (Granger, 1966). For exploration of the long-swing hypothesis, spectral analysis suffers from a further disadvantage its results are sensitive to the form of the data analyzed (levels, rates of growth, or deviations from trend), while cross-spectral analysis is not (see section II). Application of both spectral and cross-spectral analysis to economic and demographic data in Sweden, the United Kingdom, and the United States indicates (1) results of spectral analysis are generally similar across the three countries and negative with respect to the long swing hypothesis; and (2) cross-spectral analysis shows quite different long-swing mechanisms at work while giving some positive confirmation to the Easterlin model of long swings for the United States.

M UCH work has been done on the many aspects of the size distribution of income. This includes a large body of literature purporting to explain variations in this phenomenon both temporally and spatially for large geographic units in terms of different and/or changing functional distributions of income (Kuznets, 1953), differential growth rates (Kravis, 1960; Kuznets, 1955), random or stochastic processes (Champernowne, 1963; Gibrat, 1931; Rutherford, 1955), and combinations of economic, social and demographic factors (Aigner and Heins, 1967; Al-Samarrie and Miller, 1967). Conspicuously absent from the literature, however, is any empirical work done on variations in the size distribution of income in small areas, either over time or over space. The omission of time-series analysis of variations among small area income distributions is due largely to the unavailability of small area personal income statistics for all but decennial census years. No such excuse may be offered for the absence of cross-sectional analysis, inasmuch as the last three decennial censuses (1950, 1960 and 1970) have provided data for regions and small areas on a comparable basis. It would appear, however, that published empirical research on size distribution of income in small areas has tended to concentrate more on the nonsubstantive statistical questions such as the identification of ''proper area definitions and less on inter-area variations than is true of inter-state and international income distribution studies which by and large have tended to avoid facing the former issue squarely, or merely assumed that it was irrelevant. This paper will draw together these heretofore unjoined aspects of the study of income distribution. In it we shall construct and test an analytical model for explaining variations in the degree of income concentration among small spatial units in terms of various economic, social and demographic variables which are thought for a priori reasons to be influential. We shall draw upon the approaches of similar studies while modifying them for our own ends, keeping in mind also that our aim is not to verify any single hypothesis such as economic growth or development vis-a-vis income distribution, but to isolate and quantify the influence of a broad group of causal factors which operating simultaneously may determine the degree of concentration of family incomes within a spatial area. Not only will it be shown that the economic and social factors most highly associated with spatial variations in income inequality can be positively identified for small areas, but what is more important, these will be shown to vary over space in relative impact as well as varying in importance according to level of aggregation of the observation unit.

PpT HE purpose of this paper is to test empirically two propositions which have been closely, although not exclusively, associated with Milton Friedman in recent years. The first is the hypothesis that changes in monetary or fiscal policy variables are frequently ineffective in stabilizing some target variable because they are poorly timed.1 The second hypothesis, which was presented by Friedman and Meiselman (1963), is that the money supply is a more important determinant of aggregate demand than autonomous expenditures.2 We test these hypotheses by considering the effects of changes in fiscal and monetary variables upon the movements in gross national product within the framework of a small, short-run econometric model of the United States economy. In our model both money supply and government expenditure are regarded as autonomous manipulative policy instruments. A special feature of the study is a quarter-by-quarter investigation of the effects of changes in each of the two policy variables upon the movement of GNP. The period of investigation dates from the end of the Korean War (1954-I) to the beginning of serious military involvement in Vietnam (1963-IV). The plan of the paper is as follows: In section II we specify and estimate the structural equations of the model. Section III is concerned with a dynamic analysis of the system. Here we derive our estimates of the dynamic multipliers and examine the system for stability. In section IV we utilize the preceding results to determine the relative importance of each of the two policy variables during the sample period. Simplified criteria are suggested and applied for evaluating the actual operation and relative effectiveness of the two types of policy. The final section contains a summary of the main results and some concluding remarks.

T HERE is a growing body of literature on the choice of technology for developing countries.' Much of this literature deals with the factor proportions problem,2 yet there has been little attention directed to the role multinational firms may play in the choice of technology. Yeoman (1968) in a cross-sectional study comparing the operating characteristics of the foreign subsidiaries of 13 United States firms, did find that there was little difference in the amounts of capital used per worker in plants located in advanced, as compared with developing countries. Where the cross-elasticity of demand is low and where manufacturing costs are low, relative to selling price, as in the pharmaceuticals industry, there is little incentive to adapt technology. Yeoman found very little technological adaptation of production processes on the part of pharmaceutical firms. On the other hand, in the home appliances field where cross-elasticities of demand are high and the share made up by production costs in final value, high adaptation was more extensive and more labor was combined into the production process in developing countries. In contrast to Yeoman, the particular concern of this paper is to compare the operating characteristics of multinational and local firms with respect to the ratios in which they combine capital and labor in final output. We address the question: Do multinational firms employ production techniques which are more capital using than those employed by local firms producing similar products? If they do, they could then be singled out as a major contributor to the factor proportions problem confronting developing countries. Two field studies were conducted in which detailed information was compiled for 14 United States subsidiaries and 14 closely matched local counterparts. Nine matched pairs of firms were studied in the Philippines and five matched pairs in Mexico. In four of the sectors studied in the Philippines it was infeasible to obtain closely matched pairs in the Mexican field study.3

Robert C. Blattberg, Evaluation of the Power of the Durbin-Watson Statistic for Non-First Order Serial Correlation Alternatives, The Review of Economics and Statistics, Vol. 55, No. 4 (Nov., 1973), pp. 508-515

PpTHE terms balanced and unbalanced appear in many and varied contexts within economic theory. One writer has even suggested that it is a cause of much confusion that 'balance' in economic could mean almost anything (Ohlin, 1959, p. 338). This lack of definition has also characterized attempts at statistical verification of the theories. Balanced in the Nurkse (1953) sense arose in the context of development economics and sought to provide some policy conclusions for less developed countries. Solow-Samuelson-Von Neuman balanced is of more theoretical interest and of broader application. Two recent papers (Swamy, 1967 and Yotopoulos, 1970) laboured under the disadvantage of mixing these two quite separate notions of balanced growth. We shall argue that consequently, the evidence already presented sheds little light on the development controversy. This paper examines evidence for balanced and unbalanced theories in the Nurkse-Hirschman sense (Haberler, 1961; Hirschman, 1958; Nurkse, 1953). Nurkse's balanced argument involves two propositions: firstly, the size of the domestic market is maximized only with a balanced of sectors because, by assumption, excess supply is wasted and excess demands are frustrated; secondly, the size of the market is the main determinant of investment in less developed countries. Therefore, Nurkse viewed balance as a means of stimulating growth. Hirschman's version of unbalanced growth, like Nurkse's theory, was concerned primarily with the inducement to invest. Only Hirschman argued that excess demand and supply are necessary in order to make investment decisions obvious. Excess demand induces investment in supplying industries (backward linkage) and excess supply leads to the establishment of using industries (forward linkage). It is clear that Hirschman's theory of unbalanced applies mainly to the intermediate goods sector. A number of studies (including Bhatt, 1965 and Mathur, 1966)) have made considerable ground in providing a synthesis of the theories, usually developing the fact that Nurkse and Hirschman exempt vertical and horizontal sectors, respectively. Consequently there may not arise a problem of policy choice between balanced and unbalanced growth. In the context of this paper, the most important feature of both theories is the implicit exclusion of the effects of international trade. If trade becomes the engine of growth in any less developed country, the theoretical controversy becomes less relevant for development policy. Furthermore, distortions in sectoral rates due to international trade, do not constitute unbalanced in the Hirschman sense. These considerations render difficult any empirical enquiry.

Yiannis P. Venieris, Frederick D. Sebold, Richard D. Harper, The Impact of Economic, Technological and Demographic Factors on Aggregate Births, The Review of Economics and Statistics, Vol. 55, No. 4 (Nov., 1973), pp. 493-497

T RADITIONAL theories of international trade have explained the existence and composition of trade between countries in terms of international differences in production functions and factor endowments. More recently, increasing attention has been paid to other influences, which lie at the fringe of the traditional theory. These include the specific character of factors such as natural resources, the influence of tariffs and other restrictions on trade, and differences in size of country. Empirical studies of the composition of international trade have tended to test hypotheses about only a single one of these determinants. Yet it seems unlikely that they are mutually exclusive; one should expect several different influences simultaneously to play a part in shaping any given flow of trade. Accordingly, we have carried out an analysis of a particular trade flow to try to assess their relative empirical importance. The specific trade flow with which we are concerned is that between the Republic of Ireland and the United Kingdom. We have chosen to analyse this trade flow for the following reasons: First, we are fortunate to have detailed data on the flows of merchandise trade between Ireland and the United Kingdom. This information can be linked to the input-output tables of each country, which are comparable at a classification level of forty-seven sectors. We also have detailed and reliable estimates of Irish factor endowments.' Secondly, Irish trade with the United Kingdom forms a large part of her total trade (70 per cent of merchandise exports, and 50 per cent of merchandise imports in 1964). Exports from individual Irish sectors of production frequently account for a large share of sector output, while imports generally form a high proportion of the output of the domestic sector with whose products they are competing. Thirdly, the Irish economy is a small tradedependent economy whose exports have a large primary commodity content. The composition of its trade with its much larger and industrialised trading partner may not be untypical of the position in which so many developing countries find themselves with respect to their more advanced trading partners. It is worth emphasising that the small trade-dependent economy is typical of the great majority of countries. We begin with an empirical test of the Ricardian hypothesis of comparative advantage in its classical two-country, multi-commodity formulation. In the second section of the paper, we present the results of a number of tests concerned with hypotheses about factor proportions. The third section examines the influence of natural resources, and the paper concludes with an account of the role of trade restrictions.