Knowledge that Transforms

Charles R. Link, Edward C. Ratledge, The Influence of the Quantity and Quality of Education on Black-White Earnings Differentials: Some New Evidence, The Review of Economics and Statistics, Vol. 57, No. 3 (Aug., 1975), pp. 346-350

A substantial portion of the United Kingdom's .11.international transactions in long-term capital is comprised of inflows and outflows of direct investment in foreign subsidiaries and branches, whether by acquisition of share and loan capital, retention of profits, changes in branch indebtedness, or by changes in intercompany accounts. These transactions have historically been very large. On average, since 1961 U. K. firms have invested abroad in direct investments about 11.5%o as much as they have invested at home. On a per capita basis, the U. K. is one of the world's largest foreign investors. These flows are of considerable importance for the balance of payments. The quarterly value of the deficit on direct investment account has averaged ?28 million since 1961, compared with an average surplus on current account of ?34 million, and the variance of the balance on direct investment is about 1 1% of the variance of the balance on current account. Section II describes a model of direct investment flows. This model is tested in section III. The final section assesses some of the implications of the estimated model.

In a recent article in this journal, Professors Sinai and Stokes (1972) presented a very interesting test of the hypothesis that money enters the production function, and they suggest that real balances could be a missing variable that has contributed to the unexplained 'residual' being attributed to technological The theory of induced innovation, as presented by Fellner (1961) and Schmookler (1966), suggests that market conditions affect the demand for innovation and the realized technological changes. Since money may be regarded as a proxy for short-run fluctuations in the aggregate demand, this theory suggests that money affects output and technological changes as a demand factor rather than as a factor of production. In this note, we suggest the appropriate tests to distinguish between the two alternative hypotheses, and present some empirical results.

SINCE and nondurable goods are consumed quickly but durable goods last for some years, many economists adjust the concept of durable goods spending in the National Income Accounts (NIA) to allow for the element of saving in expenditures for durable goods.' Validly, a distinction is thus made between current consumption and outlays which are partly consumption and partly saving. Unfortunately, as commonly estimated with fixed life and straight-line depreciation assumptions, a of services definition of durable consumption may lead to misleading theoretical conclusions and affect the accuracy of economic forecasts.2 For theory, this treatment of durable stocks implies improvident consumption of durables during cyclical downturns and affects the case for money illusion. In forecasting, use of this concept in the consumption block of the FRB-MIT-Penn econometric model causes biases around cyclical turning points. In the first section of this article, it is shown that higher prices induce additional saving in the context of a consumption function with NIA definitions. The moving weight personal consumption deflator from the NIA and the fixed weight consumer price index are compared to confirm the positive effect of higher prices on saving and to suggest that inflation may force substitutions among customary purchases. Supporting data from consumer surveys are cited to illustrate that the price influenced changes in family expenditure patterns are associated with downgrading in the quality of purchases. The addition of several measures of price anticipations to our consumption equation suggests that the amount of inflation anticipated by households has a negative impact on saving but that this effect is less important in explaining variations in the saving rate than the positive saving associated with a rising consumer price index. In the second section, the saving rate consistent with the flow of definition of durables is contrasted with the NIA saving rate at times of heightened inflation and cyclical downturns by an analysis of the movements of the two time series on a graph. Some implications of the choice of net financial assets or total household net worth in consumption functions are examined. Finally, the predictions of the FRB-MITPenn econometric model are evaluated and the results are compared with a well-known consumption function and with the model presented in the first section. The flow of definitions of consumption, income, and wealth are found to generate overpredictions of consumption around cyclical turns.

Glenn P. Jenkins, Brian D. Wright, Taxation of Income of Multinational Corporations: The Case of the United States Petroleum Industry, The Review of Economics and Statistics, Vol. 57, No. 1 (Feb., 1975), pp. 1-11

IN contrast to the extensive empirical work on the income elasticity on demand for housing services, the relation between tenure choice and income has received relatively little attention. Those studies which have been completed have generally involved only a single housing market, and the method, data used, and the markets studied have been so diverse as to make comparison of the resultant estimates extremely difficult. Further, one of the major shortcomings of earlier efforts has been the lack of a proper theoretical framework underlying the estimated models.' The purpose of the present paper is to develop and test a model of aggregate tenure choice based on the household tenure decision. The tenure-choice estimates are based on a sample of metropolitan areas and are obtained for six household types by race using income data for eight income intervals. The principal value of the research is the rigorous definition of the aggregate tenure-income relation and the provision of estimates that can serve as benchmarks with which to compare similar estimates for individual housing markets.' The estimates might also serve as an input into the evaluation of public policies involving home ownership, such as the effect on home ownership rates of changes in the treatment of certain ownership related expenses under the Internal Revenue Code. The main findings are the estimates of the income elasticity of demand for owner occupancy. The elasticity at the mean for all households combined is about 0.18. Wide variation among household types was found: elasticities larger than the mean were obtained for husband-wife family types with heads under age 45 and for non husband-wife families and primary individuals. There are substantial differences between races in the elasticities, although the overall pattern for household types just described remains generally valid for both races. The mean income elasticity of all black households combined is somewhat larger than for all white households, 0.25 vs. 0.18. The remainder of the paper consists of two sections. In section II the theoretical model is developed and its empirical specification given. Section III presents the estimates of the aggregate cross-cities model and contrasts them with fairly comparable estimates for a single housing market.

The purpose of this paper is to examine the theoretical rationale underlying the growth of footloose, import-dependent industry observed in many of the most successful developing countries (Hong Kong, Taiwan, S. Korea, for example). A second objective is to develop empirical formulations appropriate for analyzing the resource allocation consequences of a footloose industrial structure in a developing country. It is argued that previous applications of input-output techniques to factorintensity measurement have in general ignored the implications of trade in intermediate inputs. The Leontief test of the Heckscher-Ohlin trade theory is perhaps the first and certainly the most widely adopted application of input-output techniques to the measurement of the factor intensity of production. The first section of this paper will attempt to demonstrate that the procedure developed by Leontief is not strictly appropriate in an open economy which utilizes imported as well as domestically supplied inputs. An alternative formulation is developed in this paper, which when compared to the Leontief formulation yields a measure of the domestic resource cost or saving resulting from the use of imported rather than domestically produced inputs. (This abstract was borrowed from another version of this item.)