Knowledge that Transforms

Nathaniel H. Leff, Kazuo Sato, Macroeconomic Adjustment in Developing Countries: Instability, Short-Run Growth, and External Dependency, The Review of Economics and Statistics, Vol. 62, No. 2 (May, 1980), pp. 170-179

gence on fertility and of household size on offspring's intelligence remain the subject of public debate. Most recently, attention has centered on the decline in Scholastic Aptitude Test scores and the possible effects of the postwar baby boom. These concerns suggest that economists would do well to introduce intelligence into the household utility maximization model used to explain differential fertility. We attempt to do this here.

D ESPITE the rapid development of techniques of regional economic analysis during the past fifteen years, most regional models have continued to focus upon selected aspects of the regional economy rather than upon its totality. Economic base models and regional input-output models have concentrated upon the relationships between the output and employment in the export sectors and the local sectors;' comparative cost models have concentrated upon the response of the export sectors to changes in relative regional production costs;2 and regional econometric models have concentrated upon the determinants of employment in the export sectors and the relationships between regional economic activity and that of the nation.3 This disparate collection of partial-equilibrium models generally does not make it possible to determine the full general-equilibrium effects of a given economic change on the total regional economy. For example, although economic base/input-output models permit the estimation of the indirect and induced employment and output effects arising from a change in final demand or the level of activity in the export sector, they treat the level of activity in the export sector as exogenous and do not permit factor substitution. Similarly, although comparative cost models explicitly recognize that the location of export industries is largely determined by relative production costs, they do not consider the interrelationships among the industries within the export and local sectors or the role that factor substitution can play in regional employment levels. Finally, although regional econometric models generally use a neoclassical labor demand function, and hence explicitly consider factor substitution, they do not fully differentiate between the factor-substitution and production cost effects of a change in regional input prices. Furthermore, they do not account for the full set of linkages among the industries in the export and local sectors. The growing need for comprehensive regional models for planning and policy analysis suggests that there would be substantial value in having models that synthesize the relevant aspects of existing regional economic theory into a single integrated construct. Such an integrated model would be useful for both forecasting and policy evaluation and should include the following fea-. tures: First, it should recognize that factor substitution is possible and that an increase in the regional price of any given factor will tend to cause substitution in favor of other factors (the factorsubstitution effect); Second, it should recognize that an increase in any input price in a region relative to that in other regions will tend to increase production costs in the region in question. The result will be a reduction in the comparative locational advantage for the affected region and a tendency toward a relative shift in employment in national-market industries away from that region to lower-cost regions (the location effect); Third, it should be able to quantify the relative magnitudes of the factor-substitution effect and the location effect arising from any given change in regional input prices; Fourth, it should recognize that a complex set of interrelationships exists not only between the export sector and the local sector, but also among the various industries within each sector. Received for publication May 17, 1978. Revision accepted for publication December 7, 1978. * University of Massachusetts at Amherst, Massachusetts Institute of Technology, and Regional Science Research Institute, respectively. Work on this model has been supported by the Commonwealth of Massachusetts. The authors are grateful to Edward M. McNertney for contributions to the development and estimation of many of the equations and to Roy E. Williams for a mathematical and statistical review of the model and for programming the model. ' See, for example, Isard (1960), Tiebout (1962), Bourque et al. (1967), Miernyk (1970), and Polenske (1974). 2 See, for example, Weber (1928), Hoover (1937), Isard (1956) and Borts and Stein (1964). 3See, for example, Friedlaender et al. (1975), Adams et al. (1976), and Glickman (1977).

In previous work (Zellner, 1978) structural coefficient estimates that minimize the posterior expectation of a generalized quadratic loss function were derived. On computing these minimum expected loss (MELO) estimates for coefficients of Klein's Model I and the Girschick-Haavelmo supply and demand model for food, it was found that the MELO coefficient estimates have values between corresponding direct least squares (DLS) and two stage least squares (2SLS) estimates (see Zellner and Park, 1979). This note explores the relation of MELO, DLS and 2SLS estimates. Below it is shown,that the MELO estimate of a vector of coefficients of endogenous variables in an equation of a linear, interdependent econometric model can be expressed as a matrix weighted average of the DLS and 2SLS estimates. In the scalar case, the MELO estimate can be expressed as a simple weighted average of the DLS and 2SLS estimates. Some properties of these matrix weighted averages are discussed using the results in Chamberlain and Leamer (1974).

Randolph C. Martin, Robert E. Graham, Jr., The Impact of Economic Development Administration Programs: Some Empirical Evidence, The Review of Economics and Statistics, Vol. 62, No. 1 (Feb., 1980), pp. 52-62

T IME affects an individual's earnings in three ways. First, his earnings depend on his age and experience, as he acquires skills through experience or as his productivity changes during the aging process. Second, the rental rate on human capital varies over time with relative factor supplies, consumer demand, and technical change. Finally, workers in different cohorts may attain different earnings levels for a variety of reasons. Common experiences of certain cohorts, such as war or depression, may permanently affect their lifetime careers, as might the quality of schooling received by the cohort, or the tightness of the labor market as the cohort entered its first jobs. This paper attempts to estimate these on the earnings of white American men by using panel data on a cross-section of workers. The estimated vintage effects, beside being of interest for their own sake, allow at least tentative evidence on several recent hypotheses about the labor market. Vintage effects for this paper are defined as the differences in earnings between cohorts that cannot be explained by either secular growth or the normal age-experience profile of earnings. A cohort is defined as a set of all workers who entered the labor force at the same time. Since cohort effects, as defined, must have lasted into the observation period, 1968-76, to be observed, we cannot measure any temporary advantage or disadvantage a cohort may have held before the observation period. The estimates, therefore, attempt to measure long-run effects of vintage on earnings or the long-run difference between cohorts abstracting from age and calendar time. The major problem in the analysis is to disentangle empirically the effects of age, time, and vintage on earnings. At the very least, one must observe cross-sections of workers at different points in time. However, a further necessary condition is some restriction on the functional form which allows vintage effects to be identified. This problem is handled in two ways: 1. restrictions on the functional form of the earnings function that are robust to alternative functional forms; 2. direct tests of alternative hypotheses about the cause of vintage effects.