Using U.S. state-level data we show that agglomeration externalities influence the level of foreign-invested capital in a location. Our empirical model allows the separation of agglomeration effects from the rate of capital stock adjustment, two forces that previous research has conflated. We estimate an agglomeration elasticity of investment of 0.11 to 0.15 with respect to same-source-country investment, lower than previous estimates. We also investigate the influence of state policies and find that although general investment incentives do not affect the location of FDI, targeted policies such as unitary taxation and state foreign offices influence investment.

Since the mid-to-late 1970's, wage inequality between low- and highly educated workers has widened markedly. The wage premium to a college education compared with a high-school education has increased by some 20 percentage points (see George J. Borjas and Valerie A. Ramey [1994] for recent estimates). Part of the explanation seems to lie with a slowdown in the growth of supply of highly educated workers in the 1980's. Another part seems to lie with a demand shift toward educated workers. Two hypotheses have been advanced to account for the alleged demand shift. The first holds that technological change has been biased in favor of high-education workers. The second holds that growing international trade with low-wage countries has shifted labor-market demand in the United States away from low-educated workers, as the United States increasingly imports goods produced by such workers from low-wage countries.

Participating in insurgency is physically risky. Why do people do so? Using new data on 3,799 payments to insurgent fighters by Al Qa'ida Iraq, we find that: (i) wages were extremely low relative to outside options, even compared to unskilled labor; (ii) the estimated risk premium is negative; and (iii) the wage schedule favors equalization and provides additional compensation for larger families. These results challenge the notion that fighters are paid their marginal product, or the opportunity cost of their time. They may be consistent with a “lemons” model in which fighters signal commitment by accepting low wages.