Industrious
R.C. Allen
Economic History Review, May 2011, Pages 357-384
Abstract:
Britain had a unique wage and price structure in the eighteenth century, and that structure is a key to explaining the inventions of the industrial revolution. British wages were very high by international standards, and energy was very cheap. This configuration led British firms to invent technologies that substituted capital and energy for labour. High wages also increased the supply of technology by enabling British people to acquire education and training. Britain's wage and price structure was the result of the country's success in international trade, and that owed much to mercantilism and imperialism. When technology was first invented, it was only profitable to use it in Britain, but eventually it was improved enough that it became cost-effective abroad. When the ‘tipping point' occurred, foreign countries adopted the technology in its most advanced form.
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Gerald Berk
Studies in American Political Development, forthcoming
Abstract:
The Corrugated and Solid Fiber Shipping Container Industry Code was one of the only successful codes in the National Recovery Administration (NRA). Compliance was high. It increased production, wages, employment, and product diversity. NRA administrators marveled at its success. Why? And why have historical and rational-choice institutionalists, studying the NRA, overlooked the container code? This paper provides two answers: one microbehavioral, the other macrohistorical. At a micro level, it is impossible to understand the container code with rational-choice theory. It was successful not because it coordinated and enforced collective action, but because it organized "collaborative learning." The code showed manufacturers how to compete over productivity and product diversity instead of volume. At a macro level, historical institutionalists miss the movement that spawned the container code, because they search in vain for liberal corporatism and state autonomy. Instead, this paper shows how the Federal Trade Commission (FTC) led a movement of cost accountants, trade associations, and peak business associations in an effort to channel competition from predation into improvement in products and production processes through "developmental trade associations." The container code drew its personnel and practices from this project. In order to make sense of the container code, I introduce a novel theory of institutions, called "creative syncretism."
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Policies to Encourage Job Creation: Hiring Credits vs. Worker Subsidies
David Neumark
NBER Working Paper, March 2011
Abstract:
The Great Recession has spurred interest in policy efforts to spur job creation. This article surveys existing research on two "direct" job creation policies: subsidies to employers to hire workers ("hiring credits"); and subsidies to individuals to enter the labor market ("worker subsidies"). The research suggests that in the short-term, when recovery from the recession is a priority, hiring credits are likely a more effective policy response. First, hiring credits are likely more cost effective, as long as they focus on the recently unemployed and create incentives for new job creation. Second, in general, worker subsidies better target benefits to low-income families and especially single mothers. At this juncture, however, because the recession fell so heavily on men, a hiring credit focused on the unemployed may target low-income families well, and the usual distributional concern with low-income female-headed households may be less paramount. And third, employment subsidies may not be as effective when there is high cyclical unemployment. In the longer-term, however, when the labor market has recovered more from the recession and the focus can shift to longer-standing employment problems and distributional concerns, greater reliance on worker subsidies may do more to increase employment while shifting the distribution of benefits more toward lower-income households.
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Noncompete Covenants: Incentives to Innovate or Impediments to Growth
Sampsa Samila & Olav Sorenson
Management Science, March 2011, Pages 425-438
Abstract:
We find that the enforcement of noncompete clauses significantly impedes entrepreneurship and employment growth. Based on a panel of metropolitan areas in the United States from 1993 to 2002, our results indicate that, relative to states that enforce noncompete covenants, an increase in the local supply of venture capital in states that restrict the scope of these agreements has significantly stronger positive effects on (i) the number of patents, (ii) the number of firm starts, and (iii) employment. We address potential endogeneity in the supply of venture capital by using endowment returns as an instrumental variable. Our results point to a strong interaction between financial intermediation and the legal regime in promoting entrepreneurship and economic growth.
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Trade and unemployment: What do the data say
Gabriel Felbermayr, Julien Prat & Hans-Jörg Schmerer
European Economic Review, forthcoming
Abstract:
This paper documents a robust empirical regularity: in the long-run, higher trade openness is associated with a lower structural rate of unemployment. We establish this fact using: (i) panel data from 20 OECD countries, (ii) cross-sectional data on a larger set of countries. The time structure of the panel data allows us to control for unobserved heterogeneity, whereas cross-sectional data make it possible to instrument openness by its geographical component. In both setups, we purge the data of business cycle effects, include a host of institutional and geographical variables, and control for within-country trade. Our main finding is robust to various definitions of unemployment rates and openness measures. Our benchmark specification suggests that a 10 percentage point increase in total trade openness reduces aggregate unemployment by about three quarters of one percentage point.
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Do Behavioral Biases Adversely Affect the Macro-economy?
George Korniotis
Review of Financial Studies, May 2011, Pages 1513-1559
Abstract:
We investigate whether the adverse effects of investors' behavioral biases extend beyond the domain of financial markets to the broad macro-economy. Focusing on the income risk-sharing role of financial markets, we find that risk sharing is higher (more than double) in U.S. states where investors are more sophisticated and exhibit weaker behavioral biases. The potential for risk sharing varies geographically, but states with better risk-sharing opportunities are able to achieve higher levels of risk sharing only when investors in those states are more sophisticated. Collectively, these results indicate that investors' aggregate behavioral biases and their lack of financial sophistication adversely affect the local macro-economy.
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Private Equity and Long-Run Investment: The Case of Innovation
Josh Lerner, Morten Sorensen & Per Stromberg
Journal of Finance, April 2011, Pages 445-477
Abstract:
A long-standing controversy is whether leveraged buyouts (LBOs) relieve managers from short-term pressures from public shareholders, or whether LBO funds themselves sacrifice long-term growth to boost short-term performance. We examine one form of long-run activity, namely, investments in innovation as measured by patenting activity. Based on 472 LBO transactions, we find no evidence that LBOs sacrifice long-term investments. LBO firm patents are more cited (a proxy for economic importance), show no shifts in the fundamental nature of the research, and become more concentrated in important areas of companies' innovative portfolios.
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Independent invention during the rise of the corporate economy in Britain and Japan
Tom Nicholas
Economic History Review, forthcoming
Abstract:
Independent inventors accounted for approximately half of all patents in Britain and Japan by 1930, despite the rise of the corporate economy and the spread of industrial R&D. A mixture of patent renewal and historical citations data reveals that the quality of independent invention was high. Active markets for inventions created incentives for independents, especially in large cities like London and Tokyo, which dominated spatially. Alongside evidence for the US, the findings show that in countries with different patent systems and at varying stages of economic development, a key component of overall inventive activity originated from outside the boundaries of firms.
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A Benefit-Cost Analysis of U.S. Agricultural Trade Promotion
Henry Kinnucan & Hailong Cai
American Journal of Agricultural Economics, January 2011, Pages 194-208
Abstract:
Subsidies for nonprice export promotion can harm domestic consumers by increasing price in the domestic market and by diverting funds from domestic market promotion. Taking these consumer impacts into account, we find that federal expenditures for nonprice export promotion of farm products may be too high.
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Institutions, Property Rights, and Economic Development in Historical Perspective
Luis Angeles
Kyklos, May 2011, Pages 157-177
Abstract:
Institutions, and more specifically private property rights, have come to be seen as a major determinant of long-run economic development. We evaluate the case for property rights as an explanatory factor of the Industrial Revolution and derive some lessons for the analysis of developing countries today. We pay particular attention to the role of property rights in the accumulation of physical capital and the production of new ideas. The evidence that we review from the economic history literature does not support the institutional thesis.
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Public Subsidies to Business: An International Comparison
Pierre-André Buigues & Khalid Sekkat
Journal of Industry, Competition and Trade, March 2011, Pages 1-24
Abstract:
The paper compares the design and outcome of public subsidies to business across a number of industrialized countries. The comparison of the amount of subsidies shows that the share of GDP devoted to total public support is markedly lower in the USA than in Europe but the share of GDP devoted to support that improves economic performance is comparable. Implementing public support follows two models. The first model (Anglo-Saxon) model is primarily "soft" in nature and decentralized. The second model is more interventionist and centralized. The former model seems to perform better especially in term of science and technology. However, the impact of public support policies remains seriously under-researched and more research is crucially needed to draw firm conclusions.
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Measuring urban agglomeration economies with office rents
Matthew Drennan & Hugh Kelly
Journal of Economic Geography, May 2011, Pages 481-507
Abstract:
Urban economic theory points to one measure of agglomeration economies, namely differential land rent in intense clusters of economic activity. The empirical basis for this research is commercial office rents in major office markets of the USA. Using panel data, we estimate models of changes in real office rents for 120 major office markets, in 49 MSAs, over 18 years. Our variable reflecting agglomeration economies is changes in producer service employment. Our results suggest that there are agglomeration economies in CBDs of the larger metropolitan office markets but not in the smaller, and not in any suburban office markets.
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Herman De Jong & Pieter Woltjer
Economic History Review, May 2011, Pages 472-492
Abstract:
During the interwar period the manufacturing productivity gap between the US and the UK became much larger than existing estimates suggest. In this article a new comparison of US/UK productivity levels for 1935 is presented, utilizing a more rigorous methodology to revise the widely used, but methodologically outdated, benchmark comparison by Rostas that was published in 1948. Secondly, the comparison is extended to take account of variations in input prices, and it is shown that double deflation has a substantial effect on the new benchmark, particularly at the industry level. Thirdly, labour input is adjusted for actual hours worked. US manufacturing displayed a much higher level of comparative productivity for the key industries of the second industrial revolution, such as chemicals and engineering. These results support revisionist accounts of the depression's strengthening of US productivity leadership.
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Fiscal Zoning and Sales Taxes: Do Higher Sales Taxes Lead to More Retailing and Less Manufacturing?
Daria Burnes, David Neumark & Michelle White
NBER Working Paper, April 2011
Abstract:
We test the hypothesis that local government officials in jurisdictions that have higher local sales taxes are more likely to use fiscal zoning to encourage retailing. We find that total retail employment is not significantly affected by local sales tax rates, but employment in big box and anchor stores is higher significantly in jurisdictions with higher sales tax rates. This suggests that local officials in jurisdictions with higher sales taxes concentrate on attracting large stores and shopping centers. We also find that the effect of local sales taxes on big box and anchor store retail employment is larger in county interiors, where residents tend to be captive to local retailers. Finally, fiscal zoning has the opposite effect on manufacturing employment, suggesting that local officials' efforts to attract shopping centers and large stores crowd out manufacturing.
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The rural growth trifecta: Outdoor amenities, creative class and entrepreneurial context
David McGranahan, Timothy Wojan & Dayton Lambert
Journal of Economic Geography, May 2011, Pages 529-557
Abstract:
Recent work challenges the notion that attracting creative workers to a place is sufficient for generating local economic growth. In this article, we examine the problem of sustaining robust growth in the periphery of the USA, demonstrating the contingent nature of talent as an engine for economic growth. We test the hypothesis that rural growth in the knowledge economy is dependent on the ability to utilize new knowledge, perhaps generated elsewhere, in addressing local economic challenges. Tests confirm that the interaction of entrepreneurial context with the share of the workforce employed in the creative class is strongly associated with growth in the number of new establishments and employment, particularly in those rural counties endowed with attractive outdoor amenities.
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Network structure of production
Enghin Atalay et al.
Proceedings of the National Academy of Sciences, 29 March 2011, Pages 5199-5202
Abstract:
Complex social networks have received increasing attention from researchers. Recent work has focused on mechanisms that produce scale-free networks. We theoretically and empirically characterize the buyer-supplier network of the US economy and find that purely scale-free models have trouble matching key attributes of the network. We construct an alternative model that incorporates realistic features of firms' buyer-supplier relationships and estimate the model's parameters using microdata on firms' self-reported customers. This alternative framework is better able to match the attributes of the actual economic network and aids in further understanding several important economic phenomena.
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Michael Hicks & Michael LaFaive
Economic Development Quarterly, May 2011, Pages 193-205
Abstract:
This article estimates the county-level impact of the Michigan Economic Growth Authority (MEGA) Credit targeted tax incentives to firms from 1995 through 2002. The authors employ a fixed effects instrumental variable model with spatial and time autocorrelation function tested on aggregate income, employment, the unemployment rate, and sectoral activity in manufacturing, wholesale, and construction. The authors find no impacts of the MEGA credit program on county-level aggregate employment, unemployment rates, wages, or incomes. Furthermore, there is no impact of manufacturing or warehousing credits on employment or wages in these sectors. The authors do find that MEGA credits produce a transient impact on construction employment (a drop in construction wages is statistically but not economically significant). The construction impact of MEGA is an estimated $123,000 investment per construction job. Generally, 75% of these jobs last for 1 year, with the remaining 25% lasting only into the second year.
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A Re-examination of the Infant Industry Argument for Protection
Arvind Panagariya
Margin: The Journal of Applied Economic Research, February 2011, Pages 7-30
Abstract:
Though a logically tight case for infant industry protection has never been made, proprotection authors have claimed its truth since at least its statement by Alexander Hamilton in 1791. In the 1970s and the 1980s, the argument had receded into the background following its influential critiques by trade economists James Meade, Harry Johnson and Robert Baldwin. But globalisation critics have recently revived it giving it new guises. This requires a fresh response from pro-free trade economists so that the fog is removed yet again and clear thinking restored. Accordingly, in this paper, I revisit the argument and its logical flaws. I demonstrate that the new packaging provided by proprotection authors cannot hide the fundamental logical flaws in the argument. Nor is there compelling evidence of successful infant industry promotion once the costs and benefits are both taken into account instead of just the benefits. The argument is often pegged on externalities. But once the precise source of the externality is pinned down, protection as an instrument to correct it turns out to be ineffective.