stabilization policy a reconsideration i introduction in 1936 keynes s general theory explained how fiscal and monetary policy could be used to end depressions since that time no developed country has ever seen a downturn on the scale of the 1930s the general theory was not just a how to book on the avoidance of depressions it was an argument for stabilization policy itself the years since the general theory have seen a revolt against keynesian economics in a revisionist mode milton friedman argued that countercyclical policy cannot affect the average level of unemployment and output robert lucas and thomas sargent 1979 went further contending that it is not only impossible to increase average output it is also impossible to stabilize it more recently lucas 1987 2003 has argued that policies to stabilize output even if effective would yield negligible welfare gains thus stabilization policy should not be a macroeconomic priority lucas s conclusion notwithstanding stabilization policy has long been an explicit or implicit objective of monetary policy in most industrial countries even including those countries with inflation targets the volatility of output has in fact declined in most major industrial countries since the mid 1980s and monetary policy arguably deserves at least partial credit see bernanke 2004 mirroring practice monetary policy research commonly takes it as given that along with price stability stabilization policy the minimization of squared deviations of output around potential is an appropriate policy objective see for example clarida et al 1999 in this article we explore the economic rationale for stabilization as a policy goal concluding that it does in fact deserve high policy priority we survey a large body of literature that critiques the validity of key assumptions in lucas s argument we also offer suggestive evidence that stabilization policy can significantly reduce average levels of unemployment by providing stimulus to demand in circumstances where unemployment is high but underutilization of labor and capital does little to lower inflation a monetary policy that vigorously fights high unemployment should however also be complemented by a policy that equally vigorously fights inflation when it rises above a modest target level the federal reserve act thus wisely enunciated price stability and maximum employment as twin goals for monetary policy ii the case against stabilization policy macroeconomic analysis typically assumes that social welfare depends negatively on both inflation above a modest target level here assumed zero and unemployment above some minimum socially efficient level for example a standard social welfare function is the discounted sum of period losses l sub t of the form see among others barro and gordon 1983 pp 592 93 1 l sub t a u sub t 1 k u sup 2 b pi sup 2 sub t where u sub t and pi sub t are the unemployment and inflation rates in period t and u sup is the natural rate of unemployment the coefficient k is positive reflecting the desirability of unemployment below the natural rate because real economies deviate in many respects from perfect competition the natural rate of unemployment is likely to exceed the socially optimal unemployment rate for example with monopolistic competition goods are underproduced because they are priced above marginal cost so potential output is inefficiently low and equilibrium unemployment is too high standard macroeconomic analysis additionally assumes that inflation is determined by an expectations augmented accelerationist phillips curve of the form 2 pi sub t pi sup e sub t f u sub t u sup epsilon sub t where pi sup e sub t is the expected inflation rate at time t with expectations formed at t 1 and epsilon sub t captures supply shocks to the phillips curve at t

stylized facts and stylized illusions inflation and productivity revisited recent estimates of a negative empirical relationship between inflation and the rate of growth of productivity provide a strong case for vigorous anti inflationary policy this paper tests the robustness of this evidence using long quarterly and annual datasets for four countries canada united states united kingdom west germany our results from cointegration and other time series tests show no evidence for any connection between inflation and the level of productivity we do find a strong connection between inflation and productivity growth but it is so internally inconsistent as to be incredible the best explanation is that it is accounted for entirely by statistical bias from attempting to cointegrate stationary and non stationary variables

international institutions and the volatility of international trade during the past half century states have established a large number of international trade institutions both multilateral and regional in scope the existing literature on this topic emphasizes that these agreements are chiefly designed to liberalize and increase the flow of overseas commerce yet such institutions have another function that has been largely ignored by researchers namely reducing volatility in trade policy and trade flows exposure to global markets increases the vulnerability of a country s output to terms of trade shocks governments seek to insulate their economies from such instability through membership in international trade institutions particularly the world trade organization wto and preferential trading arrangements ptas we hypothesize that these institutions reduce the volatility of overseas commerce we further hypothesize that because market actors prefer price stability trade institutions increase the volume of foreign commerce by reducing trade variability this article conducts the first large scale multivariate statistical tests of these two hypotheses using annual data on exports for all pairs of countries from 1951 through 2001 the tests provide strong support for our arguments ptas and the wto regime significantly reduce export volatility in so doing these institutions also increase export levels

productivity growth scale economies and the schumpeterian hypothesis the schumpeterian hypothesis is usually interpreted as implying 1 a positive relationship between innovation and monopoly power with the concomitant above normal profits or 2 large firms are more than proportionately more innovative than small firms 6 22 empirical tests of the latter version of the schumpeterian hypothesis have traditionally examined the relationship between some measure of innovative activity and firm size innovative activity has been measured using innovative inputs such as r d expenditures or the employment of scientific and engineering personnel or innovative outputs as represented by the number of patents significant innovations or sales of new products the shortcomings of each of these as a proxy for innovative activity has been discussed extensively in the literature studies by phillips 10 stigler 13 carter and williams 3 weiss 15 allen 1 bock and farkas 2 greer and rhoades 4 kendrick and grossman 7 sveikauskas and sveikauskas 14 and scherer 11 have employed the growth rate of productivity either labor or total factor as a measure of innovative activity in empirical tests of the schumpeterian hypothesis this variable serves as a proxy for the rate of technical change and is particularly appropriate as a measure of dynamic efficiency in industries such as transportation primary metals utility services etc where the emphasis is on process and not product innovations as noted by kamien and schwartz 6 productivity may grow over time as a result of i shifts in the production function associated with technical change or ii increases in productivity arising from economies of scale this study demonstrates that inclusion of the scale effect in estimates of productivity growth imparts a downward bias in the relationship between firm size and dynamic efficiency which may lead to an inappropriate rejection of the schumpeterian hypothesis the empirical implications of this bias are illustrated using data from a sample of electric utilities operating in the u s during the period 1961 73

the export effect of immigration into the usa much has been written on the connection between migration and international trade human history provides important examples of migrations leading to increased trade activity with perhaps the most well known example of the overseas chinese this study investigates the trade related importance of chinese and other immigrants into the usa previous studies may have underestimated or overestimated the relationship between trade and migration with nations treated as featureless plains rather than as varied landscapes this study contends that an understanding of the immigration trade relationship can be improved upon by examining the specific pattern and destination of immigration into specific us states using state level export data to 28 immigrant source countries in 1993 a strong immigration trade link is found reinforcing conclusions made by previous research using country level data the compelling connection between immigration and trade found in this study and others suggests that future change

the effect of financial education training on the financial literacy of spanish students in pisa the aim of this paper is to analyze the effect of financial education training on spanish secondary students to do this we rely on data from pisa 2012 this included an assessment of students fi

money still makes the world go round the zonal view many leading monetary economists have come to regard the monetary aggregates as obsolete measures of the monetary policy stance this critique has led some to view money as having lost its central role in the conduct of monetary policy we say to those advocating excising money from monetary policy not so fast to better understand the potential role for money we develop a zonal view of monetary policy which reflects the historical regularity for the relative informativeness of the quantitative measures of monetary policy such as the monetary aggregates and real interest rates to depend on the inflation zone in which a central bank finds itself the zones range from high inflation zone 1 to deep deflation zone 5 with intermediate zones of moderate inflation zone 2 low inflation zone 3 and low deflation zone 4 we find considerable support for this view in the historical data which stretches back to the 19 th century seen from this perspective the past experience of central banks casts doubt on the singular importance often attributed to the short term real interest rate as an indicator of the stance of monetary policy this applies especially in the current low inflation environment in which many central banks find themselves the zonal view has far reaching implications for monetary policy frameworks for the analytical efforts to understand the monetary policy transmission mechanism and for central bank communication strategies this paper was prepared for the 21 st congress of the european economic association held in vienna on august 27 2006 the views expressed in the paper are solely those of the authors

longitude matters time zones and the location of foreign direct investment abstract using bilateral foreign direct investment fdi data we find that differences in time zones have a negative and significant effect on the location of fdi we show that this finding is robust across different specifications estimation methods and proxies for time zone differences time zones also have a negative effect on trade but this effect is smaller than that on fdi finally the impact of the time zone effect has increased over time suggesting that it is not likely to vanish with the introduction of new information technologies

economic growth and development towards a catchup model we develop a model for economic growth applicable to a group of countries constituting around half of the gross global production that have been consistently catching up to the us since 1960 or so this group can be termed the convergence club the model has a theoretical basis developed in other publications cited but the present work is essentially empirical it demonstrates that there is a very strong correlation between catchup growth with respect to the us and an energy proxy ep the energy proxy that works best is a linear combination of domestic electric power consumption petroleum oil consumption per capita compared to the us levels the results presented here do not constitute a theory of growth but they are consistent with theory presented elsewhere on a practical level we argue that consistent catchup trends over the past 40 years can safely be extrapolated for a few more decades for scenario construction purposes we also believe that the observed catchup trends can be regarded as potential mid term or long term growth trajectories for transition economies and others that have recently been adversely affected by conflict or mismanagement

business groups and product variety in trade evidence from south korea taiwan and japan abstract we analyze the impact of market structure on the trade performance of south korea taiwan and japan south korea has many large vertically integrated business groups known as chaebol whereas business groups in taiwan are smaller and more specialized in the production of intermediate inputs we test the hypotheses that a greater presence of business groups leads to less product variety but higher product quality using data on exports from these countries to the united states we find that taiwan tends to export a greater variety of products to the us than korea and this holds particularly for final goods in addition taiwan exports higher quality intermediate inputs whereas korea exports higher quality final goods a comparison with japan is also presented which has greater product variety in its sales to the us than either taiwan or korea due to its larger size

an exclusive country club the effects of the gatt on trade 1950 94 using data on bilateral trade flows from both before and after world war ii this article examines the impact of the general agreement on tariffs and trade on trade between its members and on the system of interwar trade blocs it shows that the distribution of the benefits produced by the gatt was much more highly skewed than conventional wisdom assumes the article also shows that the gold commonwealth reichsmark and exchange control blocs exerted positive and significant effects on trade after 1945 the authors attribute these effects to the bargaining protocol that governed successive rounds of gatt negotiations the signature element of the postwar trade regime

measuring productivity in economic growth since world war ii the improvement in the material well being of their citizens has been an explicit goal of nearly every nation associated with this goal is the challenge of how to utilize primary resources more efficiently to get more from what goes into the productive process success in this endeavor requires that the economic processes be in continual disequilibrium which gives rise to opportunities that decision makers can use to advan

the asymmetric effect of endowments on vertical intra industrial trade este articulo trata de analizar los determinantes del comercio intra industrial vertical en espana con una muestra de paises extensa se contrasta empiricamente la hipotesis de la ventaja comparativa con esta finalidad hemos construido series de capital fisico humano y tecnologico en media cuando se utiliza la estimacion mco las diferencias en dotaciones suponen una limitacion al comercio intra industrial vertical usando la tecnica de regresion por cuantiles se observa que este efecto negativo disminuye en terminos absolutos a medida que los flujos de comercio intra industrial vertical se incrementan y en algunos casos llegan a ser positivos en los cuantiles altos de la distribucion este resultado ofrece evidencia a favor de una version reducida de la hipotesis de la ventaja comparativa

bilateral treaties and the most favored nation clause the myth of trade liberalization in the nineteenth century textbook accounts of the anglo french trade agreement of 1860 argue that it heralded the beginning of a liberal trading order this alleged success holds much interest from a modern policy point of view for it rested on bilateral negotiations and most favored nation clauses with the help of new data on international trade the ricardo database the authors provide empirical evidence and find that the treaty and subsequent network of mfn trade agreements coincided with the end of a period of unilateral liberalization across the world they also find that it did not contribute to expanding trade at all this is contrary to a deeply rooted belief among economists economic historians and political scientists the authors draw a number of policy lessons that run counter to the conventional wisdom and raise skepticism toward the ability of bilateralism and mfn arrangements to promote trade liberalization

financial factors in the great depression eginning with irving fisher 1933 and john maynard keynes 1931 b 1963 macroeconomists have argued that financial markets were important sources and propagators of decline during the great depression turning points during the depression often coincided with or were preceded by dramatic events in financial markets stock market collapse waves of bankruptcy and bank failure and contractions in the money stock but the mechanism through which financial factors contributed to the depression has been a source of controversy as has been the relative importance of financial factors in explaining the origins and persistence of the depression this essay reviews the literature on the role of financial factors in the depression and draws some lessons that have more general relevance for the study of the depression and for macroeconomics i argue that much of the recent progress that has been made in understanding some of the most important and puzzling aspects of financial real links in the depression followed a paradigm shift in economics a central neglected theoretical piece of the story for financial factors was the allocative effects of imperfections in capital markets which can imply links between disruptions in financial markets and subsequent economic activity also the increasing emphasis on learning and path dependence in economics has helped to explain why financial shocks during the 1930s were so severe and why policy makers failed to prevent the depression

the impact of electric power on productivity according to the historical record the increased use of energy in general and electric power in particular stands as one of the key factors in productivity growth growth accountants however find little support for this view rejecting claims that the productivity slowdown can be attributed to the lower rate of growth of the energy input in us manufacturing in this study an attempt at reconciling the historical record with the empirical facts is made specifically the commonly used factor income shares in the relevant divisia input growth index are replaced by the estimated output input elasticities the latter attribute a considerably larger role to electric power than previous studies indicated these are then used to reevaluate the sources of growth in us manufacturing

shocking intellectual austerity the role of ideas in the demise of the gold standard in britain britain s 1931 suspension of the gold standard remains one of the most shocking policy shifts of the past century conventional explanations focus on changing international conditions alongside the rise of social democracy when britons refused to shoulder the increasing costs of defending the exchange rate the bank of england was forced to abandon the gold standard this article refocuses attention on policy makers causal ideas at critical moments drawing on numerous primary sources held in several archives it reveals a cleavage within the bank over the appropriate response to the flight from sterling following the nervous collapse of the bank s governor the deputy governor shifted the bank s strategy from making defensive rate hikes to pursuing fiscal austerity he then temporarily suspended gold convertibility in a gambit to forestall the election he incorrectly assumed would unseat the gold standard s supporters in parliament when the unintended experiment with a managed float proved successful keynes was able to persuade policy makers to embrace the new exchange rate regime

exchange rate uncertainty and agricultural trade using a sample of bilateral trade flows across ten developed countries between 1974 and 1995 this article explores the effect of exchange rate uncertainty on the growth of agricultural trade as compared to other sectors based on a gravity model that controls for other factors likely to determine bilateral trade the results show that real exchange rate uncertainty has had a significant negative effect on agricultural trade over this period moreover the negative impact of uncertainty on agricultural trade has been more significant compared to other sectors

openness to trade in manufactures in the oecd abstract how open are the advanced economies to trade with each other in this paper openness is calculated relative to the predictions of the monopolistic competition trade model using data on manufacturing trade and production in the oecd in 1985 the paper finds that 1 japan imports much less than other large oecd countries while the european countries have larger import volumes than does the us 2 japan and the us engage in less intra industry trade than the rest of the oecd and 3 the eu countries are less open to imports from japan and the us than those countries are open to imports from the eu

the gatt in historical perspective the transformation of the general agreement on tariffs and trade gatt into the world trade organization wto on january 1 1995 provides an opportune moment to take stock of the gatt s achievements and shortcomings alongside those of its 50 year old sister international institutions set up at bretton woods it is temptingly easy to attribute the astounding postwar economic expansion particularly when set against the turbulent interwar period when multilateral efforts to contain protectionist pressures failed miserably to the economic policies embodied in the gatt and to the initial stability provided by the bretton woods institutions yet a closer look at precisely what the gatt accomplished in its first decade suggests that trade liberalization under its auspices alone is far from sufficient to explain the postwar economic boom

the political economy of the euro crisis this article introduces the special issue on the political economy of the euro crisis which aims to improve our understanding of the causes consequences and implications of the highly unusual nature of this crisis a financial crisis among developed countries within a supranational monetary union the article provides a brief chronology of the crisis discusses its underlying causes and reviews the ways in which comparative and international political economy can help us understand the crisis the article then discusses the individual and collective contributions of the articles in the special issue and discusses possible future research paths on the political economy of the euro crisis we conclude with a brief discussion of how a political economy perspective informs our understanding of the long term prospects for the eurozone and european integration

could stable money have averted the great contraction i introduction although over fifty years have elapsed since the onset of the great contraction controversy still swirls about the factors responsible for its depth and long duration a basic issue is the hypothesis due to friedman and schwartz 1963 that the great contraction would have been attenuated had the federal reserve not allowed the money stock to decline although the validity of the hypothesis has been a subject of much debate there is little empirical evidence directly addressing it a direct test of the friedman and schwartz hypothesis requires simulating the behavior of output under a counterfactual policy of stable money that approach was adopted by warburton 1966 friedman 1960 and modigliani 1969 none of whom constructed a model of the economy on the basis of which to conduct his test recently mccallum 1990 has used simulations from a macro model to show that his base rule with feedback would have avoided the severe decline in nominal income that occurred between 1929 and 1933 1 the extent to which his rule would have improved the behavior of nominal income depends on the value of the feedback coefficient mccallum s simulations however do not address the issue considered here of how a stable money rule would have performed in this paper we present simulations that focus on the stable money counterfactual our model is based on mccallum s but we use a more general framework than his that a estimates separate relations for output and the price level and b places no prior restrictions on the feedback from output and the price level to money our stable money counterfactual does not change the long term rate of money growth from that actually experienced and thus involves only short run changes in the behavior of the money supply we assume that dynamics embedded in the output and price relation are not especially sensitive to this type of policy change we simulate two variants of milton friedman s 1960 constant money growth rule the first a strong form of the rule assumes that the fed could quickly offset changes in the money multiplier by changes in high powered money and thus keep the money stock on the constant growth rate path in each quarter the second a weaker form of the rule assumes that the money multiplier is observed with a one quarter lag and the fed can only set the expected rate of growth of money conditional on last period information equal to the constant rate our basic simulation is derived from a model estimated for the 1921 1 1941 4 interwar period the results of this simulation buttress the views of friedman and schwartz had a constant money growth rule with an annual rate equal to the average 1921 41 rate of 2 95 percent been followed throughout the interwar period the great contraction would have been avoided real output would have declined from 1929 3 to 1933 1 but the order of magnitude of the cumulative change 11 1 to 21 6 percent and the annual rate of change 3 3 to 6 6 percent when the actual cumulative change was 36 2 percent and the annual rate of change was 12 1 percent would have been comparable to other recessions in the nineteenth and twentieth centuries in the basic simulation we assume that the output and price relations remained stable over the entire interwar period the extraordinary economic conditions of the great contraction could have arguably shifted the output and price relations thus we also present an alternative simulation that uses estimates of these relations based on the 1920s data this simulation shows that a constant money growth rule with an annual rate equal to the 1921 29 average of 3 29 percent would have prevented even a mild recession during the great contraction period section ii contains a brief survey of the continuing debate over the cause and propagation mechanism of the great contraction and its implications for the stable money hypothesis

trade barriers and the collapse of world trade during the great depression 1 introduction the contraction in world trade during the first phase of the great depression stands out as the strongest adverse shock to international trade in modern history from 1929 to 1932 world import and export volume in the industrialized nations decreased about 30 however it is not well understood which factors were responsible for the collapse the factors that have been highlighted in the literature are declining demand escalating tariff and nontariff trade barriers increasing bilateral trade agreements and international exchange rate policies the importance attributed to each of these factors has often been controversial pollard 1962 p 200 for instance argues that for britain the fall in total foreign trade as a proportion of home production was a part of a secular trend and may well not have been caused by the tariff as such by contrast khan 1946 p 246 claims that within 12 to 18 months uk nominal imports of manufactures from most of europe and the united states were reduced by something like 60 as a result of the tariff similarly saint etienne 1984 p 29 argues that by the mid 1930 s international trade had become in large proportion barter trade as a result of the tariffs and nontariff barriers empirical studies have examined the effects of trade restrictions on incomes to explain the declining trade for individual countries the studies of crucini and kahn 1996 and irwin 1998 find that the tariffs were influential for the u s imports and exports in his study of nominal imports to the european countries friedman 1974 quantified the effects of trade barriers on nominal imports and ultimately income by means of dummies in periods of significant tariffs and nontariff barriers he found that trade restrictions had a significant impact on trade in a few countries however as friedman himself acknowledges the weakness of this approach is that strong and weak forms of trade barriers are restricted to impact equally on imports in the estimates coupled with the small sample problems that plagued his estimates the trade barrier dummies were unlikely to effectively have captured the effects of trade barriers on imports which explains substantial variations of the estimated effects of the tariffs and the nontariff barriers across countries the study of eichengreen and irwin 1995 is probably the most extensive analysis of trade flows in the interwar period using 561 cross sectional bilateral trade flows over three periods 1928 1935 and 1938 they estimate a gravity model of trade patterns they relate the value of bilateral flows to national income population distance contiguity trade and currency block indicators and exchange rate variability to examine the effects on trade of trade and currency blocks and exchange rate variability they observe a declining marginal propensity to import and export during the depression which they attribute to quotas and other binding trade restrictions but do not formally test their importance this paper seeks to estimate the contribution of income tariffs and nontariff barriers on world trade during the depression using panel data for 17 countries over the period from 1920 to 1938 the panel data approach enables the assessment of the influence on trade of nontariff barriers from estimates of import and export functions by using as an identifying assumption that the nontariff barriers were to some degree simultaneously imposed and relaxed across the industrialized nations during the interwar period the estimates and extensive evidence from the literature suggest that this identifying assumption is valid section 3 in section 4 the changes in world trade in the interwar period are decomposed into income effects tariff effects and nontariff barrier effects the trade effects of the tariff changes are furthermore decomposed into deflation inflation induced tariff changes and discretionary tariff induced changes

price leadership and welfare losses in u s manufacturing reply a model of price leadership is used to estimate the welfare losses dueto monopoly in u s manufacturing given that the leaders behave independently an hypothesis confirmed empirically the deadweight lossis estimated at 0 114 percent of gnp based on a sample of 445 four digit industries this estimate lends strong support to arnold c harberger s finding of thirty years ago copyright 1986 by american economic association

the incidence of classified property taxes in a three sector model with an imperfectly mobile population abstract this paper analyzes the incidence of a classified property tax imposing different effective tax rates on residential commercial and industrial property as compared to a uniform property tax taxing capital and land in all sectors at the same rate our model includes three sectors commercial industrial and residential and three factors of production land labor and capital capital is assumed to be perfectly mobile but we consider varying degrees of labor mobility allowing the possibility that part of a classified property tax may be shifted to workers through lower wages

customer satisfaction productivity and profitability differences between goods and services there is widespread belief that firms should pursue superiority in both customer satisfaction and productivity however there is reason to believe these two goals are not always compatible if a firm improves productivity by downsizing it may achieve an increase in productivity in the short term but future profitability may be threatened if customer satisfaction is highly dependent on the efforts of personnel if so there are potential tradeoffs between customer satisfaction and productivity for industries as diverse as airlines banking education hotels and restaurants managers in these types of service industries as well as goods industries in which the service component is increasing need to understand whether or not this is the case for example if efforts to improve productivity can actually harm customer satisfaction and vice versa the downsizing of u s and european companies should be viewed with concern it follows that developing a better understanding of how customer satisfaction and productivity relate to one another is of substantial and growing importance especially in light of expected continued growth in services throughout the world economy the objective of this paper is to investigate whether there are conditions under which there are tradeoffs between customer satisfaction and productivity a review of the literature reveals two conflicting viewpoints one school of thought argues that customer satisfaction and productivity are compatible as improvements in customer satisfaction can decrease the time andeffort devoted to handling returns rework warranties and complaint management while at the same time lowering the cost of making future transactions the second argues that increasing customer satisfaction should increase costs as doing so often requires efforts to improve product attributes or overall product design a conceptual framework useful in resolving these contradictory viewpoints is developed the framework serves in turn as a basis for developing a theoretical model relating customer satisfaction and productivity the model predicts that customer satisfaction and productivity are less likely to be compatible when 1 customer satisfaction is relatively more dependent on customization the degree to which the firm s offering is customized to meet heterogeneous customers needs as opposed to standardization the degree to which the firm s offering is reliable standardized and free from deficiencies and 2 when it is difficult costly to provide high levels of both customization and standardization simultaneously to move forward from the model s propositions to the development of testable hypotheses we argue that services are more likely than goods to have the preceding characteristics hence tradeoffs between customer satisfaction and productivity should be more prevalent for services than for goods although this classification is not precise many services are standardizable and many goods have a service component it has the advantage of allowing an initial test of the propositions the empirical work employs a database matching customer based measures of firm performance with traditional measures of business performance such as productivity and return on investment roi the central feature of this database is the set of customer satisfaction indices provided by the swedish customer satisfaction barometer scsb the scsb provides a uniform set of comparable customer based firm performance measures and offers a unique opportunity to test the study s hypotheses the findings indicate that the association between changes in customer satisfaction and changes in productivity is positive for goods but negative for services in addition while both customer satisfaction and productivity are positively associated with roi for goods and services the interaction between the two is positive for goods but significantly less so for services taken together the findings suggest support for the contention that tradeoffs are more likely for services hence simultaneous attempts to increase both customer satisfaction and productivity are likely to be more challenging in such industries of course this does not imply that such firms should not seek improvements in both productivity and customer satisfaction for example appropriate applications of information technology may improve both customer satisfaction and productivity simultaneously the findings should provide motivation for future research concerning the nature of customer satisfaction and productivity as well as appropriate strategy and tactics for each one it is worth emphasizing that this is an issue that is not only important today but certainly will become even more important in the future as the growth of services continues and world markets become increasingly competitive the importance of customer satisfaction will also increase to compete in such a world firms must strike the right balance between their efforts to compete efficiently and their efforts to compete effectively

price leadership and dynamic aspects of oligopoly in u s manufacturing this study which covers a sample of 314 four digit industries taken from an exhaustive set of 450 four digit industries shows that increases in concentration associated with rising productivity occur mainly in low concentration industries while decreases in concentration associated with rising productivity occur mainly in high concentration industries the empirical results of this study indirectly lend support to a plausible hypothesis that a small group of firms makes a big impact on the productivity of an initially unconcentrated industry and thereby concentrates it later the small firms imitate the now big firms and concentration goes down while productivity keeps rising

productivity in the united states trends and cycles productivity growth in the us has taken a sharp downturn in recent years two experts provide a new body of comparative data on productivity since 1948 by major sector and industry the book analyzes 20 industries to highlight trends and fluctuations in productivity and to provide a better context for the discussion of policy options the authors set forth the causes of productivity advances based on growth accounting for the business economy as a whole they detail interindustry regressions with particular reference to the productivity slowdown since 1966 they look at both the traditional measure of productivity labor output per hour and the more recently developed measure of total factor productivity which takes into account capital as well as labor inputs the quarterly and annual data are used to relate changes to other basic variables such as factor prices unit costs and product prices an appendix presents data for 35 industries 42 references 8 figures 30 tables

international liquidity in a multipolar world today s global monetary and financial system to a remarkable extent continues to rely on the u s dollar for international liquidity this reflects the currency s historic role the liquidity of american financial markets and the absence of alternatives but with the emergence of emerging markets the capacity of the united states to provide safe assets will be outstripped by the growth of international transactions it is thus likely that other large economies presumably europe and china will eventually join the united states as sources of international liquidity and that other currencies will come to share the dollar s reserve currency status

productivity and the embodiment of technical progress this survey of the issues involved in the embodiment hypothesis that technical change and productivity can be explained by changes in the quality of inputs into the production process treats the interrelationships of technical change and productivity presents some empirical findings on this subject and discusses some fundamental issues in further studies of embodiment topics covered include the nature of the embodiment hypothesis the vintage model of capital and embodiment in other inputs the use of the embodiment hypothesis to study productivity trends the embodiment hypothesis and the productivity slowdown in the 1970s and 1980s and potential future applications of the embodiment hypothesis

international aspects of the great depression and the crisis of 2007 similarities differences and lessons we focus on two international aspects of the great depression financial crises and international trade and try to discern lessons for the current economic crisis both downturns featured global banking crises which were generated by boom slump macroeconomic cycles during both crises world trade collapsed faster than world incomes and the trade decline was highly synchronized across countries during the depression income losses and rises in trade barriers explain trade s collapse owing to vertical specialization and more intense trade in durables today s trade collapse is due to uncertainty and small shocks to trade costs hitting international supply chains so far the global economy has avoided the global trade wars and banking collapses of the depression perhaps owing to improved policy even so the global economy remains susceptible to large shocks owing to financial innovation and technological

politics institutions and trade lessons of the interwar era recent studies cast doubt on the value added of international trade agreements and institutions using a new data set that consists of about 35 000 observations on the trade of fifty four nations between 1919 and 1938 we examine whether this skepticism also applies to the infamous interwar trade blocs traditional historical accounts attribute to them a large drop in international trade and a rise in the political tensions that would later erupt in world war ii in this study we show that no bloc raised trade among its members as a whole or decreased trade between members and nonmembers however our findings are not wholly consistent with the skepticism recent studies express we argue that conflicts of interest among the great powers encouraged the emergence of the bloc system and also gave rise to intrabloc trade shifts consistent with the political interests of their great power hubs the political military alliances these conflicts created also reduced trade between their signatories and we argue more generally that the causal chain runs from politics to trade as a result measuring only the effect of agreements and institutions on aggregate trade between their members can generate inaccurate estimates of their value added

trade blocs currency blocs and the reorientation of world trade in the 1930s we analyze the impact of commercial and financial policies on the reorientation of trade in the 1930s we report evidence that commercial policies attenuated prior connections between income growth and trade and that exchange rate instability marginally discouraged international trade in contrast the tendency toward regionalization commonly ascribed to the formation of trade and currency blocs was already evident to a considerable extent prior to the regional policy initiatives of the 1930s this reorientation is more properly attributed to ongoing historical forces such as commercial and financial links between countries forged over many years

the impact of patent protection on us pharmaceutical exports to developing countries this article provides evidence that patent protection can have a positive effect on trade by analysing the impact of the implementation of intellectual property rights ipr in developing countries on the us exports of pharmaceutical products following intense lobbying efforts from the us pharmaceutical industry to have the trade related aspects of intellectual property rights trips agreement included in the creation of the world trade organization wto a gravity model using panel data from 1995 to 2010 suggests that the implementation of minimum standards of patent protection has increased us exports of pharmaceuticals to 108 nonadvanced countries

real wage growth technical change and competition in the labor market the paper measures the rate of growth of average labor cost and the real wage for the twenty u s two digit manufacturing industries 1948 76 it is argued that these rates of growth give interesting information which other studies on the real wage ignore the results suggest that the gains from technical advance are shared equally across all labor markets consistent with the competitive paradigm a simple and appealing rationale for the observation that high growth industries show the slowest relative rate of growth of prices is also given t he general theory keynes 1936 unleashed many controversies one of the earliest and still topical controversy is the cyclical behavior of the real wage essentially the real wage employment debate has focussed on whether or not the demand schedule slopes downwards and there have been many studies on this topic producing a variety of conflicting findings a common feature of the real wage employment studies is to abstract away from the growth in the real wage that is bound to occur in a growing economy these studies are primarily concerned with deviations from trend or innovations in the real wage and the theme of this paper is that to ignore the growth in the real wage is to throw away valuable and interesting information this information on real wage growth tells us a great deal about competition in the labor market this study should be seen as being complementary rather than conflicting with the real wage employment studies the existence of a downward sloping demand curve for labor is after all not sufficient and probably not necessary for the functioning of competitive labor markets over the span of years 1948 76 i find that individual u s manufacturing industries record widely varying rates of productivity growth however these same industries tend to show a common rate of growth of the real wage this feature of productivity growth was emphasized by the late salter 1960 in his pathbreaking analysis of technical change he writes there is no tendency for above average increases in labour productivity to be accompanied by above average increases in earnings

welfare implications of oligopoly in u s food manufacturing a statistical procedure is used to show that increased concentration in u s food manufacturing industries is associated with increased total input productivity a price leadership model is employed in order to estimate total welfare loss if an elasticity of 1 is assumed deadweight loss to society is estimated at 0 5 of food value if an elasticity of 0 5 is assumed total loss to consumers amounts to 6 11 of food value which is 10 billion in 1975 the increase in total factor productivity which is linked to concentration is roughly sufficient to offset the entire loss to consumers

decomposing growth in revenues and costs into price quantity and total factor productivity contributions this article employs the superlative fisher and tornqvist indexes for exact decomposition of growth in nominal revenues and costs the findings confirm the well known result that these indexes very closely approximate each other implying that the mathematically simpler and computationally easier tornqvist is the more practicable index moreover this article s nominal growth decomposition yields all the results from the more common real growth decomposition and is also more informative for policy purposes application to the us agricultural sector during 1948 2001 shows that of the 3 31 average annual growth in revenues tfp growth contributed 1 90 percentage points pct pts growth in output prices added 1 43 pct pts while growth in input quantities contributed 0 02 pct pts i e fewer inputs therefore real output growth or revenue growth less output price growth was 1 88 pct pts revealing that tfp s 1 90 pct pts growth contribution was fully responsible for real output growth with

trade diaspora and migration to new zealand this paper examines the hypotheses that a greater stock of migrants in new zealand from a particular country leads to more trade between that country and new zealand and a greater stock of new zealanders living overseas in a particular country leads to more trade between that country and new zealand it also examines the relationships between migration diaspora and tourism exports the literature suggests that migrants can stimulate trade by lowering transaction costs and by bringing with them preferences for goods produced in their home country our approach is to apply panel data techniques within the framework of a standard gravity model of trade to a dataset consisting of information on 233 countries in each of the 26 years between 1981 and 2006 we estimate a random effects panel sample selection model using correlated random effects our results indicate that migration does indeed stimulate trade in our benchmark specification merchandise exports from and imports to new zealand both have a statistically significant relationship with numbers of migrants in new zealand imports also have a statistically significant relationship with numbers of new zealanders overseas our results also suggest that migration stimulates imports more than exports

assessing the economic understanding of u s high school students economics instruction in u s high schools is basically delivered in two ways about half of high school students take a required or elective course in economics according to transcript data the great majority of these students about 95 percent enroll in a regular course that focuses on basic economic concepts with applications the remaining small percentage of students take a college oriented course that is often called honors or advanced placement ap economics economics instruction for the other half of high school students if it is provided at all is typically delivered in the context of other courses in the high school curriculum in what is sometimes called the infusion or integrative approach these courses would most likely be required courses taught in the social studies such as u s history or american government or in elective courses taught in business education this study investigates what high school students know about basic economics given the different types of economics instruction the primary focus is on the achievement of students who complete a basic course in highschool economics these results are important because they supply insights into what highschool students who have received direct instruction in economics know about the subject for comparison purposes the achievement of students who have not taken a formal course in economics will be investigated to identify what they know about economics the comparison of those students with and without instruction in a separate course in economics gives the best estimate of the importance of direct instruction in economics to the economic understanding of most high school graduates in addition similar comparisons between those students with and without direct instruction in economics will be made for two groups of higher ability students those who enroll in honors or ap courses in economics and those who enroll in such courses for other social studies subjects

declining productivity revisited secular trends or cyclical losses dickens 1982 argued that the productivity slowdown since the mid 1960s is cyclical and not a long term trend this letter tests the robustness of dickens conclusion specifically with respect to labor productivity

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

golden fetters the gold standard and the great depression barry eichengreen oxford university press new york 1992 pp xix 448 39 95

separable but not equal the location determinants of discrete services offshoring activities in this paper we explore the question of why firms offshore particular services to specific geographic locations we draw on research related to the unique characteristics of services in trade and commerce and more recent analyses of the transnational unbundling and spatial dispersion of business processes we move beyond a simple assessment of the cost sensitivity or relative sophistication of offshoring services and develop a typology emphasizing the degree to which offshoring services activities are interactive repetitive or innovative we suggest that the location of offshoring projects will depend on the particular mix of these attributes and test this assertion using a data set of 595 export oriented offshore services projects initiated from 2002 to 2005 by us and uk company parents in 45 developed and developing countries we find that offshore location choices greatly depend on these services characteristics and in sometimes surprising ways and draw implications from our findings for international business theory policy and practice

the effects of exchange rate volatility on agricultural trade i extend cho sheldon and mccorriston s 2002 analysis of the effect of exchange rate volatility on agricultural trade among the g 10 countries to a broad sample of developed and developing nations i replicate their original finding that exchange rate volatility has a large negative impact on agricultural trade between g 10 members after controlling for agricultural export subsidies which are correlated with exchange rate volatility i show that the original impact declines by half using the extended sample i find that the effect of exchange rate volatility is much larger for developing country exporters than for developed exporters copyright 2008 oxford university press

the new deal and modern memory summary economists and other social scientists may never be able to explain fully why the greatdepression happened when it did or why it initially was so severe numerous hypotheses havebeen advanced as we have seen and each of them contributes important insights into thecauses of the macroeconomic calamity in which most of the world was mired in 1929 1933 if however one is forced to adopt a monocausal theory it must center on the actions of america scentral bank which presided over an extraordinary expansion in bank credit in the mid to late1920s and then took the punch bowl off the table for the purposes of this article though the key question is why did the great depressionlast longer in the united states than it did in any other nation the answer as laid out in thenext section is presidential politics 23 there will come seven years of great plenty throughout all the land of egypt but after them will arise seven years offamine and all the plenty will be forgotten in the land of egypt the famine will consume the land genesis 41 29 30 nkjv

business cycle co movement evidence from the great depression abstract recent analysis focuses on the gold standard as a channel for the transmission of the great depression trade linkages which loom large in the recent literature play a smaller role both the gold standard and trade were associated with higher co movement at the bilateral level during the entire interwar period we document that fixed exchange rates and trade made a comeback after 1932 but co movement declined the fall after 1932 appears to be driven by the rise of smaller blocs based on monetary and trade cooperation and an accompanying fall in co movement between blocs

information technology and the world economy this paper addresses the impact of investment in information technology it on the recent resurgence of world economic growth we describe the growth of the world economy seven regions and 14 major economies during the period 1989 2003 we allocate the growth of world output between input growth and productivity and find surprisingly that input growth greatly predominates the contributions of it investment have increased in all regions but especially in industrialized economies and developing asia differences in per capita output are explained by differences in per capita input rather than by variations in productivity

a gravity model of immigration this paper develops a gravity model of immigration tests of the model using panel data for 16 oecd countries for 1991 2000 confirm the model s high explanatory power and examples illustrate its usefulness for testing other hypothesized determinants of immigration

lessons from the political economy of the new deal the new deal produced a fundamental change in the structure of american government the national government came to play a much larger role in the financing of social welfare programmes while administration of the programmes was largely located at the states both the purely national and the shared federal parts of the welfare system were characterized by impersonal rules the political economy of how the rules came about and how the new deal experience may have contributed to americans changing their views on the danger of dealing with the national government is the primary focus the paper closes with speculations about the possible effect of changing views on american participation in the second world war after 1939

monopolistic competition and international trade reconsidering the evidence we test some propositions about international trade flows that are derived from models of monopolistic competition developed by elhanan helpman and paul krugman we investigate whether the volume of trade between oecd countries is consistent with the predictions of a model in which all trade is intraindustry trade in differentiated products we then repeat the test with non oecd countries we also investigate whether the share of intraindustry trade is consistent with a more general theoretical model in which some but not all trade is intraindustry trade our results lead us to question the apparent empirical success of these models

british monetary and fiscal policy in the 1930s current economic turbulence has revived interest in interwar macroeconomic instability and policy this paper provides a guide to the current state of knowledge on british macroeconomic policy between 1929 and the eve of the second world war for today s economists and policy makers mindful that some will seek lessons from this earlier age it makes clear the very particular economic and policy context of the time including the marked difference between british and american economic performance and policies and the challenge posed by the massive rise in debt brought about by the first world war knowledge transfer is possible here for policy learning but what transpires is that lessons are typically stronger as negatives than as positives namely what should not be done in general as against what might be done this largely situation specific the focus is the role and effectiveness of the monetary and fiscal policies pursued together with an assessment of the principal policy not adopted namely the keynesian solution of significant loan financed public works to remedy mass unemployment the analysis is comparative with respect to us macroeconomic economic performance and policy it explores the different macroeconomic shocks of the contraction phase the term great depression is not really appropriate to the british experience in the two countries comparative policy regimes and then in turn analyses the policy mix and policy effectiveness of monetary and fiscal policy including for britain the counterfactual keynesian solution a business cycle periodization is adopted with the key role for the abandonment of the gold standard in terms of regaining freedom of choice in macroeconomic policy itself experiencing significant developments after 1931 the traditional role of the cheap money induced housing boom in britain s post 1932 economic recovery is reaffirmed the impact of the fiscal policies actually pursued are then discussed as are assessments of the likely effectiveness of the keynesian solution had the 1929 liberal party s we can conquer unemployment spending package been implemented

the national assessment of educational progress in economics findings for general economics since 1969 achievement studies have been conducted in various subjects in elementary and secondary school curricula as part of the national assessment of educational progress naep economics has now been added to the list this study offers a brief description of the naep test in economics and presents some findings from the 2006 assessment given to twelfth grade students who were taking a general economics course naep is mandated by congress and administered by the national center for education statistics nces at the us department of education policy direction and review are under the control of the national assessment governing board nagb for the economics assessment the national council on economic education the american institutes for research and the council of chief state school officers developed a content framework for economics in 2001 these organizations established several committees composed of economists educators business and government leaders and testing experts to prepare the assessment framework subject to final approval by the nagb the major decision for the test developers was what economics content should be included in the test most economics courses in high schools last for a semester and cover basic

the impact of international trade on democracy a long run perspective the likely endogeneity between democracy and trade is addressed with an instrumental variables strategy in this article about whether international trade fosters democracy the authors use a measure of natural openness to obtain estimates of the causal impact of openness on democratization in three separate samples spanning the last 130 years a positive impact of openness on democracy is apparent in the data over the long run the post world war ii results suggest that with a rise in trade with other countries equal to a one standard deviation increase countries such as indonesia russia and venezuela could eventually become as democratic as the u s great britain or france there is some variation in the impact of openness by region that may be because trade seems to have a positive impact only when the capital to labor ratio is sufficiently high this is consistent with the idea that openness promotes democracy when it strengthens the economic fortunes of the middle class

national voluntary content standards for pre college economics education after economics was included in the goals 2000 educate america act in 1994 the national council on economic education ncee constructed a coalition of organizations to write voluntary content standards to guide economics instruction in american schools the coalition includes representatives from the ncee and its network of affiliated councils and centers the national association of economic educators the foundation for teaching economics and the american economic association s committee on economic education the goal of the coalition is to write content standards for the teaching of economics in grades 1 12 such standards as developed for other disciplines are not standards in the usual use of the word rather than identifying required performance levels on specified criteria these standards specify the criteria as such the standards consist of what economists usually call principles they are in fact the fundamental propositions of economics to avoid confusion among teachers however the standards writing committee calls these principles standards national disciplinary content standards are not mandates from the federal government rather they are a resource for states and local school districts for individual schools and for teachers who are responsible for specifying and integrating the curriculum into their schools content standards have public good characteristics they are nonrivalrous in consumption and it is difficult to preclude access to them in addition their production relies on fixed development costs rather than variable reproduction costs implying substantial scale economies to develop similar standards at the state or local level would duplicate efforts consequently there is a case as is argued in standard 16 for collective provision of national standards there is a practical reason to develop national economics content standards as well without these standards some states may omit economics from their curriculum entirely some may give economics cursory attention or write vague standards that are difficult to implement or focus their economics standards on insignificant content some curriculum designs may include other subjects e g personal finance business or marketing under the economics rubric thereby marginalizing economics voluntary national standards increase the probability that economics is included in school curricula without them economics risks the prospect of being dropped from the curriculum teachers responsible for economics instruction are often overwhelmed when asked to teach a subiect in which they have little t discussants cecilia conrad pomona college w lee hansen university of wisconsin robert highsmith pace university

history gravity and international finance abstract we analyse patterns of bilateral financial investment using data on us holdings of foreign bonds we document a history effect in which holdings seven decades ago continue to influence holdings today 10 15 of the cross country variation in us investors foreign bond holdings is explained by holdings 70 years ago plausibly reflecting fixed costs of market entry and exit and endogenous learning this effect is twice as large for bonds denominated in currencies other than the dollar suggesting the existence of even higher fixed costs of initiating us foreign investment in such currencies our findings point to history and path dependence as key sources of financial market segmentation

exchange rate uncertainty and us bilateral fresh fruit and fresh vegetable trade an application of the gravity model in order to analyse the effect of exchange rate uncertainty we apply an empirical gravity equation to two sets of us bilateral trade data fresh fruit over the period 1976 1999 for a panel of 26 countries and fresh vegetables over the period 1976 2006 for a panel of nine countries based on panel estimation methods and using both a moving sd measure and the peree and steinherr 1989 measure of exchange rate uncertainty the results show that us bilateral fresh fruit trade has been negatively affected by exchange rate uncertainty we also find some evidence that the exchange rate between the us dollar and the currencies of latin american trading partners accounts for most of the negative impact of exchange rate uncertainty on bilateral trade flows in fresh fruit in contrast when using panel estimation methods and both measures of exchange rate uncertainty we find no statistically significant evidence for any negative effect of exchange rate uncertainty on us bilateral fresh vegetable trade however

a century of us central banking goals frameworks accountability several key episodes in the 100 year history of the federal reserve have everal key episodes in the 100 year history of the federal reserve have been referred to in various contexts with the adjective great attached to been referred to in various contexts with the adjective great attached to them the great experiment of the federal reserve s founding the great them the great experiment of the federal reserve s founding the great depression the great infl ation and subsequent disinfl ation the great moderation depression the great infl ation and subsequent disinfl ation the great moderation and the recent great recession here i ll use this sequence of great episodes and the recent great recession here i ll use this sequence of great episodes to discuss the evolution over the past 100 years of three key aspects of federal to discuss the evolution over the past 100 years of three key aspects of federal reserve policymaking the goals of policy the policy framework and accountability reserve policymaking the goals of policy the policy framework and accountability and communication the changes over time in these three areas provide a useful and communication the changes over time in these three areas provide a useful perspective i believe on how the role and functioning of the federal reserve have perspective i believe on how the role and functioning of the federal reserve have changed since its founding in 1913 as well as some lessons for the present and for changed since its founding in 1913 as well as some lessons for the present and for the future the future

seniority rules and productivity an empirical test the primary purpose of this paper is to test empirically the effect of labor quality on short run manufacturing productivity in doing so the study makes major advances in two areas for the first time a job tenure function is estimated and a time series of job tenure in manufacturing is developed this estimated tenure series empirically verifies the use of seniority rules in the firm worker employment relationship having generated a tenure series the authors then test whether tenure enhances productivity in manufacturing the results clearly indicate that seniority rules have a statistically significant positive impact on productivity and the pattern of the seniority rules is reminiscent of a model where human capital has a specific component copyright 1989 by the london school of economics and political science

capital controls and recovery from the financial crisis of the 1930s abstract we examine the first widespread use of capital controls in response to a global or regional financial crisis in particular we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the great depression we find evidence that they stemmed gold outflows in the year following their imposition however time shifted difference in differences dd estimates of industrial production prices and exports suggest that capital controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold time series analysis suggests that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy

wages and the intensity of labor effort efficiency wages versus compensating payments the distinction between efficiency wages and compensating payments is at best rather vague in both the theoretical and empirical literatures positing a relationship between wages and the intensity of labor effort while efficiency wages and compensating payments are both related to work intensity the mechanisms that generate these relationships are in each case quite distinct compensating payments exist in competitive labor markets to equalize overall compensation across identical workers with dissimilar working conditions workers who expend more labor effort must be paid more or they will seek employment elsewhere efficiency wages are employment rents paid by firms in order to ensure adequate labor effort these rents vary with the costs firms face in monitoring labor effort they cannot be competed away because without employment rents profit maximizing levels of work intensity would not be forthcoming in this paper we distinguish between the efficiency wage and compensating payments components in wage differences across workers and firms in the first section of the paper we use a theoretical model of optimal labor effort choice by workers and firms to make these two com

a report card on the economic literacy of u s high school students in the 1980 s assessment and critique of american education has taken center stage a large segment of the public is upset with the educational achievement of precollege students in several content areas economics should now be added to the list of failing subjects because the results of our study show a poor performance by many high school students in their knowledge of basic economic concepts the study is based on a large national sample of students who took the second edition of the test of economic literacy tel soper walstad 1987 the tel is a nationally normed and standardized test of the basic economic understanding of students in eleventh and twelfth grades consisting of two forms of 46 multiple choice questions the test questions were based on a framework for teaching the basic concepts phillip saunders et al 1984 this content guide describes 22 basic economic concepts in four concept clusters fundamental microeconomic macroeconomic and international that should be taught in secondary schools to enable students by the time they graduate from high school to understand enough economics to make reasoned judgments about economic questions p 1 although economic literacy can be defined and measured in different ways george stigler 1970 w lee hansen 1977 data from the norming of the tel provide a comprehensive assessment of the economic literacy of u s high school students the tel was administered as a pre test to 6 570 students in january 1986 another 8 205 students took the tel as a post test in may 1986 combining the two data sets produced a representative national sample of 3 031 cases where students had taken the tel as both a preand a post test in one of four courses this student group will be used for the analysis so that changes in economic literacy across different types of courses can be examined students were classified by type of course based on information from a teacher survey of the matched preand post test sample 50 percent were taking an economics course that used a published high school economics text and focused instruction on basic economic concepts students taking courses designated by the teacher as consumer economics were 19 percent of the sample the remaining 31 percent of the students were taking various social studies courses such as u s history or government 15 percent took social studies courses from teachers who reported including economics in the course 16 percent took a social studies course without any economics instruction

educational expansion and economic output in the united states 1890 1969 a production function analysis our research analyzes the effect of educational expansion on economic output in the united states from 1890 to 1969 in a departure from the individual level inferences often used in prior research we use an aggregate production function framework to estimate directly educational effects on economic output net of labor and capital the two basic factors of production using aggregate time series analyses we find that expansion at the secondary and doctorate levels was positively related to economic output in the years since 1933 we do not however find consistent evidence for effects of these or other levels of schooling from 1890 to 1928 consequently while we have found that educational expansion has made contributions to economic output the effects of education are more limited and time specific than shown in previous studies

kicking the habit moving from pegged rates to greater exchange rate flexibility why do governments find it so difficult to move from pegged exchange rates to greater exchange rate flexibility i first establish that there is a problem to be solved that there are powerful incentives for greater flexibility deriving from changes in the international economic and financial environment but that policymakers find it difficult to engineer a smooth transition i offer practical suggestions and a framework under which the probability of a smooth transition can be maximised drawing examples from recent economic history i then attempt to understand the experience of selected countries which have undertaken this transition

the productivity inflation nexus the case of the australian mining sector this paper examines the causal links between productivity growth and two price series given by domestic inflation and the price of mineral products in australia s mining sector for the period 1968 1969 to 1997 1998 the study also uses a stochastic translog cost frontier to generate improved estimates of total factor productivity tfp growth the results indicate negative unidirectional causality running from both price series to mining productivity growth regression analysis further shows that domestic inflation has a small but adverse effect on mining productivity growth thus providing some empirical support for australia s inflation first monetary policy at least with respect to the mining sector inflation in mineral price on the other hand has a greater negative effect on mining productivity growth via mineral export growth

when britain turned inward the impact of interwar british protection international trade collapsed and also became much less multilateral during the 1930s previous studies looking at aggregate trade flows have argued that trade policies had relatively little to do with either phenomenon using a new dataset incorporating highly disaggregated information on the united kingdom s imports and trade policies we find that while conventional wisdom is correct regarding the impact of trade policy on the total value of british imports discriminatory trade policies can explain the majority of britain s shift toward imperial imports in the 1930s

towards an explanation of the productivity slowdown an acceleration deceleration hypothesis after two and a half decades of prosperous post war development western industrialised countries recently experienced a slowdown of economic growth and productivity advance together with an increase in the rates of inflation and unemployment in trying to explain this malaise we are looking at a diagnosis that could help us to identify early indicators of a future turnaround or some policy variables which deserve to be included in a therapeutic programme although we shall focus on what can be measured complying with the standards of the guild we shall not refrain from considering complex relationships which can be grasped only intuitively even if they include phenomena which lie beyond the limits of official statistics 2 the outcome may be soft economics but we find some consolation in the dictum that it is better to be vaguely right than to be precisely wrong

trade costs 1870 2000 what has driven trade booms and trade busts in the past century and a half was it changes in global output or in the costs of international trade to address this question we derive a micro founded measure of aggregate bilateral trade costs based on a standard model of trade in differentiated goods these trade costs gauge the difference between observed bilateral trade and frictionless trade in terms of an implied markup on retail prices of foreign goods thus we are able to estimate the combined magnitude of tariffs transportation costs and all other macroeconomic frictions that impede interna tional trade but that are inherently difficult to observe we use this measure to examine the growth of global trade between 1870 and 1913 its retreat from 1921 to 1939 and its subsequent rise from 1950 to 2000 we find that trade cost declines explain roughly 55 percent of the pre world war i trade boom and 33 percent of the post world war ii trade boom while a precipi tous rise in trade costs explains the entire inter

economic understanding in us high school courses the effects of courses on student achievement are studied using 2006 data from the national assessment of educational progress naep in economics a regression analysis showed expected and significant achievement differences by course with the highest scores in advanced economics followed by general economics courses in business and personal finance were not substitutes for advanced or general economics courses a probit analysis showed that students taking economics courses relative to personal finance courses are significantly more likely to think their courses helped them understand the us economy the international economy and current events but not how to manage personal finances

free to trade democracies autocracies and international trade trade relations we address this issue by analyzing the relationship between regime type and trade policy in a formal model of commercial policy we establish that the ratification responsibility of the legislature in democratic states leads pairs of democracies to set trade barriers at a lower level than mixed country pairs composed of an autocracy and a democracy we test this hypothesis by analyzing the effects of regime type on trade during the period from 1960 to 1990 the results of this analysis accord with our argument democratic pairs have had much more open trade relations than mixed pairs t he effects of domestic political institutions on trade policy have long been a source of controversy among social scientists despite the widespread interest that this debate has prompted however remarkably few studies have addressed the links between political regime type and commercial policy 1 most work on the political economy of trade policy that examines institutional factors focuses only on variations in policy among democracies and avoids comparing democracies with other types of regimes moreover many analyses of trade barriers especially those by economists ignore the effects of domestic political

fixed exchange rates and trade abstract a classic argument for a fixed exchange rate is its promotion of trade empirical support for this however is mixed while one branch of research consistently shows a small negative effect of exchange rate volatility on trade another more recent branch presents evidence of a large positive impact of currency unions on trade this paper helps resolve this disconnect our results which use a new data based classification of fixed exchange rate regimes show a large significant effect of a fixed exchange rate on bilateral trade between a base country and a country that pegs to it these results suggest an economically relevant role for exchange rate regimes in trade determination since a significant amount of world trade is conducted between countries with fixed exchange rates

patterns of state productivity growth in the u s farm sector linking state and aggregate models this article focuses on agricultural productivity growth at both sector and state levels it does so in a way that preserves the economic integrity of national and state production accounts a model accounting for interstate transactions in farm goods links sectorwide and state specific measures of total factor productivity growth an interesting conclusion is that the smooth persistently positive trend typically observed for farm sector productivity growth masks considerable variation across states and regions the results also indicate that farm sector productivity growth is wholly a function of productivity trends in the individual states interstate shifts in production activity and resource reallocations have had little impact