to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

an empirical analysis of wage dispersion and efficiency wages the main purpose of this study is to examine inter industry wage differentials in sweden after controlling for individual and job characteristics the results indicate that these differentials are substantial the ranking of the differentials was stable over time while the dispersion of wage premiums fell by 50 per cent during the period 1968 81 a period of strong efforts to reduce wage dispersion in sweden the relation between industry wage premiums and a number of industry characteristics is also examined along with new evidence which is in line with the shirking model hypothesis on the relation between wages and worker control

a growth model of inflation tax evasion and financial repression abstract this paper studies the relation between policies of financial repression inflation rates and long term growth we set up a model which shows that governments might want to express the financial sector because this sector is an easy source of resources for the public budget the inflation tax to the extent that the financial sector increases the efficiency of the allocation of savings to productive investment the choice of the degree of financial development will have real effects on the growth rate of the economy in countries where tax evasion is large the government will optimally choose to repress the financial sector in order to increase seigniorage taxation this policy will then reduce the efficiency of the financial sector increase the costs of intermediation reduce the amount of investment and reduce the growth rate of the economy financial repression will therefore be associated with high tax evasion low growth and high inflation

human capital inequality and economic growth some new evidence this paper provides new measures of human capital inequality for a broad panel of countries taking attainment levels from barro and lee 2001 we compute gini coefficients and the distribution of education by quintiles for 108 countries over five year intervals from 1960 to 2000 using this new cross country data on human capital inequality two main conclusions are obtained first most countries in the world have tended to reduce the inequality in human capital distribution second human capital inequality measures provide more robust results than income inequality measures in the estimation of standard growth and investment equations

altruism and time consistency the economics of fait accompli this paper analyzes the strategic and intertemporal interaction between two economic agents who have overlapping concerns such as altruistic concerns for each other s welfare the agents may be two individuals a social bureau and a client or two units in an organization we show how the presence of such common concerns may lead to socially inefficient outcomes in which one economic agent free rides on the other s concern we also briefly how this inefficiency and free riding in the context of interaction between individuals might be mitigated by compulsory social security systems as another example we interpret the inefficiency in terms of kornai s soft budget constraints within organizations

natural disasters and human capital accumulation the empirical literature on the relationship between natural disaster risk and investment in education is inconclusive model averaging methods in a framework of cross country and panel regressions show an extremely robust negative partial correlation between secondary school enrollment and natural disaster risk this result is driven exclusively by geologic disasters exposure to natural disaster risk is a robust determinant of differences in secondary school enrollment between countries but not necessarily within countries natural disasters human capital education school enrollment bayesian model averaging

purchasing power parity across mexican cities a panel data analysis this article presents three different unit root tests for panel data the main objective is to find the level of internal integration market through the purchasing power parity ppp evidence based in the balassa samuelson approach thus eight kinds of markets as tradable and nontradable goods for 16 main mexican cities during a 21 year period have been contrasted while two tests showed the ppp validity for seven markets the other rejected it the results obtained moreover feed the present controversy about which test is most appropriate to test the ppp as soon as it is highlighted new elements emerge to explain the half life analysis

fiscal policy composition of intergenerational transfers and income distribution abstract in this paper we characterize the relationship between the initial distribution of human capital and physical inheritances among individuals and the long run distribution of these two variables in a model with indivisible investment in education we analyze how the initial distribution of income determines the posterior intergenerational mobility in human capital and the evolution of intragenerational income inequality this analysis enables us in turn to characterize the effects of fiscal policy on future income distribution and mobility when the composition of intergenerational transfers is endogenous to this end we consider the following government interventions a pay as you go social security system a tax on inheritance a tax on capital income a tax on labor income and a subsidy on education investment

does schooling cause growth a number of economists find that growth and schooling are highly correlated across countries a model is examined in which the ability to build on the human capital of one s elders plays an important role in linking growth to schooling the model is calibrated to quantify the strength of the effect of schooling on growth by using evidence from the labor literature on mincerian returns to education the upshot is that the impact of schooling on growth explains less than one third of the empirical cross country relationship the ability of reverse causality to explain this empirical relationship is also investigated

genetic distance trade and the diffusion of development the determinants of countries long term income differences feature prominently in the literature spolaore and wacziarg the diffusion of development quarterly journal of economics 2009 124 469 529 argue that cultural differences measured by countries genetic distance are an important barrier to the diffusion of development from the world s technological frontier we revisit their findings in three ways first we successfully reproduce their results and confirm the robustness of their baseline findings second we estimate their models for different time periods and find that the impact of genetic distance on income differences did not significantly change over time finally we explore one of the underlying mechanisms of technology adoption and show that bilateral trade is one channel through which cultural differences retard the diffusion of development less

wealth distribution and output fluctuations we explore the link between wealth inequality and output fluctuations in a general two sector neoclassical growth model with endogenous labor and heterogeneous agents when agents have homogeneous crra preferences and individual wealth is pareto distributed a sufficiently large rise in the gini index typically leads to an increase in endogenous fluctuations of output for general economies we show that under plausible conditions on the fundamentals wealth inequality is still a destabilizing factor

2 1 2 proposals to save social security the real deal the history and future of social security true security rethinking american social insurance social security the phony crisis 1 introduction in the grand cycle that seems to govern the social security systems of the nations of the world it may once again be the united states turn to move chile famously has adopted compulsory individual retirement accounts australia has moved to a kind of compulsory 401 k superannuation plan switzerland to a system of compulsory occupational pensions and sweden to a system of compulsory notional accounts where individual contributions are recorded by the government and accumulate as individual entitlements that do not correspond to private sector investments canada facing roughly the same type of shortfall as the united states simply raised payroll taxes with a plan for direct investment by the pension authority in the stock market that has not yet been broadly controversial interesting attempts e g robson 1996 to advance chilean type solutions did not find much political traction but in the united states the trustees of the major public pension plan old age and survivors insurance and disability insurance oasdi have been forecasting for about 15 years essentially since immediately after the implementation of the last reforms that were to save social security that the plan as structured could not meet its obligations through a 75 year forecast window but there has been no legislative correction there certainly have been a number of proposals indeed the 1994 1996 advisory council on social security came up with three here we review a newer proposal presented in book form the real deal the history and future of social security by sylvester j schieber and john b shoven we also review a second book true security rethinking american social insurance by michael j graetz and jerry l mashaw this book is also about saving social security but the problem is thought of as not so much about oasdi financial projections but instead p 5 that the long term political support for social insurance could come unglued unless the effectiveness of current social insurance broadly defined is improved finally a third book social security the phony crisis by dean baker and mark weisbrot focuses on discussions of oasdi solvency although it discusses aspects of health insurance as well but argues that current action to restructure oasdi is not required to save it hence we have only counted this in our title as one half a proposal no pejorative connotation is intended we begin in section 2 with a brief annotated outline of each of the three books we put most of our emphasis on oasdi issues as do schieber shoven and baker weisbrot as noted graetz mashaw covers a very wide range of social insurance programs in section 3 we make some more general observations a central point is the reminder that a positive economics approach cannot choose among these or any proposals to a large extent these proposals are different simply because their authors have different values section 4 concludes 2 overviews the real deal schieber and shoven this is a substantial and worthwhile book schieber and shoven have devoted several chapters to a history of united states social security from its inception they then discuss current problems in depth provide a discussion of a number of recent reform proposals and give a significant proposal of their own according to their history right from the beginning the central issue facing oasdi was to fund or not to fund that is whether there would be a fund to cover the public pension promises being made to current workers and hence a long delay before any significant benefits would be paid or whether instead there would be a reliance on subsequent generations to cover the promises in the future and hence transfers could begin relatively quickly the initial plan signed into law by roosevelt in 1935 was a funded one but by the 1939 amendments this was changed to a largely unfunded plan by a coalition of liberals who wanted to alleviate current poverty among the elderly and conservatives who argued that the accumulation of a trust fund would lead to untoward government intervention in the economy through social investment

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

socioeconomic background and the returns to schooling in two low income economies in the united kingdom the increment to income yielded by an additional year of schooling declines as the occupational status of the worker s father rises in this note the relationship between family background and the returns to schooling is measured in kenya and tanzania in contrast to the united kingdom a positive relationship is documented several explanations for this marked difference between a high income economy and two low income economies are suggested copyright 1987 by the review of economic studies limited

economic development and the return to human capital a smooth coefficient semiparametric approach this paper investigates the impact of human capital on the process of economic growth by allowing the contribution of traditional inputs capital and labour as well as that of human capital to vary both across countries and time the former is accomplished by constructing an index of tfp growth for traditional inputs while the latter through semiparametric methods we derive estimates of the output elasticity and social return to human capital for 51 countries at various stages of economic development copyright 2005 john wiley sons ltd

which sectors make poor countries so unproductive which sectors are most responsible for the low total factor productivities of developing countries to answer this question we develop a new framework for sectoral development accounting applying this framework to the penn world table we find that in equipment construction and food the sectoral tfp differences between developing countries and the united states are much larger than in the aggregate however in manufactured consumption the sectoral tfp differences are about equal to the aggregate tfp differences and in services they are much smaller we show that our level of disaggregation allows us to reconcile the results of existing studies of sectoral productivity differences which have focused on noncomparable two sector decompositions of the aggregate data we also show that our results help shed light on existing theories of aggregate tfp differences

growth or stagnation the role of public education abstract this paper presents a political economic theory of growth and human capital accumulation where individuals of different ages disagree over the resource commitment to public education in the context of an overlapping generations model with two period lived agents population growth implies that the equilibrium quantity of public education reflects the preferences of youth and is therefore forward looking despite forward looking behavior it is shown that sufficiently rapid population growth can trigger economic stagnation in the political economic equilibrium the model therefore offers a novel explanation for observed negative correlations between population growth measures and economic growth

education s role in china s structural transformation abstract we explore education s role in improving the allocation of labor between china s agricultural and nonagricultural sectors and measure the portion of china s recent growth attributable to this channel using detailed micro level data and an empirical model that allows for the endogenous selection of education and sector of employment we estimate the relationship between an individual s educational attainment sector and income we find that about 11 of aggregate growth in output per worker from 1978 to 2004 is accounted for by increased education with 9 coming through the labor reallocation channel and 2 attributable to increased within sector human capital

human capital and growth abstract this paper describes a growth model with the property that human capital accumulation can account for all observed growth the model is shown to be consistent with evidence on individual productivities as measured by census earnings data the central hypothesis is that we learn more when we interact with more productive people

economic growth and the structure of long term development this volume collects some of the papers presented at the 82nd round table conference of the international economic association that was organised in collaboration with fondazione eni enrico mattei the book considers different approaches to the analysis of economic growth and it is organised in five parts par i is devoted to empirical evidence part ii contains six papers which present a series of models based on different approaches but with special emphasis on endogenous growth and on schumpeterian models of growth and fluctuations part iii of the book is devoted to the impact of international trade on economic development part iv examines the effects of economic development on the natural environment the final part of the book part v contains the concluding evaluations contributors p aghion r aversi d ben david g bertola o castellino f donati g dosi w easterly s fabiani c freeman r goodwin j helliwell e helpman p howitt r king m landesmann r levine s lombardini k g maler w d nordhaus l l pasinetti s rebelo a sen l soete r m solow m syrquin b verspagen s zervos

is infrastructure capital productive a dynamic heterogeneous approach this paper offers an empirical evaluation of the output contribution of infrastructure drawing from a large data set on infrastructure stocks covering 88 countries and spanning the years 1960 2000 and using a panel time series approach the paper estimates a long run aggregate production function relating gdp to human capital physical capital and a synthetic measure of infrastructure given by the first principal component of infrastructure endowments in transport power and telecommunications tests of the cointegration rank allowing it to vary across countries reveal a common rank with a single cointegrating vector which is taken to represent the long run production function estimation of its parameters is performed using the pooled mean group estimator which allows for unrestricted short run parameter heterogeneity across countries while imposing the testable restriction of long run parameter homogeneity the long run elasticity of output with respect to the synthetic infrastructure index ranges between 0 07 and 0 10 the estimates are highly significant both statistically and economically and robust to alternative dynamic specifications and infrastructure measures there is little evidence of long run parameter heterogeneity across countries whether heterogeneity is unconditional or conditional on their level of development population size or infrastructure endowments

iq in the production function evidence from immigrant earnings the cross country growth literature especially sala i martin 1997 sala i martin doppelhofer and miller 2004 has found that traditional education measures rarely have a robust relationship with growth and productivity elementary education being a rare exception by contrast a new empirical growth literature jones and schneider 2006 lynn and vanhanen 2002 ram 2007 weede 2004 weede and kampf 2002 has shown that a nation s average iq has a remarkably robust relationship with its productivity figure 1 that a test designed by psychologists should have such a robust relationship with economic variables is a puzzle that demands explanation for instance jones and schneider showed that national average iq was more robust than other human capital variables and was statistically significant at the 1 level in all 455 growth regressions that controlled for all 18 factors that passed sala i martin doppelhofer and miller s 2004 robustness tests of course as with all the growth regression literature a key difficulty is disentangling cause and effect thus in this article we run no growth regressions whatsoever instead we perform a simple calibration of the iq productivity relationship based on widely agreed upon microeconomic parameters that means we can directly estimate one causal channel running from cognitive ability to productivity in the process we learn the following 1 if one knows the average iq of a nation s citizens as estimated by lynn and vanhanen 2002 2006 one can predict the average wages that immigrants from that country will earn upon their arrival in the united states whether or not one controls for immigrant education and even if the test is completely visual rather than verbal in other words national average iq predicts part of what hendricks 2002 calls unmeasured worker skill 2 we find that a 1 point increase in national average iq predicts 1 higher immigrant wages precisely the value found repeatedly in microeconometric studies note that by construction 1 iq point approximately equal to 1 15th of a standard deviation within any large national population together points 1 and 2 provide further evidence that cross country iq tests are valid predictors of worker productivity 3 when iq is added to the production function in the form implied by traditional externality free human capital theory differences in national average iq are quantitatively significant in explaining cross country income differences that said our productivity accounting exercise does not resolve the puzzle of why high iq countries are 15 times richer than low iq countries in a related vein hanushek and kimko 2000 use national math and science test scores to verify that cognitive skills appear to matter more for groups than for individuals like us they use immigrants to the united states as a way to test whether immigrants bring their home country productivity levels along with them when they immigrate to the united states when they interpret their results within a solow type framework they conclude that the cross country growth equation results are much larger than the corresponding results for individual earnings in sum our article rigorously explores the quantitative magnitude of the puzzle uncovered by hanushek and kimko 2000 and hanushek and woessman 2007 but by using iq tests rather than other widely used math and science test scores we can often double our sample size while simultaneously using the most widely analyzed best understood form of cognitive test we begin with an overview of the recent psychological literature on the validity of iq tests and then proceed to our discussion of the link between iq and immigrant wages the discussion of iq and immigrant wages yields a key parameter gamma the iq semi elasticity of wages which we use in our development accounting exercise we then discuss the questions of reverse causality and trends in the iq productivity relationship over the past 40 yr and conclude by discussing how our results fit into the growth literature

human capital accumulation and endogenous public expenditures in this paper we present an overlapping generations model where individuals accu mulate human capital through formal schooling we model the role of the public sector in schooling as one of collecting taxes from households and providing inputs to the learning technology public expenditures on schools are determined endogenously under plausible restrictions our model s predictions qualitatively match the observations on schooling pub lic expenditures on education and student teacher ratios jel classification el 3 e62 accumulation de capital humain et depenses publiques endogenes dans ce memoire les auteurs presentent un modele de generations qui se chevauchent ofu les individus accumulent du capital humain via l education formelle le r6le du secteur public dans l education est defini comme celui de collecteur d imp6ts aupres des menages et de fournisseur d intrants dans la technologie d apprentissage les depenses publiques en education sont determinees de maniere endogene a partir de restrictions plausibles les predictions du modele s arriment qualitativement aux observations sur le monde scolaire aux depenses publiques en educa tion et aux ratios 6leves enseignants

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

the impact of education on subjective discount rate in ugandan villages abstract heterogeneity in time discounting may reinforce the existing barriers to save and invest faced by rural populations in developing countries we elicit a subjective discount rate for a varied sample of ugandan villagers in accordance with other studies we have found the discount rate to decrease with education we examine this correlation further by testing the causal effect of education and exploit two different sources of its variation school frequency across villages and the number of the respondents school going years that overlap with the era of the dictator idi amin s rule for men we find that education has a significant impact on their discount rate similar in magnitude for both types of instruments and robust to observable characteristics this finding highlights the importance of education in development

microeconomic approaches to development schooling learning and growth within the field of economic development over the past 15 years or so particularly significant advances have been made in what can be loosely called micro development an area defined principally by the units that are examined not by a particular methodological approach the units may be indi viduals households networks banks government agencies and so on as opposed to countries within this area economists use a wide variety of empirical methods informed to different degrees by economic models they use data from developed and

how important is human capital a quantitative theory assessment of world income inequality we develop a quantitative theory of human capital investment in order to evaluate the magnitude of cross country dierences in total factor productivity tfp that explains the variation in per capita incomes across countries we build a heterogeneousagent economy with cross sectional variation in ability schooling and expenditures on schooling quality in our theory the parameters governing human capital production and random ability process have important implications for a set of cross sectional statistics mincer return variance of earnings variance of schooling and intergenerational correlation of earnings these restrictions of the theory and u s household data are used to pin down the key parameters driving the quantitative implications of the theory our main finding is that human capital accumulation strongly amplifies tfp dierences across countries in particular we find an elasticity of output per worker with respect to tfp of 2 8 a 3 fold dierence in tfp explains a 20 fold dierence in output per worker we argue that the cross country dierences in human capital implied by the theory are consistent with a wide array of evidence including earnings of immigrants in the united states average mincer returns across countries and the relationship between average years of schooling and per capita income across countries the theory implies that using mincer returns to measure human capital understates dierences across countries by a factor of 2

traders teachers and tyrants democracy globalization and public investment in education this article develops a model of the redistributive political economy of education spending focusing on the role of democracy and economic openness in determining the provision of education i argue that democratization should be associated with higher levels of public education spending lower private education spending and a shift from tertiary education spending toward primary education spending furthermore i argue that integration with the international economy should lead to higher public education spending conditioned on regime type and income and should push the balance between tertiary and primary education toward states particular comparative advantages these propositions are tested on a data set of more than one hundred states from 1960 to 2000 using a variety of panel data techniques including instruments for democracy the logic of the causal mechanism developed in the formal model is also tested on a number of case histories including the philippines which shows great variation in democracy and openness and india and malaysia which constitute unusual cases that lie off the diagonal of open democracies and autarkic autocracies the author would like to thank beth simmons torben iversen michael hiscox jeffry frieden jim alt teri caraway john freeman jane gingrich david samuels w phillips shively mark kayser john ahlquist and michael kellerman for highly useful comments and criticisms in addition i thank the current and past editors lou pauly emanuel adler david stasavage and lisa martin and three anonymous reviewers for their suggestions

human capital and industrialization evidence from the age of enlightenment while human capital is a strong predictor of economic development today its importance for the industrial revolution is typically assessed as minor to resolve this puzzling contrast we differentiate average human capital worker skills from upper tail knowledge both theoretically and empirically we build a simple two sector model where worker skills raise the productivity in both agriculture and manufacturing and scientific knowledge affects the entrepreneurial ability to keep up with a rapidly advancing technological frontier the model predicts that the local presence of knowledge elites is unimportant in the pre industrial era but drives growth thereafter worker skills in contrast are not crucial for growth to measure the historical presence of knowledge elites we use city level subscriptions to the famous encyclopedie in mid 18th century france we show that subscriber density is a strong predictor of city growth after 1750 but not before the onset of french industrialization alternative measures of development confirm this pattern soldier height and industrial activity are strongly associated with subscriber density after but not before 1750 literacy on the other hand does not predict growth finally by joining data on british patents with a large french firm survey from 1837 we provide evidence for the mechanism upper tail knowledge raised the productivity in innovative industrial technology

the contribution of education to economic growth a review of the evidence with special attention and an application to sub saharan africa summary this paper examines recent studies that estimate the impact of education on economic growth it explains why cross country regressions face formidable econometric problems recent studies are reviewed some show strong impacts of education on economic growth others show little effect all have multiple estimation problems which may explain their divergent results evidence shows that education quality in sub saharan africa is much lower than in other developing countries estimates from three influential studies are extended the results suggest that the impact of education on economic growth in sub saharan africa is lower than in other countries likely due to lower school quality

latin america in the rearview mirror abstract latin american countries are the only western countries that are poor and that are not gaining ground on the u s this paper evaluates why latin america has not replicated western economic success we find that this failure is primarily due to tfp differences latin america s tfp gap is not plausibly accounted for by human capital differences but rather reflects inefficient production we argue that competitive barriers are a promising channel for understanding low latin tfp we document that latin america has many more international and domestic competitive barriers than do western and successful east asian countries we also document a number of microeconomic cases in latin america in which large reductions in competitive barriers increase latin american productivity to western levels

cross country differences in the quality of schooling abstract this paper constructs a cross country measure of the quality of education using a novel approach based on international test scores data the first main finding is that there are large differences in education quality one year of schooling in the u s is equivalent to three or more years of schooling in a number of low income countries i incorporate the estimated series for schooling quality in an accounting framework calibrated using evidence on mincerian returns this leads to the second important finding which is that the fraction of income differences explained by the model rises substantially when one includes education quality the increase is around 22 percentage points

the slowdown in american educational attainment relative to those for high school graduates lifetime earnings for college graduates are higher for more recent cohorts at the same time across successive cohorts born after 1950 there is a stagnation in the fraction of high school graduates that go on to complete a college degree what explains this phenomenon i formulate a life cycle model of human capital accumulation in college and on the job where successive cohorts decide whether or not to acquire a college degree as well as the quality of their college education cohorts differ by the sequence of rental price per unit of human capital they face and by the distribution of initial human capital across individuals my model reproduces the observed pattern in college attainment for the 1920 1970 birth cohorts the stagnation in college attainment is due to the decrease in the growth rate of the rental price per unit of human capital commencing in the 1970s my model also generates about 80 of the increase in lifetime earnings for college graduates relative to those for high school graduates observed across cohorts

educational expansion and schooling inequality international evidence and some implications fairly recent data for about 100 countries indicate that as the average level of schooling increases educational inequality first increases and after reaching a peak starts declining in later phases of educational expansion the turning point occurs when average schooling is about seven years the observed empirical generalization which seems quite robust appears to have important implications for educational and distributional policies and for research on the linkage between education and income inequality

investment in education do economic volatility and credit constraints matter abstract recent research has focused on the effects of economic volatility on the investment in physical capital this paper shows that economic volatility and the lack of financial markets have a negative effect also on the accumulation of human capital our evidence drawn from cross country and panel regressions is that average secondary enrollment in the period 1970 1972 is negatively affected by the lack of financial markets income or employment volatility and income inequality our results are robust to different specifications of volatility the inclusion of public expenditure in education country specific effects and different sets of regressors

economic demographic and institutional determinants of life insurance consumption across countries life insurance has become an increasingly important part of the financial sector over the past 40 years providing a range of financial services for consumers and becoming a major source of investment in the capital market but what drives the large variation in life insurance consumption across countries remains unclear using a panel with data aggregated at different frequencies for 68 economies in 1961 2000 this article finds that economic indicators such as inflation income per capita and banking sector development and religious and institutional indicators are the most robust predictors of the use of life insurance education life expectancy the young dependency ratio and the size of the social security system appear to have no robust association with life insurance consumption the results highlight the importance of price stability and banking sector development in fully realizing the savings and investment functions of life insurance in an economy

testing production functions used in empirical growth studies abstract we estimate and test alternative functional forms which have been used in the growth literature representing the aggregate production function for a panel of countries functional forms are confronted using a box cox test and results favor the mincerian formulation of schooling returns to skills

education lifetime labor supply and longevity improvements this paper presents an analysis of the differential role of mortality for the optimal schooling and retirement age when the accumulation of human capital follows the so called ben porath mechanism we set up a life cycle model of consumption and labor supply at the extensive margin that allows for endogenous human capital formation this paper makes two important contributions first we provide the conditions under which a decrease in mortality leads to a longer education period and an earlier retirement age second those conditions are decomposed into a ben porath mechanism and a lifetime human wealth effect vs the years to consume effect finally using us and swedish data for cohorts born between 1890 and 2000 we show that our model can match the empirical evidence

cultural constraints on innovation based growth to what extent does the cultural composition of a society impose a constraint on its long run growth potential we study this question in the context of an innovation based model of growth where cultural attitudes are endogenously transmitted from one generation to the next focusing on attitudes regarding patience we analyze the two way interaction between economic growth and the intergenerational transmission of patience exploiting this interaction we compare the long run growth performance of a culturally heterogeneous society where patience is initially underrepresented in the population with a culturally homogeneous society where all agents are perfectly patient our main result is that in the absence of any intrinsic preferences of patient parents to transmit their attitudes to their children the development paths of the two societies are bound to diverge with the culturally heterogeneous society experiencing lower growth rates yet if patient parents ceteris paribus prefer their children to be patient like them we show that the two societies can in the long run grow at the same rate jel d91 e24 o30 o40 z10

growth inflation and the exchange rate regime abstract according to the balassa samuelson effect growth and inflation are positively correlated in economies with pegged currencies this paper shows that the costs of inflation on long term growth are underestimated in samples that include countries and periods with fixed exchange rate regimes

public pensions as optimal social contracts abstract a simple overlapping generations model is modified to allow for an externality experienced by the young from consumption by the elderly this sets up a game between generations in which one generation s strategy may be to save too little and rely on gifts from the young e g public assistance for retirement income social security can therefore be viewed as a pareto optimal contract to restore efficient intertemporal allocation a funded public pension plan corresponds to forced saving but is vulnerable in that the next young generation may stop contributing rely on its children for retirement assistance and meanwhile reap the consumption externality from the current elderly s social security benefits this suggests a forced giving or pay as you go type of compulsory pension plan such as exists in most nations which also has the advantage of aiding the initial old generation and therefore generating an immediate consumption externality for the initial young the approach can also be used to explain other aspects of existing social security

the optimal public expenditure financing policy does the level of economic development matter i introduction does the growth effect of public expenditures depend on the way these expenditures are financed over the years a substantial volume of theoretical and empirical research has been directed toward identifying the elements of public expenditure at its aggregated and disaggregated level that bear significant association with economic growth in contrast only a handful of studies have paid particular attention to examine the extent to which the growth effect of public expenditures depends on the method of financing such expenditures e g de gregorio 1993 miller and russek 1997 palivos and yip 1995 the consensus appears to be that the two primary modes of financing income taxation and seigniorage are distortionary opinions however are divided as to their relative merits for example according to palivos and yip 1995 income tax financing is more detrimental to growth than seigniorage financing at the same time de gregorio 1993 suggests that as long as the rate of return on indexed bonds is substantially responsive to changes in the rate of inflation seigniorage financing of public expenditure is more growth reducing pecorino 1997 on the other hand prescribes a mix of both modes of financing despite these differences the above mentioned studies share a common characteristic the optimal mode of financing public expenditure in these studies is viewed as being not contingent on the stages of economic development accordingly there remains little understanding of the process by which public expenditure financing policies shape the prospect of economic growth for developing vis a vis developed countries the primary objective of this paper is to bridge this gap in the existing literature it is a long standing belief among development experts that outcomes of public expenditures and revenue policies are conditional on the state of an economy recent evidence supports such belief for example miller and russek 1997 suggest that for developing countries a deficit financed increase in public expenditure retards economic growth and a tax financed increase leads to higher growth for developed countries a deficit financed increase in government expenditure does not affect economic growth and a tax financed increase leads to a lower growth in light of these findings and in light of the theoretical controversy about the relative merits of seigniorage versus tax finance it is meaningful to ask the following question does the relative merit of seigniorage vis a vis tax financing of public expenditure depend on the stage of economic development this paper seeks an answer to this question using both theoretical and empirical analyses the theoretical framework developed in this paper shares many of the characteristics of the models proposed by espinosa vega and yip 1999 2000 and schreft and smith 1997 in particular we consider a two period overlapping generations model where agents are subjected to stochastic relocations shocks which act like shocks to their portfolio preferences these shocks have the same consequence as liquidity preference shocks as in diamond and dybvig 1983 and create a role for financial intermediaries who take deposits and make a portfolio decision on behalf of the households in addition there is a government that relies on two alternative sources of revenue seigniorage and tax revenue to finance its exogenously given expenditure sequence the results that we derive are shaped by the portfolio decision of the financial intermediaries in particular at each point in time financial intermediaries are required to allocate their portfolios between a nonproductive liquid asset money and a productive illiquid asset the illiquid asset takes the form of financing risky investment projects which in turn generate productive capital stock for the economy the financial intermediaries optimal portfolio allocation rules depend on the relative rate of return of the two available assets

risk and the distribution of human capital abstract we developed a model in which aggregate production risk determines the average level of education and its distribution greater risk is associated with greater educational inequality and a lower average attainment an empirical test using panel data supports this conclusion

the medium run effects of educational expansion evidence from a large school construction program in indonesia this paper studies the medium run consequences of an increase in the rate of accumulation of human capital in a developing country from 1974 to 1978 the indonesian government built over 61 000 primary schools the school construction program led to an increase in education among individuals who were young enough to attend primary school after 1974 but not among the older cohorts 2sls estimates suggest that an increase of 10 percentage points in the proportion of primary school graduates in the labor force reduced the wages of the older cohorts by 3 8 10 and increased their formal labor force participation by 4 7 i propose a two sector model as a framework to interpret these findings the results suggest that physical capital did not adjust to the faster increase in human capital

the personal and the factor distributions of income in a cross section of countries abstract the shares of capital and labour in national income vary substantially both over time and across countries this paper shows that the factor distribution of income is an essential determinant of the personal distribution of income we use cross country and panel data for a group of developed and developing countries to show that a larger labour share is associated with a lower gini coefficient of personal incomes this effect is not only statistically significant but also economically important an increase in the labour share in mexico to that observed in the us would reduce the gini coefficient of the former by between two and five points

education growth and income inequality estimates of the effect of education on gdp the social return have been hard to reconcile with micro evidence on the private return to schooling we present a simple explanation combining two ideas imperfect substitution and endogenous skill biased technological progress and use cross country panel data on inequality and gdp to test these ideas a one year increase in the level of education reduces the private return by 2 percentage points consistent with katz murphy s 1992 elasticity of substitution we find no evidence for reversal of this initial effect as in acemoglu 2002 in the short run the social return equals the private return

wage structure as implicit insurance on human capital in developed versus underdeveloped countries abstract this paper explores the role of wage structure as implicit insurance on human capital it illustrates how smaller wage differentials in the developed world can be welfare enhancing by acting as implicit insurance while larger wage differentials in underdeveloped countries make investments in human capital riskier in other words with smaller wage differentials the students in a developed country are insured against poor educational outcomes through the existence of well paid alternative employments which are not present in the economy of a less developed country this result arises as multiple equilibria in a general equilibrium model when there are no insurance markets for human capital

cross country evidence on the link between volatility and growth this paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations in a sample of ninety two countries as well as a sample of oecd countries the authors find that countries with higher volatility have lower growth the addition of standard control variables strengthens the negative relationship the authors also find that government spending induced volatility is negatively associated with growth even after controlling for both time and country fixed effects copyright 1995 by american economic association

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded