EQUIPMENT AND STRUCTURES CAPITAL: ACCOUNTING FOR INCOME DIFFERENCES

In this article, I present comparable measures of equipment capital and structures capital stocks for 119 countries. Cross‐country variation in equipment capital‐output ratio is over twice the variation in structures capital and aggregate physical capital. The dispersion in equipment capital has also increased overtime. Using development accounting that incorporates equipment and structures capital, I offer evidence relevant to the debate on the importance of productivity versus factors in accounting for income differences. The new measures of heterogeneous capital reduce the burden on total factor productivity by up to 5%. (JEL O11, O47, E22)     

LEGISLATIVE TURNOVER,FISCAL POLICY,AND ECONOMIC GROWTH: EVIDENCE FROM U.S. STATE LEGISLATURES

Increased turnover among legislators can make them short‐sighted, affecting fiscal policy and economic growth. We exploit the exogenous variation in legislative turnover induced by term limit laws and by redistricting in the 50 U.S. states, finding that increased turnover increases capital spending by state governments, which may be designed to constrain future governments. The changes may cause long‐run distortions in the economy, reducing long‐term economic growth. (JEL H72, H73, H76)     

THE COLLAPSE AND RECOVERY OF THE CAPITAL SHARE IN EAST GERMANY AFTER 1989

After the 1990 unification, East Germany's capital income share plunged to 15.2% in 1991, then increased to 37.4% by 2015. To account for these large changes in the capital share, I model an economy that gains access to a higher productivity technology embodied in new plants. As existing low productivity plants decrease production, the capital share varies due to the nonconvex production technology: plants require a minimum amount of labor to produce output. Two policies—transfers and government‐mandated wage increases—have opposite effects on output growth, but contribute to lowering the capital share early in the transition. (JEL E20, E25, O11)     

THE EFFECTS OF PUBLIC SPENDING COMPOSITION ON FIRM PRODUCTIVITY

This paper exploits the unique institutional features of South Africa to estimate the impact of provincial public spending on firm productivity. In contrast to existing microeconomic evidence, we explore the effects of fiscal expenditures and remove the effects of revenue raising policies. Our identification strategy is based on differences in the effects of public spending across firms within the same industry and province. We show that public spending composition affects productivity depending on the capital intensity of firms, with less capital intensive firms being particularly affected. These effects appear to be robust. (JEL D24, H32, H72)     

DISCONTINUITY OF OUTPUT CONVERGENCE WITHIN THE UNITED STATES: WHY HAS THE COURSE CHANGED?

Has the progress of output convergence changed within the United States? This article examines the output convergence among U.S. states for the last five decades by making several improvements over the extant literature. By applying a battery of convergence tests designed to capture nonlinear transitional dynamics to real output per worker data (i.e., nominal values deflated by state‐level price), we find that output convergence has not been a feature of the continental United States since the 1970s. Instead, output convergence has proceeded among four subgroups within which constituent states have certain characteristics in common. Our regression analysis suggests that state‐level characteristics related to technology and human capital play a crucial role in accounting for the formation and composition of convergence clubs, in agreement with the recent theoretical models of growth and development (e.g., Aghion et al. 2009; Gennaioli et al. 2013b). The level of technology, proxied by patents, turns out to be a consistently significant determinant even after controlling for endogeneity, suggesting that frictions in the diffusion of technology and human capital may have led to clustering of states with different levels of productivity. Our results therefore cast doubt on the common view that diffusion of knowledge and technology across state borders is frictionless. (JEL O47, O51)     

PUBLIC SPENDING REALLOCATIONS AND ECONOMIC GROWTH ACROSS DIFFERENT INCOME LEVELS

This article examines the effects of public spending reallocations on economic growth. Assembling a disaggregated public spending dataset of 83 countries over the 1970–2011 period, we show that spending reallocations toward education, from health and social protection, have significant growth‐promoting effects across a wide range of countries' income levels. However, income heterogeneity matters, particularly when reallocations involve infrastructure spending. Specifically, a reallocation from this spending to education also promotes growth, albeit primarily when a country's income level is low. This occurs because the effects of infrastructure spending are particularly weak in low‐income countries, possibly due to the low quality of governance. (JEL O43, H50, O11)     

ON THE EVOLUTION OF TOTAL FACTOR PRODUCTIVITY IN LATIN AMERICA

Because of several policy distortions, including import‐substitution industrialization, widespread government intervention, and both domestic and international competitive barriers, there has been a general presumption that Latin America has been much less productive than the leading economies in the last decades. In this paper we show, however, that until the late 1970s Latin American countries had high productivity levels relative to the United States. It is only after the late 1970s that we observe a fast decrease of relative total factor productivity (TFP) in Latin America. We also show that the inclusion of human capital in the production function makes a crucial difference in the TFP calculations for Latin America. (JEL O11, O47, O54)     

MANAGING RISK TAKING WITH INTEREST RATE POLICY AND MACROPRUDENTIAL REGULATIONS

We develop a model in which a financial intermediary's investment in risky assets—risk taking—is excessive due to limited liability and deposit insurance, and characterize the policies that implement efficient risk taking. In the calibrated model, combining interest rate policy with state‐contingent macroprudential regulations—either capital or leverage regulation, and a tax on profits—achieves efficiency. Interest rate policy mitigates excessive risk taking by altering the return and the supply of collateralizable safe assets. In contrast to commonly used capital regulation, leverage regulation has stronger effects on risk taking and calls for higher interest rates. (JEL E44, E52, G11, G18)     

REGIONAL AND SECTORAL EVIDENCE OF THE MACROECONOMIC EFFECTS OF LABOR REALLOCATION: A PANEL DATA ANALYSIS

This article revisits the sectoral shifts hypothesis by examining unemployment fluctuations for 48 U.S. states over the period 1990:M01–2011:M12. We develop a panel approach that incorporates dynamics, parameter heterogeneity, aggregate factors, and cross‐sectional dependence (CSD). Our findings provide support for a positive and significant effect of the employment dispersion index on unemployment. This outcome is robust under alternative specifications and measures of employment dispersion. The empirical evidence corroborates the presence and relevance of CSD and heterogeneity among states. The results show that, once unobserved common factors and cross‐state heterogeneity are taken into account, labor reallocation has a significant effect on unemployment that is half the size of the estimate when cross‐sectional dependence is not taken into account. (JEL E24, E32, J21, R23, C23)     

DOES SOCIAL CAPITAL PROMOTE SAFETY ON THE ROADS?

I present evidence that social capital reduces traffic accidents and related death and injury, using data from a 10‐year panel of 48 U.S. states. The econometric challenge is to distinguish the causal effects of social capital from bias resulting from its correlation with unobservable characteristics by state that influence road risks. I accomplish this by employing snow depth as an instrument, and by restricting attention to summertime accidents. My results show that social capital has a statistically significant and sizable negative effect on crashes, traffic fatalities, serious traffic injuries, and pedestrian fatalities that holds up across a range of specifications. (JEL R41, I18, Z13)     

THE IMPACT OF FISCAL POLICY ON PROFITS

This paper investigates the impact of fiscal policy on profits using panel data for 18 high‐income OECD countries during the period 1975–1999. We estimate a profit equation allowing a consistent treatment of the government budget constraint, and we try to disentangle the effects of different spending and taxation items. As far as public spending is concerned, our results strongly suggest that capital expenditures are associated with higher profits, while expenditures on goods and services and in particular on wages and salaries deteriorate profits. In general, “productive” expenditures seem to increase profits while the effect of “unproductive” expenditures is insignificant. Transport and communication expenditures seem to have a positive impact on profits. On the revenue side, we find that both direct and indirect taxation has a negative impact on profits. (JEL E62, H32, H54)     

ARE WORKERS WILLING TO PAY TO JOIN A BETTER TEAM?

Using data from the Major League Baseball free‐agent market, this study is the first to show that the productivity expected of the team a worker will join produces a significant, negative compensating wage differential. The younger workers in the sample drive this result, trading 25% of their wages to join teams with an expected productivity one standard deviation higher. This investment can be recouped if a reasonable increase in human capital occurs. These results are robust to contract length‐wage simultaneity and indicate that investment in human capital motivates the observed tradeoff, suggesting a new pathway through which human capital accumulation can affect wages. Reliable measures of workers' own past productivity and the productivity expected of a worker's future team provide key advantages to identifying these effects. (JEL J31, J24, M54)     

PRODUCTIVITY GROWTH IN GOODS AND SERVICES ACROSS THE HETEROGENEOUS STATES OF AMERICA

In this study, we examine the importance of multifactor productivity (MFP) growth in goods and services for U.S. States during 1980–2007 by applying the dual growth accounting framework. We find that MFP growth was relatively high and converged in the goods sector, but was low and did not converge in services. Although low growth in MFP in services was due to declining real user cost, particularly in real estate services, the lack of convergence itself was due to variation in wage growth. We also document that while the gap between productivity and wage growth was higher in goods, the two series were more strongly correlated in services. Finally, states with higher initial human capital experienced higher growth in both sectors. (JEL O47, R11)     

WHAT DO BRITISH HISTORICAL DATA TELL US ABOUT GOVERNMENT SPENDING MULTIPLIERS?

British data from the early 1700s through World War I reflect the results of numerous high‐quality natural experiments of government spending. Britain frequently participated in wars, increasing military spending massively. Wartime distortions were relatively limited because the government generally adopted tax smoothing policy and rarely implemented interventions. Government spending multiplier estimates are low or negative and significantly below unity. This paper finds no evidence that the multiplier was higher in the slack state than in the normal state. (JEL E32, E62)     

SECTORAL COMPOSITION OF GOVERNMENT SPENDING AND MACROECONOMIC (IN)STABILITY

This article examines the quantitative interrelations between sectoral composition of public spending and equilibrium (in)determinacy in a two‐sector real business cycle model with positive productive externalities in investment. When government purchases of consumption and investment goods are set as constant fractions of their respective sectoral output, we show that the public‐consumption share plays no role in the model's local dynamics, and that a sufficiently high public‐investment share can stabilize the economy against endogenous belief‐driven cyclical fluctuations. When each type of government spending is postulated as a constant proportion of the economy's total output, we find that there exists a trade‐off between public consumption versus investment expenditures to yield saddle‐path stability and equilibrium uniqueness. (JEL E32, E62, O41)     

FDI AND INCOME INEQUALITY: EVIDENCE FROM A PANEL OF U.S. STATES

This study employs state‐level panel data to explore the relationship between inward foreign direct investment (FDI) and income inequality in the United States. Using panel cointegration techniques that allow for cross‐sectional heterogeneity and cross‐sectional dependence, we find that, in the long run, FDI exerts a significant and robust negative effect on income inequality in the United States. This result for the United States as a whole does not imply that FDI narrows income gaps in each individual state. There is considerable heterogeneity in the long‐run effects of FDI on income inequality across states, with some states (21 out of 48 cases) exhibiting a positive relationship between FDI in income inequality.(JEL F21, D31, C23)     

SPENDING WISELY? HOW RESOURCES AFFECT KNOWLEDGE PRODUCTION IN UNIVERSITIES

Every year billions of dollars are spent on research grants to produce new knowledge in universities. However, as grants may also affect other research funding, the effects of financial resources on knowledge production remain unclear. To uncover how financial resources affect knowledge production, we study the effects of research spending itself. Utilizing the legal constraints on university spending from an endowment we develop an instrumental variables approach. Our approach instruments for university research spending with time‐series variation in stock prices interacted with cross‐sectional variation in initial endowment market values for research universities in the United States. Our analysis reveals that research spending has a substantial positive effect on the number of papers produced, but not their impact. We also demonstrate that research spending effects are quite similar at private and public universities. (JEL H5, I2, O3)     

KNOWLEDGE SPILLOVERS AND OUTPUT PER WORKER: AN INDUSTRY‐LEVEL ANALYSIS FOR OECD COUNTRIES

This study analyzes the impact of knowledge spillovers on output per worker at the industry level using a primal production function approach. The article makes three different contributions to the international spillovers literature: (1) it identifies trade‐related spillovers under alternative assumptions regarding the information transferred through imports; (2) it explores the importance of horizontal and vertical foreign direct investment (FDI) in knowledge spillovers; and (3) it looks at how institutional factors determine the impact of FDI‐related spillovers on productivity. The main findings of the study are: (1) international knowledge spillover is an important driver of industry output per worker, and the magnitude of this spillover effect varies with alternative assumptions about the information content embodied in imports, while high technology industries benefit significantly more from import‐related knowledge spillovers; and (2) the gains from FDI spillovers are primarily horizontal, but when institutional factors are considered, countries with stronger protection of intellectual property rights and a high “ease of doing business” tend to experience a substantial increase in the effectiveness of both horizontal and vertical FDI‐related spillovers. (JEL E24, F1, F6, O3, O4)     

R&D AND CREDIT RATIONING IN SMEs

We study the effects of credit rationing on research and development (R&D) investment using survey and accounting data on a large representative sample of manufacturing small‐ and medium‐sized enterprises (SMEs). Our econometric model accounts for the endogeneity of our credit rationing indicator and employs an innovative theory‐based identification strategy. We find that credit rationing has a significantly negative effect on both the probability to set up R&D activities and on the level of R&D spending (conditioned on the R&D decision), but the overall estimated reduction in R&D spending is largely to be associated with the first effect. (JEL G21, D82, O32, C35)     

RENT CREATION AND RENT SHARING: NEW MEASURES AND IMPACTS ON TOTAL FACTOR PRODUCTIVITY

This analysis proposes new measures of rent creation and rent sharing and assesses their impact on productivity on cross‐country‐industry panel data. We find first that: (1) anticompetitive product market regulations positively affect rent creation and (2) employment protection legislation boosts hourly wages, particularly for low‐skill workers. However, we find no significant impact of this employment legislation on rent sharing, as the hourly wage increases are offset by a negative impact on hours worked. Second, using regulation indicators as instruments, we find that rent creation and rent sharing both have a substantial negative impact on total factor productivity. (JEL E22, E24, O30, L50, O43, O47, C23)