New: Estimating the Border Effect: Some New Evidence
Date Posted: Sep 19, 2009
To what extent do national borders and national currencies impose costs that segment markets across countries? To answer this question the authors use a dataset with product-level retail prices and wholesale costs for a large grocery chain with stores in the United States and Canada. They develop a model of pricing by location and employ a regression discontinuity approach to estimate and interpret the border effect. They report three main facts: One, the median absolute retail price and wholesa
New: Estimating the Border Effect: Some New Evidence
Date Posted: Jul 15, 2009
To what extent do national borders and national currencies impose costs that segment markets across countries? To answer this question we use a dataset with product level retail prices and wholesale costs for a large grocery chain with stores in the U.S. and Canada. We develop a model of pricing by location and employ a regression discontinuity approach to estimate and interpret the border effect. We report three main facts: 1) The median absolute retail price and whole-sale cost discontinuity b
REVISION: The Price of Political Opposition: Evidence from Venezuela's Maisanta
Date Posted: May 14, 2009
During 2002-2004, the identities of millions of Venezuelan voters who had signed petitions to recall President Hugo Chavez or opposition politicians from office were made public by the government. We match these petition signers to manufacturing firm owners and household survey respondents to measure the economic effects of political expression. Put simply, do individuals who join the political opposition pay an economic price? We find that pro-opposition individuals see a fall in their income a
New: Misallocation and Manufacturing TFP in China and India
Date Posted: Oct 05, 2007
Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the extent of this misallocation in China and India compared to the U.S. in recent years. Compared to the U.S., we measure sizable gaps in marginal products of labor and capital across plants within narrowly-defined industries in China and India. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U
New: The Return to Capital in China
Date Posted: May 16, 2007
China's investment rate is one of the highest in the world, which naturally leads one to suspect that the return to capital in China must be quite low. Using the data from China's national accounts, we estimate the rate of return to capital in China. We find that the aggregate rate of return to capital averaged 25% during 1978-1993, fell during 1993-1998, and has become flat at roughly 20% since 1998. This evidence suggests that the aggregate return to capital in China does not appear to be s
New: Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom
Date Posted: May 15, 2006
This paper argues that taxation of retained profits is particularly distortionary in an economy with good growth prospects and poorly developed financial markets because it primarily reduces the investment of financially constrained firms, investment that has marginal product greater than the after-tax market real interest rate. Contrarily, taxes on distributed profits or capital gains primarily reduce the investment of financially unconstrained firms. Chile experienced a banking crisis over th
Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program
Date Posted: Apr 19, 2005
From 1997 through early 2003, the United Nations Oil for Food Program allowed Iraq to export oil in exchange for humanitarian supplies. We measure the extent to which this program was corrupted by Iraq's attempts to deliberately set the price of its oil below market prices in an effort to solicit bribes, both in the form of direct cash bribes and in the form of political favors, from the buyers of the underpriced oil. We infer the magnitude of the potential bribe by comparing the gap between the
When Schools Compete, How Do They Compete? An Assessment of Chile's Nationwide School Voucher Progra...
Date Posted: Oct 10, 2003
In 1981, Chile introduced nationwide school choice by providing vouchers to any student wishing to attend private school. As a result, more than 1,000 private schools entered the market, and the private enrollment rate increased by 20 percentage points, with greater impacts in larger, more urban, and wealthier communities. We use this differential impact to measure the effects of unrestricted choice on educational outcomes. Using panel data for about 150 municipalities, we find no evidence that
Can Free Entry Be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry
Date Posted: Oct 06, 2003
Real estate agents typically charge a 6 percent commission, regardless of the price of the house sold. As a consequence, the commission fee from selling a house will differ dramatically across cities depending on the average price of housing, although the effort necessary to match buyers and sellers may not be that different. We use a simple economic model to show that if barriers to entry are low, the entry of real estate agents in cities with high housing prices is socially inefficient. Consis
Can Free Entry be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry
Date Posted: Oct 04, 2003
Real estate agents in the US typically charge a 6 percent commission, regardless of the price of the house sold. As a consequence, the commission fee from selling a house will differ dramatically across cities depending on the average price of housing, although the effort necessary to match buyers and sellers may not be that different. We use a simple economic model and cross-city data to measure the effect of the fixed commission rate on market entry by real-estate agents. We show that if the c
Relative Prices and Relative Prosperity
Date Posted: May 19, 2003
The positive correlation between PPP investment rates and PPP income levels across countries is one of the most robust findings of the empirical growth literature. We show that this relationship is almost entirely driven by differences in the price of investment relative to output across countries. When measured at domestic prices rather than at international prices, investment rates are little correlated with PPP incomes. We find that the high relative price of investment in poor countries is s
Was the Federal Reserve Fettered? Devaluation Expectations in the 1932 Monetary Expansion
Date Posted: Jun 25, 2001
A key question about the Great Depression is whether expansionary monetary policy in the United States would have led to a loss of confidence in the U.S. commitment to the gold standard. This paper uses the $1 billion expansionary open market operation undertaken in the spring of 1932 as a crucial case study of the link between monetary expansion and expectations of devaluation. Data on forward exchange rates are used to measure expectations of devaluation during this episode. We find little evi
The Classical Ricardian Theory of Comparative Advantage Revisited
Date Posted: Mar 07, 2001
According to the classical Ricardian theory of comparative advantage, relative labor productivities determine trade patterns. The Ricardian model plays an important pedagogical role in international economics, but has received scant empirical attention since the 1960s. This paper assesses the contemporary relevance of the Ricardian model for U.S. trade. Cross-section seemingly unrelated regressions of sectoral trade flows on relative labor productivity and unit labor costs are run for a number o