Barry P. Bosworth

The Empirics of Growth: An Update

We argue that both growth accounting and growth regression analysis can yield useful insights into the growth process, particularly when used to study a large sample of countries over a long period. Much of the apparent variability in conclusions of previous studies arises from measurement problems, differences in data or definitions, and failure to include other conditioning variables. Using data for eighty-four countries over 1960-2000, and focusing attention on issues of measurement and consistency, we conclude that both capital accumulation and efficiency gains are central to the growth process. We find, at best, a weak correlation between growth and increased schooling. And we find that most of the variation in cross-national economic growth is well explained by differences in initial conditions and institutions. However, these variables provide little insight into the changes in growth rates before and after 1980, and policy differences play a minor role.

Capital Flows to Developing Economies: Implications for Saving and Investment

THE CURRENCY CRISES that broke out in East Asia in mid1997 have been followed by more than a year of tumult in international financial markets. These crises have had a serious impact on the emerging market economies, forcing many to raise domestic interest rates so as to stem an outflow of financial capital and prevent further exchange rate collapse. These interest rate increases have, in turn, depressed domestic economic activity. Not surprisingly, this severe financial instability has intensified discussions about the benefits and risks to developing economies from allowing capital to flow freely across national borders.1 For many developing countries, the ability to draw upon an international pool of financial capital offers large potential benefits. Low levels of capital per worker in these countries have long held output down. Net foreign resource inflows-current account deficits-can augment private saving and help these countries reach higher rates of capital accumulation and growth. Access to international capital markets provides the means to finance those resource flows. Some types of foreign capital inflows, principally foreign direct investment (FDI), may also facilitate the transfer of

The Decline in Saving: Evidence from Household Surveys

THE RATE of national saving in the United States declined precipitously in the 1980s. From World War II to 1980 the net saving rate averaged 8 percent of national income; today the rate is just 2 percent. While much public discussion has focused on the growth in the federal budget deficit as a source of this decline, a larger part of the drop in saving has come from a falloff in the rate of private saving. The extent of decline in the private saving rate is a surprise for several reasons. The slide comes after several decades in which the saving rate fluctuated within a very narrow range. The narrowness of that range inspired many economists to treat the private saving rate as an uninteresting constant. Second, the largest part of the decline occurred, ironically, after the government made an increase in saving a major objective of economic policy and redesigned the tax system to increase effective after-tax rates of return and promote saving. Finally, the decline coincided with a dramatic increase in real market interest rates, which should have greatly strengthened saving incentives. Economists have no shortage of theories to explain the decline in saving. Given the previous stability of the saving rate and the one-time nature of the decline, however, it is virtually impossible to sort out the

‘Baumol’s Disease’ has been Cured: IT and Multifactor Productivity in US Service Industries

What is the New Economy, what makes it new, and what are the implications for antitrust, regulation and macroeconomic policy? Providing a non-technical and compelling analysis of the modern macro-economy, the contributors to this volume, eminent scholars all, provide their views on the New Economy from a variety of perspectives.

The Impact of Aging on Financial Markets and the Economy: A Survey

All major industrial countries will experience significant population aging over the next several decades. In both academic circles and the business press it is widely believed that population aging will have important effects on financial markets because of its expected impact on saving rates and the demand for investment funds. This paper reviews the literature on the macroeconomic and asset market effects of population aging, focusing on four related issues: (a) The impact of population age structure on aggregate household saving; (b) The effect of population aging on investment demand; (c) Evidence on the influence of population age structure on financial market asset prices and returns; and (d) Effects of globalization on our interpretation of the impact of demographic change.

Productivity and Real Wages: Is There a Puzzle?

IN RECENT PUBLIC DISCUSSION of labor income in the United States, considerable concern has been voiced that real wages are not keeping up with productivity growth (or are declining), that sharply rising fringe benefit costs are undermining gains in take-home pay, and that workers in other countries are enjoying better pay increases than U.S. workers. Two frequently cited measures published by the Bureau of Labor Statistics (BLS), which are shown in figure 1, highlight some of these concerns. The first measure-the growth in real hourly compensation in the nonfarm business sector-has slowed to 0.4 percent a year from 2.4 percent a year over the 1960-73 period. Meanwhile, hourly output per worker has grown at 0.9 percent a year-noticeably faster than hourly compensation, although down considerably from its 1960-73 annual growth rate of 2.5 percent. In an economy where real wage growth has paralleled the rise in productivity over the long run, this apparent divergence implies that the benefits of increased productivity have not been distributed in the expected way over the past two decades. The second BLS measure-real hourly earnings of nonsupervisory employees-excludes employer payments for pension, health care, employment taxes, and other nonwage costs that are counted in real hourly

Patterns of Corporate External Financing

IN RECENT YEARS THE CORPORATE bond market has absorbed an unprecedented volume of new issues. Far from dwindling away under the pressure of equity kickers and short-term maturities, as many predicted in 1968, net bond sales increased from a

Recessions, Wealth Destruction, and the Timing of Retirement

12 biflion annual rate in the last half of 1969 to

Institutional Change and the Efficacy of Monetary Policy

30 billion in the first half of this year. Several explanations for this upsurge have emphasized temporary factors, such as a sudden increase in desired liquidity following the Penn Central debacle and a catchup in bond issues that were delayed by tight money in 1969. But the continuing high level of bond issues raises questions that cannot be answered by resort to such transitory phenomena. The rapid expansion of business financing needs has been matched by a pronounced rise in consumer saving rates. To an increasing extent savers and investors have become two separate groups; and the capital markets, as the primary means of transferring funds from one to the other, has grown substantially. These developments have raised some concern about the magnitude of the demands that will be placed upon the capital markets in future years; and, in particular, concern about the competitive position of other long-term securities, such as mortgages and state and local issues. This paper examines some of the factors that have led to an expansion of business issues of corporate bonds and other marketable instruments. The set of financial decisions considered is a narrowly defined one that takes as predetermined the firms production and investment decisions and the re-

Differential Mortality and Retirement Benefits in the Health and Retirement Study

Recessions affect the timing of retirement through two channels, a weaker job market and losses in household wealth. The two phenomena have opposite effects. A weaker economy causes employers to increase permanent job separations and reduce new hires, accelerating retirements that would otherwise have occurred later. Falling household wealth reduces the resources available to pay for retirement, discouraging older workers from leaving the workforce. We use aggregate and micro-census data on old-age labor supply as well as time series data on unemployment, stock and bond returns, and house appreciation to estimate business cycle effects on Social Security benefit acceptance and labor force exit. Trailing real stock and bond returns and house price appreciation have statistically significant but very small effects on old-age labor force participation. High prime-age unemployment has only a small impact on benefit acceptance and labor force participation among older women, but the effects on older men are greater. We estimate that the 4.6 percentage-point increase in prime-age unemployment between 2007 and 2009 reduced the participation rate of 60-74 year-old men by between 0.8 and 1.7 percentage points. This effect has offset the impact of declining household wealth on old-age labor force participation.