When Schools Compete, How Do They Compete? An Assessment of Chile's Nationwide School Voucher Program

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 choice improved average educational outcomes as measured by test scores, repetition rates, and years of schooling. However, we find evidence that the voucher program led to increased sorting, as the best' public school students left for the private sector.

Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program

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 official selling price of Iraq's two crude oils (Basrah Light and Kirkuk) and the market price of several comparison crude oils during the Program to the gap observed prior to the Program. We find consistent evidence that underpricing of Basrah Light averaged $1 per barrel from 1997 through 1999 and reaches a peak (almost$3 per barrel) from May 2000 through September 2001. The estimated underpricing quickly declines after the UN introduced a retroactive pricing scheme that reduced Iraq's ability to set the price of its oil. The evidence on whether Kirkuk was underpriced is less clear. Notably, we find that episodes of underpricing of Basrah Light are associated with a decline in the share of major oil multinationals among the oil buyers, and an increase in the share of obscure individual traders. The observed underpricing of Iraqi oil suggests that Iraq generated $5 billion in rents through its strategic underpricing. Of this amount, we estimate that Iraq collected$0.7 to $2 billion in bribes (depending on Iraq's share of the rents implied by the price gap), which is roughly 1 to 3 percent of the total value of oil sales under the Program. Finally, we find little evidence that underpricing was associated with increases in the relative supply or declines in the relative demand of Iraqi oil.

When Schools Compete, How Do They Compete? An Assessment of Chile’s Nationwide School Voucher Program

The notion that free choice is welfare-enhancing is one of the foundations of modern, market-oriented societies. This view is prominent in the school choice debate, where there is a widespread perception that public schools are inecientlocal monopolies, and that the quality of education would improve dramatically if only parents were allowed to freely choose between schools. For example, in recent work Hoxby (2001) asks \what is the range of productivity over which choice could cause productivity to vary? Recent history suggests that school productivity could be much higher than it is now - 60 to 70 percent higher." Two arguments underlie the view that choice would improve the quality of education. First, there is a widely-held belief that private schools are better than public schools. Al- though most research on this is hampered by selection issues, recent work that exploits quasi-experiments with vouchers nd some evidence that children benet from attending private schools.1 The implication is that unrestricted choice could raise students' achieve- ment merely by facilitating their transfer to the private sector. A second, perhaps even more compelling argument for choice comes from our instinct that people and organizations respond to incentives. Therefore, by correctly aligning the incentives public schools face, choice would force their ossied bureaucracies to improve.

A Global View of Productivity Growth in China

We revisit a classic question in international economics: how does a country's productivity growth affect worldwide real incomes through international trade? We first identify the channels through which productivity shocks transmit in a model featuring inter-industry trade as in Ricardo (1817), intra-industry trade as in Krugman (1980), and firm heterogeneity as in Melitz (2003). We then estimate China's productivity growth at the industry level and use our model to quantify what would have happened to real incomes throughout the world if nothing but China's productivity had changed. We find that average real income in the rest of the world increased by a cumulative 0.48% from 1992-2007 due to China's productivity growth. This represents 2.2% of the total income gains to the world.Productivity growth, China

A Global View of Productivity Growth in China

How does a country's productivity growth affect worldwide real incomes through international trade? In this paper, we take this classic question to the data by measuring the spillover effects of China's productivity growth. Our framework features traditional terms-of-trade effects and new trade home market effects as suggested by the theoretical literature and works from a reference point which perfectly matches industry-level trade. Focusing on the years 1995 to 2007, we find that the cumulative welfare effect on individual regions ranges between -1.2 percent and 3.6 percent and only 3.0 percent of the worldwide gains of China's productivity growth accrue to the rest of the world.

Was the Federal Reserve Fettered? Devaluation Expectations in the 1932 Monetary Expansion

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 evidence that the large monetary expansion led investors to believe that the United States would devalue. The financial press and the records of the Federal Reserve also show little evidence of expectations of devaluation or fear of a speculative attack. We find that a flawed model of the effects of monetary policy and conflict among the twelve Federal Reserve banks, rather than concern about the gold standard, led the Federal Reserve to suspend the expansionary policy in the summer of 1932.

Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom

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 the period from 1982 to 1986 and in 1984 reduced its tax rate on retained profits from 50 percent to 10 percent. We show that, consistent with our theory, there was a large increase in aggregate investment after the reform which was entirely funded by an increase in retained profits. Further, we show that investment grew by more in industries that depend more on external financing, according to the Rajan and Zingales (1998) measure. Finally, we present some weak evidence from comparisons of investment rates across firms for several different measures of their likelihood of being financially constrained.

Misallocation and manufacturing TFP in China and India

Resource misallocation can lower aggregate total factor productivity (TFP).We use microdata on manufacturing establishments to quantify the potential extent of misallocation in China and India versus the United States. We measure sizable gaps in marginal products of labor and capital across plants within narrowly defined industries in China and India compared with the United States. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the United States, we calculate manufacturing TFP gains of 30%–50% in China and 40%–60% in India.India,China, Economy

Misallocation and Manufacturing TFP in China and India

Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the potential extent of misallocation in China and India compared to the U.S. 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.S., we calculate manufacturing TFP gains of 30-50% in China and 40-60% in India.

Relative Prices and Relative Prosperity

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 solely due to the low price of consumption goods in poor countries. Investment prices are no higher in poor countries than in rich countries. These facts suggest that the low PPP investment rates in poor countries are not due to low savings rates or to high tax or tariff rates on investment. Poor countries instead appear to be plagued by low efficiency in producing investment goods and in producing exportables to trade for machinery and equipment.