James Feyrer

james.feyrer@dartmouth.edu

Department of Economics
Dartmouth College

6106 Rockefeller Center
Hanover, NH 03755-3514
(603) 646-2533

I am an associate professor in the economics department at Dartmouth College.

I am also a Faculty Research Fellow in the National Bureau of Economic Research

Curriculum Vitae (pdf )

Papers

I am currently working on a number of papers.

Trade and Income -- Exploiting Time Series in Geography, revised and resubmitted to American Economic Review

Establishing a robust causal relationship between trade and income has been difficult. Frankel and Romer (1999) use geographic instruments to identify the causal effects of trade. Rodriguez and Rodrik (2000) show that these results are not robust to controlling for missing variables such as distance to the equator or institutions. This paper solves the omitted variable problem by generating a time varying geographic instrument. Improvements in aircraft technology have caused the quantity of world trade carried by air to increase over time. Country pairs with relatively short air routes compared to sea routes benefit more from this change in technology. This heterogeneity can be used to generate a geography based instrument for trade that varies over time. The time series variation allows for controls for country fixed effects, eliminating the bias from time invariant variables such as distance from the equator or historically determined institutions. Trade has a significant effect on income with an elasticity of roughly one half. Differences in predicted trade growth can explain roughly 17 percent of the variation in cross country income growth between 1960 and 1995. click here for a non-gated working paper

Distance, Trade, and Income -- The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment, revise and resubmit, Quarterly Journal of Economics

The negative effect of distance on bilateral trade is one of the most robust findings in international trade. However, the underlying causes of this negative relationship are less well understood. This paper exploits a temporary shock to distance, the closing of the Suez canal in 1967 and its reopening in 1975, to examine the effect of distance on trade and the effect of trade on income. Time series variation in sea distance allows for the inclusion of pair effects which account for static differences in tastes and culture between countries. The distance effects estimated in this paper are therefore more clearly about transportation costs in the trade of goods than typical gravity model estimates. Distance is found to have a significant impact on trade with an elasticity that is about half as large as estimates from typical cross sectional estimates. Since the shock to trade is exogenous for most countries, predicted trade volume from the shock can be used to identify the effect of trade on income. Trade is found to have a significant impact on income. The time series dimension allows for country fixed effects which control for all long run income differences. Because identification is through changes in sea distance, the effect is coming entirely through trade in goods and not through alternative channels such as technology transfer, tourism, or foreign direct investment. non gated working paper

Global Savings and Global Investment:The Transmission of Identified Fiscal Shocks with Jay Shambaugh

This paper examines the effect of exogenous shocks to savings on world capital markets. Using the exogenous shocks to US tax policy identified by Romer & Romer, we trace the impact of an exogenous shock to savings through the income accounting identities of the US and the rest of the world. We find that exogenous tax increases are only partially offset by changes in private savings (Ricardian equivalence is not complete). We also find that only a small amount of the resulting change in US saving is absorbed by increased domestic investment (contrary to Feldstein & Horioka). Almost half of the fiscal shock is transmitted abroad as an increase in the US current account. Positive shocks to US savings generate current account deficits and increases in investment in other countries in the world. We cannot reject that the shock is uniformly transmitted across countries with different currency regimes and different levels of development. The results suggest highly integrated world capital markets with rapid adjustment. In short we find that the US acts like a large open economy and the world acts like a closed economy click here for a non-gated working paper

The Economic Effects of Micronutrient Deficiency: Evidence from Salt Iodization in the United States with Dimitra Politi and David Weil

Iodine deficiency is the leading cause of preventable mental retardation in the world today. Iodine deficiency was common in the developed world until the introduction of iodized salt in the 1920’s. The incidence of iodine deficiency is connected to low iodine levels in the soil and water. We examine the impact of salt iodization in the US by taking advantage of this natural geographic variation. Areas with high pre-treatment levels of iodine deficiency provide a treatment group which we can compare to a control group of low iodine deficiency areas. In the US, salt was iodized over a very short period of time around 1924. We use previously unused data collected during WWI and WWII to compare outcomes of cohorts born before and after iodization, in localities that were naturally poor and rich in iodine. We find evidence of the beneficial effects of iodization on the cognitive abilities of the cohorts exposed to it.

The US Productivity Slowdown, the Baby Boom, and Management Quality, Journal of Population Economics, forthcoming

This paper examines whether management changes caused by the entry of the baby boom into the workforce explain the US productivity slowdown in the 1970s and resurgence in the 1990s. Lucas (78) suggests that the quality of managers plays a significant role in determining output. If there is heterogeneity across workers and management skill improves with experience, an influx of young workers will lower the overall quality of management and lower total factor productivity. Census data shows that the entry of the baby boom resulted in more managers being hired from the smaller, pre baby boom cohorts. These marginal managers were necessarily of lower quality. As the boomers aged and gained experience, this effect was reversed, increasing managerial quality and raising total factor productivity. Using the Lucas model as a framework, a calibrated model of managers, workers, and firms suggests that the management effects of the baby boom may explain roughly 20 percent of the observed productivity slowdown and resurgence. non gated working paper

Will The Stork Return to Europe and Japan? Understanding Fertility within Developed Nations, with Bruce Sacerdote and Ariel Stern, Journal of Economic Perspectives, Summer 2008

Only a few rich nations are currently at replacement levels of fertility and many are considerably below. We believe that changes in the status of women are driving fertility change. At low levels of female status, women specialize in household production and fertility is high. In an intermediate phase, women have increasing opportunities to earn a living outside the home yet still shoulder the bulk of household production. Fertility is at a minimum in this regime due to the increased opportunity cost in women's foregone wages with no decrease in time allocated to childcare. We see the lowest fertility nations (Japan, Spain, Italy) as being in this regime. At even higher levels of women's status, men begin to share in the burden of child care at home and fertility is higher than in the middle regime. This progression has been observed in the US, Sweden and other countries. Using ISSP and World Values Survey data we show that countries in which men perform relatively more of the childcare and household production (and where female labor force participation was highest 30 years ago) have the highest fertility within the rich country sample. Fertility and women's labor force participation have become positively correlated across high income countries. The trend in men's household work suggests that the low fertility countries may see increases in fertility as women's household status catches up to their workforce opportunities. We also note that as the poor nations of the world undergo the demographic transition they appear to be reducing fertility faster and further than the current rich countries did at similar levels of income. By examining fertility differences between the rich nations we may be able to gain insight into where the world is headed. click here for a non-NBER gated version of the paper

Colonialism and Modern Income -- Islands as Natural Experiments, with Bruce Sacerdote, Review of Economics and Statistics, May 2009

Using a new database of islands throughout the Atlantic, Pacific and Indian Oceans we find a robust positive relationship between the number of years spent as a European colony and current GDP per capita. We argue that the nature of discovery and colonization of islands provides random variation in the length and type of colonial experience. We instrument for length of colonization using variation in prevailing wind patterns. We argue that wind speed and direction had a significant effect on historical colonial rule but do not have a direct effect on GDP today. The data also suggest that years as a colony after 1700 are more beneficial than earlier years. We also find a discernable pecking order amongst the colonial powers, with years under US, British, French and Dutch rule having more beneficial effects than Spanish or Portuguese rule. Our finding of a strong connection between modern income and years of colonization is conditional on being colonized at all since each of the islands in our dataset spent some time under colonial rule. click here for a non-gated working paper

The Marginal Product of Capital , with Francesco Caselli, Quarterly Journal of Economics.

Whether or not the marginal product of capital (MPK) differs across countries is a question that keeps coming up in discussions of comparative economic development and patterns of capital flows. Using easily accessible macroeconomic data we find that MPKs are remarkably similar across countries. Hence, there is no prima facie support for the view that international credit frictions play a major role in preventing capital flows from rich to poor countries. Lower capital ratios in these countries are instead attributable to lower endowments of complementary factors and lower efficiency, as well as to lower prices of output goods relative to capital. We also show that properly accounting for the share of income accruing to reproducible capital is critical to reach these conclusions. One implication of our findings is that increased aid flows to developing countries will not significantly increase these countries' capital stocks and incomes. click here for non-gated working paper

Demographics and Productivity , Review of Economics and Statistics, February 2007

This paper examines the impact of workforce demographics on aggregate productivity.  The age structure of the workforce is found to have a significant impact on aggregate productivity. A large cohort of workers aged 40 to 49 is found to have a large positive impact on productivity.  Out of sample predictions of output growth from 1990 to 1995 predict 17% of actual output growth differences across a sample of 108 countries.  The results suggest a partial explanation for the productivity slowdown in the seventies and the boom in the nineties.  This paper estimates that US productivity growth in the seventies was 2% lower than trend due to the entry of the baby boom into the workforce.  As the baby boomers entered their forties in the nineteen eighties and nineties, productivity growth rebounded.  Japanese demographics predict almost the opposite pattern, with high growth in the seventies followed by low growth in the nineties.  Demographics can also explain part of the productivity divergence between rich and poor nations between 1960 and 1990. click here for non-gated working paper

Aggregate Evidence on the Link Between Demographics and Productivity , Population and Development Review, March 2008

This paper examines the relationship between workforce demographics and aggregate productivity. Cross country regressions show changes in the age structure of the workforce to be significantly correlated with changes in aggregate productivity. Different demographic structures may be related to almost one quarter of the persistent productivity gap between the OECD and low income nations. Results using US state and metropolitan area data, while not contradicting the cross country results are found to be inconclusive. Causal mechanisms through inventive activity and management are suggested and evidence from the US census is shown to be consistent with these mechanisms.

"Convergence By Parts," B.E. Journal of Macroeconomics, July 2008

This paper investigates Danny Quah's finding that the cross country distribution of per capita income is moving toward a twin peaked distribution; that is, a state with a group of countries with low incomes, a group of countries with high incomes and few countries in between. This finding has supported and encouraged a large theoretical literature on development traps which produce twin peaks through physical and human capital accumulation. Contrary to these models, I find that physical and human capital are moving towards single peaked distributions.  The distribution of physical capital shows clear movement toward the OECD level of  the capital output ratio.  The productivity residual is moving toward a twin peaked distribution which mirrors that of per capita income. I therefore conclud that Quah's result is driven by productivity differences rather than factor accumulation.  This result mirrors recent work by Klenow & Rodriguez-Clare (1997) and Hall & Jones (1999) which emphasize the importance of productivity differences.  A further examination uncovers dynamic externalities from factor accumulation and openness to productivity. Low levels of human capital and lack of openness to trade are potential causes of the lower peak in productivity.

"A Contribution To The Empirics of Total Factor Productivity ," with Shekhar Aiyar, Manuscript.

Our paper analyzes the causal links between human capital accumulation and growth in total factor productivity (TFP). In particular, it tests the Nelson-Phelps hypothesis that human capital is crucial in enabling the imitation of technologies developed at the frontier. To this end we calculate TFP for a sample of 86 heterogeneous countries over the period 1960-1990 and investigate whether there has been (conditional) convergence in TFP. Our regressions use a variety of GMM estimators in a dynamic panel framework with fixed effects. Human capital is found to have a positive and significant effect on the long run growth path of TFP. Countries are found to be converging to these growth paths at a rate of about 3% a year. This work goes some way in resolving the debate over whether factor accumulation or TFP increases are more important for economic growth; while TFP differences explain most of the static variation in GDP across countries, human capital accumulation is a crucial determinant of the dynamic path of TFP

"Technological Leadership and Endogenous Growth,"  with Susanto Basu and David N. Weil, Manuscript.

We investigate the interaction between technological leadership and spillovers through a theoretical model where technological followers benefit from spillovers from
technological leader.  Simulations of the model show that technological leadership is persistent and history dependent. A more patient nation may choose to remain behind an impatient technological leader in order to benefit from spillovers.  The result is lower steady state growth than would occur if the more patient nation took leadership.  The probability of a persistent, impatient leader is higher the more easily technology flows between nations.

"Scale Effects, Endogenous Growth, and Neoclassical Growth Dynamics ,"  Manuscript

This paper develops a cross country model with endogenous technological change with novel implications for scale effects. A model is presented where technology is not directly productive, but instead enters into the human capital production function.  In the short run, population effects have the same qualitative effect as in the neoclassical growth model for all countries. Furthermore, for countries not engaged in significant R&D, technological change is essentially exogenous and the implications of the Solow model continue to hold even in the long run.  In addition to the implications for population growth, the level of population has very limited effect on the long run level and growth of output.

Updated:  23OCT2009