Research Rap

Business Review (Federal Reserve Bank of Philadelphia), Winter 2006 | Go to article overview

Research Rap


Abstracts of research papers produced by the economists at the Philadelphia Fed

THE LINK BETWEEN EMPLOYMENT DENSITY AND PATENT INTENSITY

Economists, beginning with Alfred Marshall, have studied the significance of cities in the production and exploitation of information externalities that, today, we call knowledge spillovers. This paper presents robust evidence of those effects. The authors show that patent intensity--the per capita invention rate--is positively related to the density of employment in the highly urbanized portion of metropolitan areas. All else equal, a city with twice the employment density (jobs per square mile) of another city will exhibit a patent intensity (patents per capita) that is 20 percent higher. Patent intensity is maximized at an employment density of about 2,200 jobs per square mile. A city with a more competitive market structure or one that is not too large (a population less than 1 million) will also have a higher patent intensity. These findings confirm the widely held view that the nation's densest locations play an important role in creating the flow of ideas that generate innovation and growth.

Working Paper 06-14, "Urban Density and the Rate of Invention" Gerald Carlino, Satyajit Chatterjee, and Robert Hunt, Federal Reserve Bank of Philadelphia

TEST SCORES, SCHOOL QUALITY, AND HOUSE PRICES

The expansion of state-mandated tests in the 1990s and the testing requirements of the No Child Left Behind Act have supplied researchers with an abundance of data on test scores that can be used as measures of school quality. This paper uses the state-mandated test scores for 5th grade and 11th grade in Montgomery County, Pennsylvania, to examine three issues about the capitalization of school quality into house prices: (1) At what level do prospective home buyers evaluate the quality of local public education--at the district level or the level of the neighborhood school? (2) After accounting for student achievement as reflected in test scores, are other aspects of the local public school system, such as class size or expenditures, capitalized into the value of a house? (3) Are the positive results the author gets for the capitalization of school quality into house prices due simply to the correlation between high test scores and other desirable neighborhood characteristics? The results of the author's investigation suggest that to home buyers, some test-score averages are significantly better indicators of the quality of the local public school system than others. In particular, home buyers seem to evaluate the quality of public education at the district level rather than at the level of the local school. Class size at the high-school level has some independent effect on house prices, but not class size at the elementary school level. And once student achievement is accounted for, expenditures per pupil have no further effect on house prices. Finally, restricting the sample to similar neighborhoods along school district boundaries confirms earlier results for high school test scores but not for elementary school scores.

Working Paper 06-15, "Capitalization of the Quality of Local Public Schools: What Do Home Buyers Value?," Theodore M. Crone, Federal Reserve Bank of Philadelphia

DIVERGENT INCOME PERFORMANCE IN TWO INDIAN STATES

In this paper the authors study the economic evolution between 1960 and 1995 of two states in India: Maharashtra and West Bengal. In I960, West Bengal's per capita income exceeded that of Maharashtra. By 1995, it had fallen to just 69 percent of Maharashtra's per capita income. The authors employ a "wedge" methodology based on the first-order conditions of a multi-sector neoclassical growth model to ascertain the sources of the divergent economic performances. Their diagnostic analysis reveals that a large part of West Bengal's development woes can be attributed to: (a) low sectoral productivity, especially in manufacturing and services; and (b) sectoral misallocation in labor markets. …

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