THE ECONOMETRICS OF THE HOLY GRAIL — A REVIEW OF ECONOMETRICS: ALCHEMY OR SCIENCE? ESSAYS IN ECONOMETRIC METHODOLOGY

Books reviewed in this article: David F. Hendry (1993) Econometrics: Alchemy or Science? Essays in Econometric Methodology     

Multiple regimes and cross-country growth behaviour

This paper provides some new evidence on the behaviour of cross-country growth rates. We reject the linear model commonly used to study cross-country growth behaviour in favour of a multiple regime alternative in which different economies obey different linear models when grouped according to initial conditions. Further, the marginal product of capital is shown to vary with the level of economic development. These results are consistent with growth models which exhibit multiple steady states. Our results call into question inferences that have been made in favour of the convergence hypothesis and further suggest that the explanatory power of the Solow growth model may be enhanced with a theory of aggregate production function differences.     

Cost and technical change: Effects from bank deregulation

Banks were substantially deregulated during the 1980s. This altered the cost-minimizing mix between deposit interest payments and operating expenses (capital and labor for branch convenience and free deposit services). Measured bank output was relatively unaffected by these changes. The proportion of deposits receiving higher interest rates increased more rapidly than factor quantities were reduced, so unit deposit costs rose. Consumers benefited, but the measured net effects for banks were negative, averaging –0.8% to –1.4% a year in net technical change from 1977 to 1988. These influences were measured three different ways and for both equilibrium and disequilibrium factor input specifications. All three approaches—a standard time trend, a time-specific index, and shifts in cross-sectional cost functions—gave consistent results. The results were robust whether measured at the banking firm or branch office level or on the cost frontier.     

The brain drain and education opportunity in less developed countries

The impact of the brain drain on the educational systems of the countries of origin is examined, with particular reference to governmental decisions concerning education subsidies and the market for educational services. Two hypothetical cases are considered, one in which governments increase expenditures for education in the presence of a widespread brain drain, the other in which they decrease such expenditures.     

The current state of development sociology in South Africa and its contribution to development studies

Like sociology, development sociology is currently torn between several perspectives, each of which accentuates a completely different view of the discipline. The systems, conflict and humanist perspectives are providing dominant theoretical approaches in the search for an appropriate theory. It is maintained that the current theoretical controversy impedes the development of such a theory.

Systems theory corresponds with neo‐evolutionary development theories and these are largely influenced by the works of Talcott Parsons. Neo‐Marxist development theory, on the other hand, follows the general argument of conflict theory, the accent being on the dialectic relationship between development and underdevelopment. Development theory related to humanism is still in an embryonic stage.

A plea is made for an attempt to design a Weberian‐based orientation which will embrace the current perspectives in order to develop a workable alternative for Southern Africa.