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The idea that capital flows accelerate and decelerate in response to differential rates of return on real investment is common to virtually all of economic theory. This paper examines the nature of this process, especially the relationship between returns in the stock market and returns on real investment. Shaikh (1998) makes the case that the rate of return on new physical (real) investment is the "required" rate of return for the stock market and that competitive forces produce a rough equalization between these two rates of return, what he terms "turbulent arbitrage." In contrast to neoclassical theories of perfect competition, with its notions of perfect information and convergence to a uniform rate of return, the notion of "turbulent arbitrage" is a dynamic process that requires a tendency toward convergence as well as the constant differentiation of profit rates (Botwinick 1993). Data on rates of return at the country, industry, and firm level for Japan, Germany, the United Kingdom, and the United States are analyzed and correlated with Shaikh's "incremental rate of return on real investment" which, it is argued, is the target of the equalization process. Statistical and econometric tests based on time series methods and pooling techniques support the hypothesis that the rate of return on equity prices is linked to the incremental return on real investment. In addition, this association is examined for two industries—steel and retail trade—across these same four countries. Global and domestic equity markets are found to be significantly correlated with the incremental returns for the steel industry but not for the retail trade sector.JEL classification: G15, F02, C33

This study examines the educational consequences of the migration of parents on the children who are left behind in Fujian Province, China. Specifically, we compare the school enrollment of children from emigrant households with those from non-emigrant households. The data are drawn from the 1995 China 1% Population Sample Survey. We find consistent evidence that emigration affects the educational opportunity of the left-behind children in a positive way. First, children from emigrant households are more likely to be enrolled in schools than children from non-emigrant households. Second, emigration also has positive consequences in reducing the gender gap in education. While girls from non-emigrant households still experience a lower enrollment rate, the overall school enrollment for boys and girls from emigrant households has been approaching convergence.

It has long been argued that the implementation of market-based environmental policy instruments such as environmentally-related taxes and tradable permits is likely to lead to greater technological innovation than more direct forms of regulation such as technology-based standards. One of the principle reasons for such an assertion is that they give firms greater flexibility? to identify the optimal means of innovating to meet the given environmental objective. Thus, it can be argued that the benefits of (some) market-based instruments can also be true of well-designed performance standards. While the theoretical case for the use of flexible policy instruments is well-developed, empirical evidence remains limited. Drawing upon a database of patent applications from a cross-section of countries evidence is provided for the positive effect of flexibility? of the domestic environmental policy regime on the propensity for the inventions induced to be diffused widely in the world economy. For a given level of policy stringency, countries with more flexible environmental policies are more likely to generate innovations which are diffused widely and are more likely to benefit from innovations generated elsewhere. And while the focus of this paper is on the specific case of environmental policy, the discussion is equally applicable to aspects of product and labour market regulation which have implications for technological innovation, such as product and workplace safety.