Edward Tower
  • Edward Tower

  • Professor
  • Economics
  • 227A Social Sciences
  • Campus Box 90097
  • Phone: (919) 660-1818
  • Fax: (919) 684-8974
  • Homepage
  • Curriculum Vitae
  • Bio

    Edward Tower is a Professor within the Economics Department at Duke University. His teaching expertise includes the subjects of finance, computable general equilibrium modeling, development economics, managerial economics, micro and macroeconomics, and international trade and finance. He attended Harvard University, where he earned his Ph.D. in economics in 1971 and his M.A. in 1967. He also studied economics at Brown University in 1964-65 and physics at Harvard College from 1960-64.

    Along with his teaching interests, Professor Tower’s research explores such subjects as tariffs, equities, quotas, mutual funds, index mutual funds, time zone arbitrage, trade, and development. He recently conducted projects that explored “voting on importation of Ethical Drugs” and “predicting returns on foreign and US equities.” He has published a number of books throughout his career, including Economics Reading Lists and Course Outlines, which, along with its four later editions, has been purchased in seventy-seven countries. Much of his work on U.S. trade policy has been utilized to determine congressional voting on protectionist issues based on campaign contributions; and his work on financial issues has shed light on the question of whether or not the US stock market is over-valued.

    Since he began publishing his work in 1965, he has had over 130 articles appear in print. His writings have been published within a wide range of collections and leading academic journals, including International Logistics and Trade, The Journal of Investing, Empirical Methods in International Trade: Essays in Honor of Mordechai E. Kreinin, The Journal of Portfolio Management, the Journal of Policy Reform, and many others. Some of his works include, “Sweetening the Pot: How American Sugar Buys Protection” with Omer Gokcekus and Justin Knowles, “Labor PAC Campaign Contributions and NAFTA Legislators: Rhetoric or Retribution?” with Gretchen Phillips, “Trade Protectionism” with William H. Kaempfer and Thomas D. Willett; and many more.

    Along with his work as a teacher and researcher, Professor Tower has various other professional responsibilities. He has supervised over twenty Ph.D. dissertations throughout his career, with many of the papers ending up in publication. He is also currently on the editorial boards for the Eastern African Economic Review, the Journal of Policy Reform, the North American Review of Economics and Finance, and the International Review of Economics and Business. In the past, he has also worked on the editorial boards for Contemporary Policy Issues, the Economic Inquiry, the Journal of Economic Integration, the Review of International Economics, the Southern Economic Journal, and the Westview Press—Political Economy of Global Interdependence Series.
  • Specialties

    • Financial Economics
    • International Economics and Finance
    • Development Economics
  • Research Summary

    Trade and Development
  • Research Description

    Professor Tower specializes in finance, computable general equilibrium modeling, macroeconomics, development economics, microeconomics, and managerial economics. He conducts a majority of his research within the study of trade and development, exploring a variety of variables from tariffs, quotas, and time zone arbitrage, to equities, mutual funds, and index mutual funds. Since he began publishing his work in 1965, he has contributed over 130 articles to leading academic journals and has had several books, chapters, and papers appear in print. Some of his more recent writings include, “School Choice: Money, Race, and Congressional Voting on Vouchers,” completed in collaboration with O. Gokcekus and J. Phillips; “Rational Pessimism: Predicting Equity Returns by Tobin’s q and Price/Earnings Ratio” with M. Harney; and “Predicting Equity Returns for 37 Countries: Tweaking the Gordon Formula” with K. Reinker. Much of his work pertaining to U.S. trade policy has been used to determine congressional voting on protectionist issues based on campaign contributions. His work on financial issues has also played an important role in determining the value of the U.S. stock market. His latest studies involved an investigation of congressional voting on importation of ethical drugs and predicting returns on both foreign and U.S. equity.
  • Current Projects

    Voting on importation of Ethical Drugs., Predicting returns on foreign and US equities.
  • Areas of Interest

    international trade
    economic development
    finance
    equities
    mutual funds
  • Education

      • PhD,
      • Harvard University,
      • 1971
      • M.A.,
      • Harvard University,
      • 1967
      • Post Baccalaureate,
      • Brown University,
      • 1965
      • B.A.,
      • Harvard College,
      • 1964
    • Other

      • Member Editorial Board
        • 2003
        • International Logistics and Trade
      • Member of Editorial Board
        • 2003
        • Eastern Africa Economic Review
      • Fulbright Senior Specialists Grant to teach at The University of Zagreb
        • 2003
        • Zagreb, Croatia
      • Member Editorial Board
        • 2002-01-01-2004-12-31
        • International Review of Economics and Business (Rivista Internazionale di Scienze Economiche e Commerciali)
      • Member Editorial Board
        • 2001-01-01-2004-12-31
        • Journal of Policy Reform
      • Member Editorial Board
        • 1992-01-01-2004-12-31
        • Review of International Economics
      • Member Editorial Board
        • 1989-01-01-2004-12-31
        • North American Journal of Economics and Finance
  • Selected Publications

      • E. Tower.
      • (October, 2010).
      • Are GMO’s Predictions Prescient? Using them to predict Vanguard’s Mutual Fund Returns.
      • .
      • [web]
      • E. Tower.
      • (October, 2010).
      • GMO versus Vanguard: Assessing the Performance of Comparable Funds.
      • .
      • [web]
      • E. Tower.
      • (October, 2010).
      • Strategic Asset Allocation in Practice: Using Vanguard Funds to Clone GMO’s Benchmark-Free Allocation Fund.
      • .
      • [web]
      • E. Tower and John Gilbert.
      • (2000).
      • "A Golden Jubilee Note on Graaff's Optimum Tariff Structures".
      • History of Political Economy
      • ,
      • 421-436.
      Publication Description

      Part of a symposium celebrating Graaff's classic paper on the optimum tariff, appriximately fifty years earlier. The other contributors are Murray C. Kemp, Kiji Shimomura and Jan Graaff (who in his 90's replied to the K&S and T&G pieces. Argues that Graaff anticipated important general equilibrium literature that followed.

      • Patrick Conway, Wilfrid Csaplar and Eward Tower.
      • (2000).
      • "How to Encourage Exports Without a Budgetary Cost: Comment on Wang and Tsai".
      • Revista Internzaionale de Science Economiche e Commercialli (International Review of Economics and Business"
      • ,
      • 47
      • (4)
      • ,
      • 701-704.
      Publication Description

      Argues that if a government uses the combination of an ad valorem tax and a specific subsidy, it can shape the demand curve facing a domestic firm, making it flatter and raising its marginal revenue at the same time, thereby raising the firm's output to the socially optimal level while acquiring tax revenue at the same time. "

      • John Gilbert and E. Tower.
      • (2002).
      • "Protectionism, Labor Mobility and Immiserizing Growth in Developing Countries".
      • Economics Letters
      • ,
      • 135-40.
      Publication Description

      In a small, tariff-ridden, developing economy with imperfect labor mobility, we show that capital accumulation may not immiserize even with foreign rent repatriation. Employment creation effects can outweigh losses in tariff revenue. With perfect immobility, immiserization cannot occur without repatriation.

      • Ryan Gibbs, Omer Gokcekus and E. Tower.
      • (2002).
      • "Is Talk Cheap? Buying Congressional Testimony with Campaign Contributions".
      • Journal of Policy Reform
      • ,
      • 5
      • (3)
      • ,
      • 127-132.
      • Blackwell.
      • [web]
      Publication Description

      For the steel import quota bill of 1999, our answer to the question posed in the title is that each word in the Congressional Record costs $39 in campaign contributions from the steel industry. Consequently, our answer is “Yes.”

      • Vladamir Cvijanovic, Mia Mikic and E. Tower.
      • (2003).
      • "Evaluating Croatian Equities".
      • Zagreb Journal of Economics
      • ,
      • 7
      • (10)
      • ,
      • 73-88.
      • [web]
      Publication Description

      In this paper we evaluate all three of the first quotation equities that are available in Croatia. First quotation equities are those that meet the highest accounting and reporting standards in Croatia. We find that two of the three compare favorably with stocks available on the world market. We also suggest the need for more and better data on Croatian equities.

      • Matthew Harney and Edward Tower.
      • (2003).
      • "Rational Pessimism: Predicting Equity Returns by Tobin's q and Price/Earnings Ratios".
      • The Journal of Investing
      • ,
      • 12
      • (2)
      • ,
      • 58-69.
      Publication Description

      In the spring of 2000, two books predicted a substantial fall in the S&P500 Index. Robert Shiller’s Irrational Exuberance found that, historically, a high price earnings ratio, with real earnings averaged over 10 years, accurately predicts a low real rate of return from investing in the S&P500 Index. Smithers and Wright’s Valuing Wall Street found that a high Tobin’s q for the non- financial equities in the S&P500 does the same. We discover that q beats all variants of the PE ratio for predicting real rates of return over alternative horizons. We also formalize the feedback mechanisms considered in both books.

      • William H. Kaempfer, E. Tower and Thomas D. Willett.
      • (2003).
      • "The Employment Maximizing Import Quota Under Domestic Monopoly".
      • Journal of International Logistics and Trade
      • ,
      • 1
      • (1)
      • ,
      • 22.
      • [web]
      Publication Description

      We consider a domestic monopolist who is protected by an import quota on the product he produces. He faces a domestic demand curve which is characterized by a constant price elasticity. He is unable to export and has an upward sloping marginal cost curve. We demonstrate that in this case his employment of labor rises with the import quota until imports rise to a fraction 1/e of domestic output where e is the elasticity of domestic demand. Thus, the employment maximizing quota sets permissible imports at a fraction of domestic output which is at least as high as the reciprocal of the elasticity of demand. We also make a case for liberalizing all the way right away, “cold turkey liberalization.”

      • Omer Gokcekus, Joshua J. Phillips and E. Tower.
      • (2004 forthcoming).
      • "School Choice: Money, Race and Congressional Voting on Vouchers".
      • Public Choice
      • ,
      • 20.
      Publication Description

      : This paper discovers that a campaign contribution to a member of the U.S. House of Representatives by the American Federation of Teachers or the National Education Association (the two major teachers’ unions) in the 2000 election cycle reduces the probability that a Representative will vote for a school choice amendment to the “No Child Left Behind Act of 2001.” It also discovers that a Representative whose district has a large African American population or who is Republican is more likely to vote for vouchers.

      • Kenneth S. Reinker and E. Tower.
      • (2004 forthcoming).
      • "Predicting Equity Returns for 37 Countries: Tweeking the Gordon Formula".
      • Journal of Investing
      • ,
      • 13
      • (2)
      • ,
      • 21 pp..
      Publication Description

      Recently, there has been a lot of discussion about whether and how much the U.S. stock market is overvalued, leading some economic gurus to suggest that foreign markets may be good investments. We ask whether this is the case and apply the Gordon formula to predict future real rates of return on three Morgan Stanley Capital International indices and 37 individual country indices. Our conclusion is that, as a whole, foreign markets do indeed promise significantly higher future returns than the U.S. market does, suggesting that an increased focus on international diversification by investors and fund managers could be beneficial. JEL classification: G11 & G12.

      • Kenneth S. Reinker and E. Tower.
      • (2004 forthcoming).
      • "Index Fundamentalism Revisited".
      • Journal of Portfolio Management
      • ,
      • 31.
      Publication Description

      Is there any justification for investing in managed mutual funds or are managed funds for suckers, as indexing advocates argue? We answer this question by looking at a long time span of real fund returns (26 years) for one specific company (Vanguard) that is notable for its low fees on managed funds. By creating synthetic portfolios— portfolios based on weighted averages of the assets of Vanguard’s mutual funds—we find that whether index funds or managed funds are the superior buy depends on the time span in question, but that managed funds almost always have a lower standard deviation of return than index funds.

      • Omer Gokcekus and E. Tower.
      • (2004 forthcoming).
      • "An Efficiency Enhancing Minimum Wage".
      • Journal of Policy Reform
      • ,
      • 7
      • (2)
      • ,
      • 22pp..
      • [web]
      Publication Description

      We consider an economy (e.g., Chile 1973-83 or modern Turkey) with a minimum wage sector and a free sector, and a tax on labor earnings. We ask “Can a slightly binding minimum wage simultaneously raise tax revenue, employment, and economic efficiency?” We answer “Yes, if the elasticity of demand for labor in the free sector exceeds the elasticity of demand in the minimum-wage sector.” The logical key is that the minimum wage draws high reservation- wage workers into the labor force, who give up untaxed leisure in exchange for taxed work and thereby increase revenue, employment and efficiency.

      • William H. Kaempfer, Edward Tower and Thomas D. Willett.
      • (2003).
      • "Trade Protectionism".
      • In Charles K. Rowley and Friedrich Schneider (Eds.),
      • The Encyclopedia of Public Choice
      • ,
      • (pp. 550-576).
      • Kluwer Academic Publishers.
      • [web]
      Publication Description

      This paper is a short, nontechnical exposition of the political economy of protection. It asks how do political forces operate to generate protection, and what determines the magnitude and form that protection takes.

      • Gretchen Phillips and E. Tower.
      • (2004 forthcoming).
      • "Labor PAC Campaign Contributions and NAFTA Legislators: Rhetoric or Retribution?".
      • In Michael Plummer (Eds.),
      • Empirical Methods In International Trade: Essays in Honor of Mordechai E. Kreinin
      • Edward Elgar.
      • [web]
      Publication Description

      Prior to the congressional vote, organized labor threatened to punish legislators who voted for NAFTA. Building on work by Engel and Jackson, we explore whether or not organized labor made good on its threat by reducing campaign contributions to House members who voted YES. We postulate contribution functions for both Democrats and Republicans, with pre-NAFTA vote contributions on the horizontal axis and post-NAFTA vote contributions on the vertical axis. For members of both parties, we find that a YES vote on NAFTA results in a change in the contribution function, which is a combination of a downward proportional shift and a downward parallel shift.

      • Omer Gokcekus, Justin Knowles and E. Tower.
      • (2004 forthcoming).
      • "Sweetening the Pot: How American Sugar Buys Protection".
      • In Devashish Mitra and Arvind Panagariiya (Eds.),
      • The Political Economy of Trade, Aid and Foreign Investment Policies
      • Elsevier.
      • [web]
      Publication Description

      Abstract — Sugar growers have been capturing substantial rents from the U.S. sugar program. Despite well-documented huge welfare losses of this program, legislators have always voted against phasing it out. This paper uses Tobit analysis to explore the determinants of campaign contributions from the sugar industry to Senators from 1989 to 2002. It finds that the power and willingness of the Senators to protect sugar influence the campaign contributions significantly: Membership of the Senate Agriculture, Nutrition and Forestry Committee attracts $4,266 of sugar contributions per two-year election cycle. Membership of the relevant subcommittee that deals with sugar legislation is even more profitable than membership of the agriculture committee alone: membership of the Agricultural Production, Marketing, and Stabilization of Prices Subcommittee is worth an additional $2179 for a total of $6,445. These results suggest the strength of the subcommittee in drafting specialized legislation and attracting interested members. Moreover, while the particular party affiliation does not make any difference, membership of the majority party is worth $1,235. Finally, an impressionable freshman Senator from a sugar cane state receives $8,366 more than a more senior senator from a non- sugar state.

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  • Teaching

    • ECON 555S.01
      • INTERNATIONAL TRADE
      • Social Sciences 107
      • MW 10:05 AM-11:20 AM
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