Showing papers on "Capital accumulation published in 1995"

International Trade and Business Cycles

Abstract: Virtually all economies experience recurrent fluctuations in economic activity that persist for periods of several quarters to several years. Further, there is a definite tendency for the business cycles of developed countries to move together--there is a world component to business cycles. This paper argues that capital accumulation and international capital flows are central to understanding world trade and business cycles. In particular, fluctuations in net exports and the current account are shown to be dominated by trade in capital goods. The paper develops a two country model of international trade within which capital accumulation and international investment flows play a central role. We explore the channels by which technology shocks and fiscal shocks are transmitted to the domestic and foreign economies, and discuss the extent to which these results are sensitive to individuals' opportunities for international trade in financial assets. Overall, we find that the models capture many of the salient features of international business cycles. However, it has proven consistently difficult to generate sufficient comovement across countries in labor input and investment. The paper concludes with a discussion of fruitful directions for future research.

International Capital Mobility Amongst the Major Industrialised Countries: Too Little or Too Much?

Abstract: This paper examines capital flows among the major industrialized countries with a view to assessing M. Feldstein and C. Horioka's (1980) claim that international capital mobility is limited. It argues that saving-investment correlation tests are inherently flawed, and proposes an alternative methodology for testing the degree of international capital mobility. It finds that capital flows have been excessive in the sense that they are driven by speculative forces rather than by economic fundamentals. Copyright 1995 by Royal Economic Society.

Accounting for Differences in Economic Growth 1

Abstract: This paper uses a combination of growth accounting and regression analysis to examine economic growth experiences of 88 developing and industrial economies over the period 1960-1992. The decomposition shows that increases in total factor productivity (TFP) have been surprisingly small in developing countries, and that accumulation of physical and human capital account for most of the growth per worker. This reinforces a finding of some previous authors, but for a much larger sample of countries. Further, the fact that countries with high rates of factor accumulation do not have unusually high rates of TFP growth provides little support for the new endogenous growth theories. Our analysis also uncovers significant difficulties with the use of investment rates and school enrollment rates as proxies for capital accumulation, highlighting a reason why some previous studies have understated the importance of accumulation. Our regression results strongly support the growing consensus that stable, orthodox macroeconomic policy, combined with outward oriented trade policies foster economic growth. We explore the channels through which determinants of growth operate. Among other findings, we show that larger budget deficits slow growth through reducing capital accumulation, while real exchange rate volatility operates mainly through slowing TFP growth. Outward orientation appears to work through both channels.(This abstract was borrowed from another version of this item.)

Natural Capital and Human Economic Survival

Abstract: Foreword Preface The Ecological Economics Perspective and Why It's Needed The Origins of Our Economic Worldview The Ecological Economics Perspective The Definition, Function and Valuation of Natural Capital What Natural Capital Is and Does Depletion and Valuation Managing Natural Capital for Sustainability Investing in Natural Capital: Incentives and Obstacles Some Investment Strategies Afterward Appendix: Some Tools for Personal and Community Action Glossary References Index

Is There a Tradeoff between Unemployment and Productivity Growth

Abstract: This paper shows how misleading is the facile contrast of Europe following a path of high productivity growth, high unemployment, and relatively greater income equality, in contrast to the opposite path being pursued by the United States. While structural shocks may initially create a positive tradeoff between productivity and unemployment, they set in motion a dynamic path of adjustment involving capital accumulation or decumulation that in principle can eliminate the tradeoff. The main theoretical contributions of this paper are to show how a productivity-unemployment tradeoff might emerge and how it might subsequently disappear as this dynamic adjustment path is set in motion. Its empirical work develops a new data base for levels and growth rates of output per hour, capital per hour, and multifactor productivity in the G-7 nations both for the aggregate economy and for nine sub-sectors. It provides regression estimates that decompose observed differences in productivity growth across sectors. It finds that much of the productivity growth advantage of the four large European countries over the United States is explained by convergence and by more rapid capital accumulation, and that the only significant effect of higher unemployment is to cause capital accumulation to decelerate, thus reducing the growth rate of output per hour relative to multi-factor productivity.

Is There a Tradeoff between Unemployment and Productivity Growth

Abstract: This paper shows how misleading is the facile contrast of Europe following a path of high productivity growth, high unemployment, and relatively greater income equality, in contrast to the opposite path being pursued by the United States While structural shocks may initially create a positive tradeoff between productivity and unemployment, they set in motion a dynamic path of adjustment involving capital accumulation or decumulation that in principle can eliminate the tradeoff The main theoretical contributions of this paper are to show how a productivity-unemployment tradeoff might emerge and how it might subsequently disappear as this dynamic adjustment path is set in motion Its empirical work develops a new data base for levels and growth rates of output per hour, capital per hour, and multifactor productivity in the G-7 nations both for the aggregate economy and for nine sub-sectors It provides regression estimates that decompose observed differences in productivity growth across sectors It finds that much of the productivity growth advantage of the four large European countries over the United States is explained by convergence and by more rapid capital accumulation, and that the only significant effect of higher unemployment is to cause capital accumulation to decelerate, thus reducing the growth rate of output per hour relative to multi-factor productivity

The Dynamics of Technology, Trade and Growth

Abstract: The rapid development of a series of technologically advanced, industrial economies in the post-war period has challenged conventional understandings of economic growth. The emergence of these economies has reinvigorated the long-standing debate about why some countries grow quickly, and reach high levels of productivity, while others fall behind. Until the emergence of the new growth theory, few neoclassical economists focused upon this important issue despite the existence of a rich tradition among economic historians and economists from more heterodox traditions. The Dynamics of Technology, Trade and Growth draws upon contributions of scholars from different theoretical backgrounds to discuss why economies succeed, or fail, in creating the infrastructure, finance and technology to develop rapidly and 'catch-up' with others. After an overview by the editors of theoretical and practical developments in the economics of convergence and divergence, the book features chapters which discuss the origins of the post-war catch-up and convergence boom, convergence in trade and sectoral growth, capital accumulation, investment and resource allocation, specialization, technological change, and the potential contribution of information and communication technologies. The distinguished contributors bring together in one volume a breadth of scholarship on economic growth, convergence and divergence, ensuring that this book will be widely read by economists interested in growth, technical change and economic development.

Regulation, Retailing, and Consumption:

Abstract: In this paper the interplay between regulation and consumption is explored. Questions are posed about the regulation of consumption by the state and by private retail capital, and the way in which consumption relations influence the operation of the state either directly or through the mediative role of the retailers. We argue in general terms that, since the 1980s, it is the consumption nexus rather than that of capital and labour which has increasingly provided the most attractive location for the abstraction of surplus value and for capital accumulation; that the state had increasingly become an active agent in class formation and class relations through the sphere of consumption; that consumption processes have increased in significance in the legitimation of the state; and that, particularly in the United Kingdom, the major food retailers have played a critical role, not only in delivering new and revised ‘rights to consume’ to empowered groupings of service-class consumers, but in defining consumpti...

Credit Policies and the Industrialization of Korea

Abstract: The Korean government has played a pervasive role in promoting industrialization and economic development. Directed credit was a basic instrument of economic policy. In Korea the government directed more than half of bank credit, directly owned all major banks, and controlled their interest rates. Government intervention was effective in Korea because it was predicted on close consultation with industry, was implemented within the context of a competitive business environment with a very strong export orientation, and was closely monitored and evaluated. Export orientation provided objective and observable criteria of success, while close monitoring and consultation permitted the re-allocation of directed and subsidized credits to successful firms and the flexible adaptation of credit policies to the evoloving needs of the Korean industry and economy. Korea relied extensively on foreign loans to supplement its initially meager domestic savings, but the government played an active part in authorizing and guaranteeing such foreign funds. An important aspect of Korean intervention was the use of effective risk sharing mechanisms whereby firms facing temporary difficulties received government-orchestrated support from the financial system. Despite the overall success of directed credit programs, their use was not cost free. Major costs of the programs were the underdevelopment of the financial system, the overborrowing of large firms, the concentration of economic power and the legacy of substantial amounts of nonperforming loans. The relative importance of credit policies has declined in recent years and their emphasis has been re-directed toward small firms in a belated attempt to rebalance the structure of Korean idustry and of the Korean economy more generally.

Equity markets, transaction costs, and capital accumulation

Abstract: There is a close, if imperfect, relationship between the effectiveness of an economy's capital markets and its level (or rate of growth) of real development. This may be because financial markets provide liquidity, promote the sharing of information, or permit agents to specialize. There is literature about how these functions help increase real activity, but surprisingly little literature predicting how the volume of activity in financial markets relates to the level or efficiency of an economy's productive activity. The authors address this question: how does the efficiency of an economy's equity market -- as measured by transaction costs -- affect its efficiency in producing physical capital and, through this channel, final goods and services? The answer: As the efficiency of an economy's capital markets increases (that is, as the transaction costs fall), the general effect is to cause agents to make longer-term -- hence, more transction-intensive -- investments. The result is a higher rate of return on savings and a change in its composition. These general equilibrium effects on the composition of savings cause agents to hold more of their wealth in the form of existing equity claims and to invest less in the initiation of new capital investments. As a result, a reduction in transaction costs can cause the capital stock either to rise or fall (under scenarios described in the paper). Further, a reduction in transaction costs will typically alter the composition of saving and investment, and any analysis of the consequences of such changes must take those effects into account.

The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock

Abstract: This paper analyzes the effect of outbound foreign direct investment (FDI) on the domestic capital stock. The first part of the paper shows that only about 20 percent of the value of assets owned by U.S. affiliates abroad is financed by cross-border flows of capital from the United States. An additional 18 per cent represents retained earnings attributable to U.S. investors. The rest is financed locally by foreign debt and equity. The second part of the paper analyzes data for the major industrial countries of the OECD and finds that each dollar of cross- border flow of foreign direct investment reduces domestic investment by approximately one dollar. This dollar for dollar displacement of domestic investment by outbound FDI is consistent with the Feldstein-Horioka picture of segmented capital markets. It suggests that while portfolio funds are largely segmented into national capital markets, direct investment can achieve cross-border capital flows. A dollar outflow of direct investment reduces domestic investment by a dollar and this is not offset by a change in international portfolio investment. This ability of foreign direct investment to circumvent the segmented national capital markets also appears in the expanded use of foreign debt and equity capital to finance the capital accumulation of foreign affiliates of U.S. firms. Taken together, these estimates suggest that each dollar of foreign assets acquired by U.S. foreign affiliates reduces the U.S. domestic capital stock by between 20 cents and 38 cents.

Macroeconomic policies and growth

Abstract: While economic theory is largely mute on the question of whether macroeconomic policies affect long-run growth, an examination of the experience of different countries over various periods and the policies they pursued, lends strong support to the idea that macro policies do play a role in the growth process. A macroeconomic policy framework conducive to growth can be characterised by five features: a low and predictable inflation rate; an appropriate real interest rate; a stable and sustainable fiscal policy; a competitive and predictable real exchange rate; and a balance of payments that is regarded as viable. Countries with these macroeconomic characteristics tend to grow faster than those without them, though there are many individual cases of both developing and developed countries suggesting that satisfying only some of these conditions does not sustain strong growth. It is also important to recognise that the direction of causation is somewhat ambiguous: while good macro outcomes should be conducive to growth, strong growth is also conducive to good macroeconomic outcomes. The paper presents a wide-ranging examination of both theoretical and empirical evidence on the many ways macroeconomic policies may influence economic growth. Given monetary policy’s crucial role in determining the inflation rate in the longer run, there is a particular emphasis on the relationship between inflation and growth. The following five broad conclusions are drawn. First, although growth models assign a major role to capital accumulation, there is little evidence that aggregate investment yields excess returns, and so special policy incentives to boost aggregate investment appear inappropriate. Second, countries with low national saving invest less and grow more slowly than they would if saving were higher. Ultimately, the extent to which a country can rely on foreign savings to fund domestic investment and growth depends on the rate of capital inflow the market accepts as sustainable. For Australia, with abundant natural resources and a stable political environment, this may be higher than for many other capital importing countries. Third, declining national saving rates in many industrial countries are primarily a consequence of lower government saving, suggesting a need for reduced fiscal deficits. In Australia, however, private savings have also fallen substantially, suggesting a possible role for specific incentives to boost private savings. Fourth, when economies are near potential, short-run rises in output seem to be more inflationary than falls in output are disinflationary. This implies that macroeconomic policy acting pre-emptively to counter expected future demand pressures and quickly mitigating the effects of unexpected shocks has a positive effect on the level of output, compared with a more hesitant approach acting only when demand pressures have appeared. Further, provided inflation is kept close to its target in the medium term, policy which tolerates some short-term deviations of inflation from its target reduces fluctuations in real output and generates a higher long-run output level than a policy with the sole goal of keeping inflation close to its target. Finally, although most economists believe even moderate rates of inflation adversely affect growth, unambiguous evidence has been difficult to come by. There is still professional disagreement on the robustness of the empirical evidence, but it does appear that higher inflation, and the associated increased uncertainty about future inflation, adversely affects growth in the industrial countries. The gains from lower inflation appear to exceed the initial costs of reducing inflation within about a decade.

The Macroeconomics of Capital Flows to Latin America: Experience and Policy Issues

Abstract: This paper reviews recent experience with international capital flows in Latin America, and discusses the policy issues that surround them. The paper is predicated on three basic premises. Capital flows to the region are an important source of macroeconomic disturbance. Also, capital flows are very volatile. Large fluctuations in these flows are due in substantial part to factors external to Latin America. In addition, the fluctuations require a policy response. Policy should respond to sudden inflows or outflows of capital.

Rethinking the international division of labour in the context of globalisation

Abstract: constrains all regions and states to adjust to transnational capital. The global transformation now underway not only slices across former divisions of labour and geographically reorganises economic activities, but also limits state autonomy and infringes sovereignty. In a notable attempt to explain vast changes in the global political economy, Karl Polanyi held that the socially disruptive and polarising tendencies in the world economy were generated by what he called a self-regulating market, not a spontaneous phenomenon but the result of coercive power in the service of a utopian idea.' He traced the tendencies in the world economy that caused the conjuncture of the 1930s and produced-out of a breakdown in liberal-economic structures-the onset of depression, fascism, unemployment and resurgent nationalism, collectively a partial negation of economic globalisation, leading to world war. Like the global economy of the 1930s, the contemporary globalisation process represents unprecedented market expansion accompanied by widespread structural disruptions. While escalating at a world level, globalisation must be regarded as problematic, incomplete and contradictory-issues to be taken up below. By globalisation, I mean the compression of the time and space aspects of social relations, a phenomenon that allows the economy, politics and culture of one country to penetrate another.2 A hybrid system, globalisation intensifies interactions among, and simultaneously undermines, nation states. Although globalisation is frequently characterised as a homogenising force, it fuses with local conditions in diverse ways, thereby generating, not eroding, striking differences among social formations. Fundamentally an outgrowth of the bedrock of capital accumulation, this structure embraces and yet differs in

Foreign Direct Investment in the World Economy

Abstract: The role of foreign direct investment (FDI) in international capital flows is examined. Theories of the determinants of FDI are surveyed, and the economic consequences of FDI for both host (recipient) and home (investor) nations are examined in light of empirical studies. Policy issues surrounding possible negotiation of a “multilateral agreement on investment” are discussed.

Endogenous Growth and Poverty Traps in a Cournotian Model

Abstract: We analyze the implications for the dynamics of capital accumulation of market power and endogenous demand elasticities, in an environment in which the latter are affected by the number of competitors in each industry. In equilibrium the interest rate increases as capital accumulates, even though the marginal product of capital is constant. Under standard assumptions two steady states and a balanced growth path exist, and the possibility of multiple equilibrium paths (for given initial conditions) arises. The latter feature is argued to match several empirical observations.

Bringing Capital Accumulation Back In: The Weapondollar-Petrodollar Coalition – Military Contractors, Oil Companies and Middle-East "Energy Conflicts"

Abstract: This paper offers an alternative approach to the repeated occurrence of Middle East “energy conflicts.” Our analysis centres around the process of differential capital accumulation, emphasizing the quest to exceed the “normal rate of return” and to expands one's share in the overall flow of profit. With the evolution of modern capitalism, the dictates of differential accumulation become an ever stronger unifying force, drawing both state managers and corporate executives into increasingly inextricable power driven alliances. The Middle East drama of oil and arms since the 1970s has been greatly affected by this process. On the one hand, rising nationalism and intensified industry competition during the 1950s and 1960s forced the major oil companies toward a greater cooperation with the OPEC countries. The success of this alliance was contingent on the new atmosphere of “scarcity” and oil crisis, which was in turn dependent on the progressive militarization of the Middle East. On the other side of the oil arms equation stood the large U.S. and European based military contractors which, faced with heightened global competition in civilian markets and limited defense contracts at home, increased their reliance on arms exports to oil rich countries. Over the past quarter century, the progressive politicization of the oil business, together with the growing commercialization of arms transfers helped shape an uneasy Weapondollar Petrodollar Coalition between the principal military contractors and petroleum companies. As their environment became intertwined with the broader political realignment of OPEC and the industrial countries, the differential profits of these companies grew evermore dependent on the precarious interaction between rising oil prices and expanding arms exports emanating from successive Middle East “energy conflicts.” At the same time, these companies were not passive bystanders. This is suggested firstly by the very close correlation existing between their arms deliveries to the Middle East and the region's oil revenues and, secondly, by the fact that every single “energy conflict” since the 1967 Arab Israeli War could have been predicted solely by adverse setbacks to the differential profit performance of the large oil companies!

Learning, Capital Accumulation, and the Transformation of California Agriculture

Abstract: Between 1890 and 1914, California agriculture rapidly shifted from extensive to intensive crops, emerging as one of the world's major suppliers of Mediterranean products. Based on an analysis of new data on price and quantity movements, this article calls into question the traditional emphasis on changes in transportation, water, and labor market conditions as explanations for California's transformation. It argues that increases in fruit supply outpaced increases in demand and that declining farm interest rates and biological learning played crucial, if relatively neglected, roles in the intensification process.

Assessing the Dynamic Efficiency Gains of Tax Reform When Human Capital Is Endogenous

Abstract: This paper develops a life-cycle growth model with endogenous human capital accumulation and variable leisure, which is employed to simulate dynamic equal-yield changes from an income tax to a consumption tax. Although endogenizing human capital investment decisions raises partial-equilibrium estimates of the efficiency costs of capital income taxation, general-equilibrium welfare impacts of unanticipated tax changes are little affected by the inclusion of endogenous human capital. This finding cannot be fully explained by the presence of general-equilibrium adjustments in factor prices and can be attributed in part to the existence of transitional rigidities in capital stocks. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Monetary Policy, Overlapping Generations, and Patterns of Growth

Abstract: This paper investigates the role of monetary policy in economic growth. Using an infinitely lived overlapping-generations model with a simple convex technology that can yield endo- genous growth, we show that money supply behaviour of the government may have significant effects on the long-run economic growth. In addition to the effect on the long-term growth rate of the economy, the policy may determine whether the economy stays in the exogenous growth process restricted by the growth rate of labour supply, or realizes the endogenous growth that sustains continuous growth of pep capita income and consumption. effect of inflation on capital accumulation has been one of the central topics in macroeconomics. Using an ad hoc model, Tobin shows that a rise in the rate of inflation deepens capital formation, whereas Sidrauski presents an opti- mizing model in which money is superneutral; that is, inflation has no effect on capital formation in the long run. These studies have been extended by a number of studies such as Dornbusch and Frenkel (1973) and Wang and Yip (1992). However, the concern of these studies is restricted to the analysis of the level effect of inflation on capital accumulation. Recent developments in endogenous growth theory present a useful analytical framework for re-examin- ing the effect of inflation on capital accumulation and economic growth. In contrast to the strong emphasis on the importance of fiscal policy for long-run economic growth seen in Mino (1989), Barro (1990) and King and Rebelo (1990), the role of monetary policy has been mostly ignored in the endogenous growth literature. Recalling that the effect of money growth on capital formation has been the central issue in money and growth literature, it is rather curious that recent studies on endogenous economic growth focus exclusively on the real side of the economy. There is, however, a small number of authors investigating the role of money in endogenously growing economies. Marquis and Reffet (1991) and Mino (1991) introduce money into two-sector models involving human capital accumulation via a cash-in-advance constraint. They conclude that an increase in the rate of nominal money supply (generally) depresses the long-term economic growth, as long as the cash-in-advance con- straint applies to investment demand for either physical or human capital.' Wang and Yip (1991) extend the Uzawa-Lucas model of endogenous growth by assuming that households allocate their available time between production, transaction and human capital formation. The transaction time is assumed to be a decreasing function of real-money balances, and therefore a reduction in real balances arising from an increase in the monetary expansion rate increases c? The London School of Economics and Political Science 1995

Foreign capital flows in the century of Britain's industrial revolution: new estimates, controlled conjectures

Abstract: In the traditional history of the British industrial revolution, much emphasis has been placed on the role of saving in capital formation. The theories emphasizing the role of saving are based on the premise that saving was the only way to finance investment; the literature has omitted foreign sources of investment. Therefore, many controversies regarding the industrial revolution omit the role of capital flows: the arguments about Rostow's take-off are based on the rise in the domestic saving rate;2 the debate on constraints on the rate of capital accumulation is linked to the relation between saving and investment; and Williamson's argument on crowding out is based on asserting that 'saving significantly constrained British accumulation'.3 However, in an open economy, net flows of capital provide finance for investment in addition to domestic saving. Crafts has emphasized that this way of financing capital formation during the first stages of industrial development is unique: 'countries with the same per capita income as Britain in the eighteenth century were experiencing a considerable inflow of capital'.4 Indeed, development economists have long shown the importance of foreign capital in the industrialization and development process: 'external borrowing is a normal feature of the development strategies of many countries' 5 Britain's unique way of financing its capital formation was assumed rather than proved. The assumption that domestic saving was equated with domestic investment is puzzling since the flow of capital from Holland to Great Britain, particularly in the second half of the eighteenth century, is

Urbanization, Technological Progress, and Economic History

Abstract: It has become customary among economic historians to distinguish four different sources of economic growth (see, for example, Mokyr, 1990, for an exposition). Although these sources are interconnected in many ways and usually occur simultaneously, they are separable at least in the sense that conceivably we could observe one without the others. The four “horsemen of economic growth” are the gains from trade and specialization (also known as Smithian growth after Parker, 1984), technological change, capital accumulation, and efficiency growth due to changes in the internal allocation of resources.

Do taxes on large firms impede growth? evidence from ghana

Abstract: Many developing countries pursue policies that treat large and small firms differently. For example, large firms may be subject to a value added tax while small firms are explicitly exempted. Moreover, governments often find it impractical to collect taxes from the smallest enterprises; this may increase the tax burden for larger firms, whose compliance can be enforced. Such policies clearly affect the size distribution of firms. But how great is the impact on macro variables? How large are the resulting inefficiencies? And what are the dynamic effects on capital accumulation and economic growth? This paper uses a dynamic general equilibrium variant of the Lucas (1978) span-of-control model to address such questions. The model is matched to data from the Ghanaian manufacturing sector. As a policy experiment, alternative tax and regulatory regimes are compared. The model shows that a policy disproportionately penalizing large firms can reduce output by nearly one-half, compared with an alternative policy regime in which all firms face the same taxes and regulatory costs.