Capital accumulation

About: Capital accumulation is a research topic. Over the lifetime, 9175 publications have been published within this topic receiving 315766 citations.

Economic Development with Unlimited Supplies of Labour

Abstract: Written in the classical tradition this essay attempts to determine what can be made of the classical framework in solving problems of distribution accumulation and growth first in a closed and then in an open economy. The purpose is to bring the framework of individual writers up to date in the light of modern knowledge and to see if it helps facilitate an understanding of the contemporary problems of large areas of the earth. The 1st task is to elaborate the assumption of an unlimited labor supply and by establishing that it is a useful assumption. The objective is merely to elaborate a different framework for those countries which the neoclassical (and Keynesian) assumptions do not fit. In the 1st place an unlimited supply of labor may be said to exist in those countries where population is so large relative to capital and natural resources that there are large sectors of the economy where the marginal productivity of labor is negligible zero or even negative. Several writers have drawn attention to the existence of such "disguised" unemployment in the agricultural sector. If unlimited labor is available while capital is scarce it is known from the Law of Variable Proportions that the capital should not be spread thinly over all the labor. Only so much labor should be used with capital as will reduce the marginal productivity of labor to zero. The key to the process of economic expansion is the use that is made of the capitalist surplus. In so far as this is reinvested in creating new capital the capital sector expands taking more people into capitalist employment out of the subsistence sector. The surplus is then larger still and capital formation is still greater and so the process continues until the labor surplus disappears. The central problem in the theory of economic development is to understand the process by which a community which was previously saving and investing 4 or 5% of its national income or less converts itself into an economy where voluntary saving is running at about 12-15% of national income or more. This is the crucial problem because the central fact of economic development is rapid capital accumulation (including knowledge and skills with capital). Much of the plausible explanation is that people save more because they have more to save. The model used here states that if unlimited supplies of labor are available at a constant real wage and if any part of profits is reinvested in productive capacity profits will grow continuously relative to the national income and capital formation will also grow relatively to the national income. As capitalists also create capital as a result of a net increase in the supply of money particularly bank credit it is necessary to take account of this. Governments affect the process of capital accumulation in many ways and not least by the inflations which they experience. The expansion of the capitalist sector may be stopped because the price of subsistence goods rises or because the price is not falling as fast as subsistence productivity per head is rising or because capitalist workers raise their subsistence standards.

Why Do Some Countries Produce so Much More Output Per Worker than Others

Abstract: Output per worker varies enormously across countries. Why? On an accounting basis, our analysis shows that differences in physical capital and educational attainment can only partially explain the variation in output per worker--we find a large amount of variation in the level of the Solow residual across countries. At a deeper level, we document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure. We treat social infrastructure as endogenous, determined historically by location and other factors captured in part by language.

Innovation and growth in the global economy

Abstract: Traditional growth theory emphasizes the incentives for capital accumulation rather than technological progress. Innovation is treated as an exogenous process or a by-product of investment in machinery and equipment. Grossman and Helpman develop a unique approach in which innovation is viewed as a deliberate outgrowth of investments in industrial research by forward-looking, profit-seeking agents.

Why do Some Countries Produce So Much More Output Per Worker than Others

Abstract: Output per worker varies enormously across countries. Why? On an accounting basis our analysis shows that differences in physical capital and educational attainment can only partially explain the variation in output per worker—we find a large amount of variation in the level of the Solow residual across countries. At a deeper level, we document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure. We treat social infrastructure as endogenous, determined historically by location and other factors captured in part by language. In 1988 output per worker in the United States was more than 35 times higher than output per worker in Niger. In just over ten days the average worker in the United States produced as much as an average worker in Niger produced in an entire year. Explaining such vast differences in economic performance is one of the fundamental challenges of economics. Analysis based on an aggregate production function provides some insight into these differences, an approach taken by Mankiw, Romer, and Weil [1992] and Dougherty and Jorgenson [1996], among others. Differences among countries can be attributed to differences in human capital, physical capital, and productivity. Building on their analysis, our results suggest that differences in each element of the production function are important. In particular, however, our results emphasize the key role played by productivity. For example, consider the 35-fold difference in output per worker between the United States and Niger. Different capital intensities in the two countries contributed a factor of 1.5 to the income differences, while different levels of educational attainment contributed a factor of 3.1. The remaining difference—a factor of 7.7—remains as the productivity residual. * A previous version of this paper was circulated under the title ‘‘The Productivity of Nations.’’ This research was supported by the Center for Economic Policy Research at Stanford and by the National Science Foundation under grants SBR-9410039 (Hall) and SBR-9510916 (Jones) and is part of the National Bureau of Economic Research’s program on Economic Fluctuations and Growth. We thank Bobby Sinclair for excellent research assistance and colleagues too numerous to list for an outpouring of helpful commentary. Data used in the paper are available online from http://www.stanford.edu/,chadj.