Showing papers on "Capital deepening published in 1968"

Relative Effects of Foreign Capital and Larger Exports on Economic Development

Abstract: We do not find the relatively large prediction errors for all the regressions tested in 1965-IV surprising since the HWI rose an unprecedented 40 points from 1965-III to 1966-1, and other measures Rfi p1a1tSin., kbt, 1,,zr -nkaA,t,q npont,d t.0njrwor heating. In this same period, the nonfarm job openings series of the Bureau of Employment Security also increased dramatically, as did new hires in manufacturing. (Possibly there is a greater impact of the industrial cycle on the nonindustrial job market than has been previously recognized.) Moreover, the build-up of conventional type arms for Vietnam which got underway at the same time resulted in a shift of procurements from the West Coast to the Great Lakes and New England regions, which together have a heavier weight in the HWI.8 Tltis inip-esJing, tlit evem cru&de measures of tob vacancies may be quite sensitive indicators of pressures in the labor market. Certainly, job vacancy measures, when analyzed with care, deserve much more attention than they have received in the past.

The role of capital accumulation in economic development

Abstract: (1968). The role of capital accumulation in economic development. The Journal of Development Studies: Vol. 5, No. 1, pp. 39-43.

PRINClPLES IN THE VALUATION OF HUMAN CAPITAL

Abstract: Human capital concepts and measures have been applied and misapplied to an increasing variety of economic problem areas, two of which are examined. One of these is measurement of human capital gains and losses through migration. First requirements here are specification of the gaining or losing entities and of the relevant welfare functions. Alternatives in these respects are outlined. It is then argued that an appropriately adapted Fisherian present-value assessment of human capital is normally the correct measure. Replacement costs are a legitimate substitute only for young migrants with little cumulated learning through experience and even then they have usually been fallaciously applied. Probability adjustments for migration and re-migration are required in both cost and present-value assessments of human capital effects of migration-relevant policy alternatives, but the nature of those adjustments differs with the measurement approach used. For longitudinal analysis of contributions of human capital to economic growth, all measures of human capital stocks are inappropriate. A first principle of such analysis is measurement of resource inputs as flows. A coordinate principle requires that disaggregation be carried as far as necessary to distinguish essentially homogeneous categories of labor inputs. Though a way of separating out the schooling versus on-the-job-experience components of human capital is illustrated, it requires some strong assumptions. Splitting men into abstracted human capital components is better avoided in growth analysis. Furthermore, categorization of labor-force sub-groups could equally well provide the basis for rate-of-return assessments of marginal changes in the pace of investments in humans. Such assessments would incorporate the main elements of capital theory except valuation of the capital asset itself. Ultimately, human resource measurements for use in major public policy decisions relating to either growth or migration (or both) must incorporate modifications or error components that allow for development phenomena that elude marginal assessments. Among developing countries especially, a consideration of educational diffusion processes and dynamic productivity scale effects, for example, could have critical measurement and policy implications.

Capital Imports and Economic Growth: The Italian Experience, 1955-64

Abstract: Intellectual developments in economics in the past few decades have lessened our confidence in many once apparently unshakable "truths." As in other disciplines, analysis has questioned many relationships and has destroyed many beliefs once held to be axiomatic. The relationship between foreign investment and economic growth has suffered this fate. While it was once taken for granted that foreign investment promotes the economic growth of the recipient country, such connection is now to be proven, not assumed. H. Myint' and J. Knapp2 have described cases in which foreign capital formation made no contribution to economic development but was, so to speak, redundant. This paper examines the contribution of foreign investment to economic growth in Italy in the decade after 1955 in the light of these recent critical theories. I incidentally hope to clarify a controversy familiar to students of the Italian economy, i.e., whether easier money policies would have been possible and would have caused faster growth.

A critical evaluation of the role of the cost of capital as a risk-adjusted discount rate in the economic analysis of capital investments

Abstract: i i i This study consists of a c r i t i c a l evaluation of the r o l e of the cost of c a p i t a l as a "risk-adjusted" discount rate i n the economic analysis of c a p i t a l investments. In conventional theory, the cost of c a p i t a l i s formulated as a discount rate which serves as a f i n a n c i a l standard, i n accordance with one v a r i a t i o n or another of the following d e f i n i t i o n : The cost of c a p i t a l i s the minimum acceptable rate of return that a proposed investment i n r e a l assets must o f f e r i n order to be worthwhile undertaking from the stand-point of the current owners of the firm. Unfortunately, theorists have found i t d i f f i c u l t to incorporate a proper measure of r i s k into the s p e c i f i c a t i o n of the cost of c a p i t a l as a single-valued rate of discount. Ezra Solomon, among others, has avoided much of the d i f f i c u l t y by assuming that a l l projects to be evaluated are of a quality, i n respect to uncertainty of future earnings, which i s "homogeneous" with the q u a l i t y of earnings attributed to existing operations. The problem of dealing with investments of a q u a l i t y s i g n i f i cantly d i f f e r e n t from earnings from existing assets i s lar g e l y unresolved. This study consists of an analysis of the r e l a t i o n s h i p which should exist between a project's r i s k and the cost of c a p i t a l appropriate to i t s evaluation. The analysis rests upon several simplifying assumptions regarding the behavior of investors and c a p i t a l markets; and employs fo r i t s investigation two models of r i s k and valuation: The c l a s s i c a l certainty-equivalence model and John Lintner*s recently derived r i s k asset valuation and p o r t f o l i o selection model. In recognition of certai n weaknesses i n the conventiona l discounted cash flow approaches to c a p i t a l project evaluation, several theorists including David B. Hertz and Frederick S. H i l l i e r , have proposed that Monte Carlo Simulat i o n and a n a l y t i c a l s t a t i s t i c s methods be employed to account for r i s k by generating stochastic expressions f o r valuation indices. To the extent that the expression of p r o b a b i l i s t i c valuation indices depends upon a "risk-adjusted" cost of c a p i t a l discount rate, there exists the Inconsistency of "double accounting for r i s k ; " once i n the cost of c a p i t a l , and once again i n the stochastic expression of the indices themselves. This study assesses the relevance of the cost of c a p i t a l as a discount rate i n the generation of stochastic discounted cash flow indices. The investigation disclosed that: (1) the cost of c a p i t a l i s a derived variable consisting of a complex function of the r i s k f r e e rate of i n t e r e s t , and the expected values and r i s k parameters of earnings expectations of the firm, the project concerned, and s e c u r i t i e s comprising the market as