Showing papers on "Capital deepening published in 1972"

An optimal growth model with time lags

Abstract: The paper discusses the allocation of output among consumption and two types of capital with different gestation periods. Along an optimal path, we show that the imputed prices of capital goods, from the time they start production, do not exceed the prices of output, which are not less than the marginal instantaneous utility of consumption. A simple numerical example helps to illustrate some further implications of the model. RECENT PAPERS on optimal growth consider models of allocation of resources between consumption and investment. It is invariably assumed that investment results in an instantaneous increase in the stock of capital. Such assumptions obscure differences in the gestation periods among various capital goods. In [1] we discuss how a growth problem with time lags can be formulated and interpreted and explain the derivation of the necessary conditions for optimization. In this note we study the effects of differences in gestation periods on optimal investment plans for a growth problem including depreciation and population growth. Consider an economy where two capital goods and labor are used in the production of a single commodity. The per capita output at time t is given by the production function: f (kl, k2), where k, is the per capita stock of capital of type one, and k2 is the per capita stock of capital of type two. From now on, all variables will be per capita and we drop the designation. We assume the following:

Optimum Investment in Human Capital

Abstract: Recent empirical studies (Schultz [8] and [9]) show that an accumulation of knowledge contributes much more to the growth of per capita income than does an increase in the capital-labour ratio. Major parts of the increase in productivity come from investment in human capital and learning by doing. While the learning-by-doing theory has been well formulated (Arrow [1]), there is no theoretical formulation of the link between productivity change and human investment. The purpose of this paper is to provide such a discussion by incorporating the theory of investment in human capital (Becker [2], Ben-Porath [3]) into a model of economic growth. It is shown that for a simple form of a return-to-labour function the existence of nonHarrod-neutral technical change, when it is the result of investment in human capital, is a source of externality. A general result which relates the form of the return-to-labour function to the form that technical progress must take if externalities are to be avoided is then established.

Investment priorities in soviet regions

Abstract: The rate of capital return and marginal capital product in Soviet industry are estimated by geographic areas to discover whether the regional allocation of investment, particularly industrial capital, in the 1960s was guided by considerations of capital and labor productivity or by other motives. The underindustrialized western regions, where capital and labor productivity are satisfactory or high, have been slighted in favor of more easterly provinces. Regional investment allocation in recent years has been a subject of considerable disagreement. Proposals for regional specialization and large-scale projects for the exploitation of natural resources tend to divide Soviet scholars into pro-Siberian and pro-European factions.

Impact of property rights in human capital on regional factor proportions

Abstract: Although the case for treating human capital as a productive factor is clear, its introduction presents complications since ownership of (or property rights in) human capital cannot be separated from the ownership of (or property rights in) labor itself. Consider a two-region economy. When labor moves in response to economic differentials, human capital also moves. This may have the effect of necessitating a revision in the standard theoretical conclusion that with more than two factors of production, factor rewards and factor proportions will be equalized between the regions. This theoretical model demonstrates that an equilibrium will be achieved in which both the capital/labor ratios and the quantity of investment per worker in human capital differ from one another by precisely the amount necessary to produce the same return to capital in both regions as well as an equalization of the total wage rates which represent the combined return to both labor and human capital

Soviet Postwar Economic Growth and Capital-Labor Substitution: Comment

Abstract: In a recent article in this Review, Martin Weitzman argued that the observable slowdown in the growth of output (gy) of the Soviet economy in the 1960's need not be associated with a fall in the growth of total factor productivity (ga), as is usually suggested, but rather can be better shown to be a manifestation of diminishing returns to capital. By directly estimating a Constant Elasticity of Substitution (CES) production function' for the two decades following World War II, he found an elasticity of substitution of capital for labor (o-) significantly less than one. From this he concluded that the slowdown in the growth of that economy could largely be explained in terms of the diminishing returns to capital which resulted from the small substitutability between capital and labor and rapidly increasing overall capital deepening in the economy. Weitzman concluded that "Instead of capital, labor and technical change will have to be increasingly relied upon as alternative sources of future economic growth" (p. 685); and [that due to demographic trends] "This rests the spotlight finally on technical change . .. the most appealing way of raising g, is now to increase ga . . . because gL iS more or less fixed . .. ." (p. 686). We should like to advance the proposition that the record of growth of the Soviet economy during the 1950's and 1960's (as presented in Weitzman's Table 1, p. 677) points to aspects of the underlying Soviet macro-production process other than the small elasticity of substitution as possibly the kev culprits effecting the noted slowdown in g,. Furthermore it is suggested that perhaps the "most appealing" way of raising g, may after all be not through the overall productivity relationship A (or ga), but rather through the term slighted by Weitzmanthe growth rate of the labor force gL. We fit the data in Weitzman's Table 1 to a maximum likelihood, non-linear regression program,2 similar to that used by Weitzman. A more general model was employed which imposed neither a geometric time trend, nor unitary returns to scale on the data. The specification used was:

Thrift, economic life of capital, and productivity in a model with heterogeneous capital

Abstract: I THE basic steady-growth properties of a two-sector linear production model in which commodities are produced by means of commodities, have been analysed in a recent issue of this journal1 More results, however, can be obtained from the same kind of model By allowing for embodied technical progress and ex-post rigidity of factors proportions, it is in fact possible to show that the variation in the economic life of capital provides an additional element of adjustability which can be incorporated in a Walrasian-type model without any basic change in its structure Such an analytical framework is particularly useful for a comparative dynamics analysis of models with heterogeneous capital, and for a comparison with the results obtained from models where, more or less explicitly, capital is conceived as a magnitude homogeneous with the product Following this line, this paper takes up the problem of the relation between thrift, the economic life of capital, and productivity: a relation which, as is well known, is at the heart of most of the comparative dynamics propositions recently derived from vintage-capital models2 The setting of the analysis is a full-employment, steady-growth vintage model, with production taking place under a fixed coefficients technology3 and in presence of exogenous, embodied, Harrod-neutral technical

Notes on foreign capital and latin america

Abstract: Publisher Summary This chapter presents notes on foreign capital and Latin America. A primary assumption states that the income level characterizing developing countries does not allow an investment margin large enough to warrant sustained and rapid development. The introduction of reforms that involve changes in the economic system often discourages the inflow of foreign, particularly private capital. A similar volume of national savings will have an impact upon national product substantially greater than a similar volume of foreign capital. The development loans also have the character of balance-of-payments loans in order to be used effectively by the recipient country. There are well-defined areas where it is possible to complement the internal effort with foreign capital and there also exist clearly identified cases in which it is not desirable to resort to foreign capital. The existence of a greater market free from tariff barriers offers a temptation to foreign investment, especially for more dynamic industries of a regional character.

Factors of Production: Labour, Capital and Management

Abstract: Traditionally the factors of production were considered to be land, capital and labour. Land was an obvious factor in the age of agriculture, but its significance is much less in an industrial economy. The land on which a factory is erected plays a wholly passive role, and in the USSR until recently it was totally ignored as a factor, since not even rent was paid for it. Modern economists sometimes substitute ‘natural resources’ for ‘land’, which widens the concept considerably. Land is fixed and cannot be imported or exported, but natural resources can be brought in from other countries; land can be used as it is, resources have to be developed. It is more common today to confine attention to capital and labour, although management is often regarded as a third factor. Education and technology also qualify in some classifications, but education may be regarded as an aspect of labour, and technology as an aspect of capital. Education improves the quality of the labour force and technology increases the productivity of capital.