Showing papers on "Capital deepening published in 1976"

Foreign Capital, Savings and Dependence

Abstract: THE recent focus of radical economists such as Thomas Weisskopf (1972) and Keith Griffin (1970) on the possible reduction in domestic savings caused by aid inflow has raised an important issue: How much does this matter?' A characteristic answer by orthodox economists would be that increased current consumption is also welfare-improving. Hence, the evidence of reduced domestic savings following on the influx of foreign capital -or, what is the same thing, the evidence that aid is only partially used for investment -may be dismissed as interesting but irrelevant to the discussion of the benefits of aid programmes.2 But, while the radical economists have not systematically spelled out an argument to sustain the thesis that a reduction of domestic savings by foreign capital is harmful, it is clear that their concern arises from the notion of "dependence": in particular, that reduced savings would somehow increase dependence on the aid-giving country (which is likely to be part of the "imperialist" or the "social-revisionist" bloc). This "dependence" argument can indeed be formalised. Take a typical Harrod-Domar type model and define the capital-recipient country's objective as reaching a Millikan-RosensteinRodan-Rostow self-reliant growth rate by raising its domestic savings rate to a target level. The radical case can then be constructed by examining whether, in reducing domestic savings, an influx of foreign capital postpones, or renders infeasible, the reaching of self-reliance. (Needless to say, "dependence" can only be one dimension out of many that would enter a complete social welfare function; but it is certainly one that has to be formalised, as here, before it can be usefully discussed.) Two things are clear as soon as the problem of "dependence" is defined in this way. First, whether capital inflow creates dependence will depend on the assumed parameters of the model as well as the targeted level of the savings rate and the time by which it must be achieved. Contrary to the radical notions, an aid programme may achieve a targeted increase in the savings rate earlier than in the absence of aid, or may make an infeasible target a feasible one. Second, it is therefore useful to take estimates of the parameters involved and to examine simulation runs to see whether the radical concerns are worth bothering about. It is our intention to derive the logical implications of such savings behavior in a dynamic framework to see where it can lead. This paper constructs a simple version of the Harrod-Domar model and discusses the simulation runs of savings and the savings ratio, with and without aid, for a number of less developed countries (LDCs). These countries are those for which Weisskopf (1972) has fitted savings functions, using time series analysis, so that we have had to add only plausible Received for publication March 19, 1975. Revision accepted for publication November 10, 1975. * The research underlying this paper was financed by the National Science Foundation. The facilities provided by the Institute for International Economic Studies, Stockholm, are also gratefully acknowledged. A companion paper by Bhagwati and Grinols (1975) which examines a different argument linking foreign capital inflow to dependence and hence to the feasibility of transition to socialism has been published separately in the Journal of Development Economics. 1 The precise line of arguments developed below may be considered to be implicit in the concerns and writings of the radical economists, though we have not seen them carefully developed and stated. The focus in many of the radical writings is rather on the inadequacy of the early aid-requirements estimates, where the analyst assumed a Harrod-Domar model and a realistic capital-output ratio, fixed a target rate of growth to get a target rate of investment, then made a Keynesian savings assumption and came out with the estimate of aid or capital inflow required to fill the gap between the required investment and the available domestic savings. This method, along with alternative approaches, is reviewed in Bhagwati (1971). If the aid inflow itself affects domestic savings, the model is clearly specified incorrectly. To be fair, however, to the economists (such as Rosenstein-Rodan) who used the approach being criticised, they thought of the Keynesian domestic savings function as one which the economy would adhere to (via tax effort, for example) as part of its "matching effort" while receiving the capital inflow, so that it was a "policy" function rather than a "behavioral" function as implied by the radical writings. 2 Following this line of argument, the radicals should focus on the distribution of benefits from additional consumption instead of on whether such additional consumption follows on the capital inflow.

Capital subsidies and unemployed labour, a regional production function approach

Abstract: Buck T. W. and Atkins M. H. (1976) Capital subsidies and unemployed labour, a regional production function approach, Reg, Studies 10, 215–222. Capital subsidies are employed by all developed economies to alleviate regional unemployment and other disparities, but one of their effects may be to induce capital intensity through a substitution effect against labour. Estimates of the elasticity of substitution and other evidence suggests that this has indeed been the case in British development areas as a consequence of regional subsidies with a capital bias. A subsidy on additional employment creation is proposed as an alternative to investment subsidies which offers the same benefits but avoids substitution effects against labour. The administrative implications of such a scheme are considered.

On the measurement of capital-intensity

Abstract: problem of the choice of technique in less developed countries has featured prominently in the literature on economic development1. This paper shows that despite such interest attempts to measure capital-intensity still leave much to be desired and argues that a modified capital-labour ratio, with capital adjusted for utilization and labour to refer to the number of production workers on the biggest shift, is the theoretically most suitable measure of capital-intensity.

Human capital production: life-cycle production with different learning technologies

Abstract: This paper investigates the human capital formation process when the learning situation is not neutral but is instead biased either to the market or to the production process. In the case of a production bias, human capital is more productive when generating additional human capital than when generating market activity. In the case of a market bias, the reverse holds. Implications from the model are used to explain the occurrence of different shaped earnings profiles of equal net present value as well as income profiles of unequal present value.

Der Wicksell-Effekt im prozeβablauf: Zum zusammenhang zwischen umwertung und einkommensverteilung

Abstract: The Wickseil Effect in a flow analysis: On the Relation between Revaluation and Income Distribution. — Based on a neo-classical model it is shown that the Wicksell effect, i.e. the divergence between the marginal productivity of capital and the interest rate, can be attributed to arevaluation of the capital stock, which occurs during capital accumulation. Revaluation is the result of a change in the wage rate — interest rate relationship brought about by differences in factor intensity. Such a development is — under constant production techniques and given production functions — inevitable when the capital stock changes.

Measurement of capital in denmark

Abstract: In December 1973, the so-called 2nd Perspective Plan was published by the Danish Ministry of Finance. It included some 5 and 15 year forecasts of investments in the private sector, based on the projected development of production and labour. The forecasts were made by use of a simple Cobb-Douglas production function, taking as capital-input the stock of buildings and machinery, using the perpetual inventory method (assuming sudden death). Since the publication of these forecasts, an attempt has been made to refine the capital concept, measuring its services as factor input. Thus, it has been necessary to introduce an exogenous rate of interest. Inspired by Danish findings for private cars, depreciation functions for stocks and utility of machinery are developed. These functions may not seem very realistic for the heterogenous class of durables called machinery, but other possibilities appear even less convincing. Together with an assumption of exponential decay for buildings, it is possible to produce alternative time-series for changes in input of capital in the production process. Some of the resulting estimates of parameters in the Cobb-Douglas function give a better fit than the original version. But no value of the elasticity of production of capital is firmly established, e.g. it is obviously dependant upon the period of estimation, and therefore of no great value in forecasting. No firm connection between labour productivity and capital input (in short as well as the long run) has so far been revealed in Denmark, so no measure of capital is yet of great use in forecasting, except when future growth in production resembles that of the past fairly closely.

Evaluating the Effectiveness of Capital Investment in the Tourist Industry

Abstract: The determination of the economic effectiveness of capital investment in the tourist industry is part of the general problem of determining the effectiveness of one-time expenditures. Under present conditions, in a number of instances such an indicator as the relationship between inputs and outputs proves to be insufficient as a criterion of effectiveness of capital investments: for example, in the solution of the socially important problem of preserving the environment.

The economic effect of age and education on the regional flows of Black human capital

Abstract: This paper quantifies and analyzes the flow of human capital caused by the migration of Blacks within the U.S. over time. Detailed characteristics of migration flows for Blacks moving in and out of each of the nine divisions in the U. S. were determined and multiplied by the appropriate value of human capital (discounted earnings approach). These flows were then summed to determine the aggregate inter-regional flows of Black human capital. The effects of age and education on these flows are analyzed as are the probable effects of such flows on regional economic growth.

The Energy Industry and the Capital Market

Abstract: This study develops the possible funding needs of the domestic energy industries through 1990 and projects a possible parallel development of the U.S. capital. The total capital needs of the energy industry through 1990 are estimated to be about $790 billion. Of this amount some $423 billion are likely to be generated internally, while $367 billion will be raised externally. The total availability in the capital markets from 1975 through 1990 will probably reach $1685 billion. On this basis the energy industry will require only 21.7 percent of that supply. From the early 1960s on there is a gradual increase in yearly dedications of capital to energy, reflecting the underlying movement toward a more electric-oriented economy that is fundamentally less efficient. It is also indicative of our moving away from cheaper sources of energy as they are depleted and into other long-range supplies that are even more capital-intensive. Of major importance to these conclusions, however, is the problem of whether the energy industry can command its historic share of capital. This study only indicates that the market will be capable of supplying the required funding. The ability of industry to obtain its share of the market is dependent on industry's more » attractiveness to the investing groups that compose that market. At the present time the Federal government, and many state and local governments, are promoting policies, laws, and regulations that impede the ability of the energy industry to generate enough profits to be attractive in the capital markets. If this punitive attitude is maintained, the present stress in our energy structure will turn into an overwhelming crisis as industry strangles under the resulting curtailment of its supply of capital. (MCW) « less

A One-product Dynamic Model of the Economy Taking into Account the Change in the Structure of Capital under Technological Progress

Abstract: We consider an economic system in which one product is produced a part of which is used for consumption and a part of which is used to increase the basic capital stock and circulating capital [1].

On the Demand for Economic Growth and the Supply of All Inclusive Capital

Abstract: In this paper we investigate whether and in what sense there is an equilibrium rate of economic growth. Given an ongoing expansion of productive possibilities arising from technical progress, we proceed to examine the implicit demand for growth opportunities 5 its reflection in the supply of capital consisting of all forms, and the determination of a net, or equilibrium rate of increase in per capita income as a joint outcome of supply and demand for growth. Disciplines Business Administration, Management, and Operations | Economic Theory | Growth and Development This report is available at Iowa State University Digital Repository: http://lib.dr.iastate.edu/econ_las_staffpapers/145 July 8, 1976 — Preliminary, Comments welcome; not for quotation. On the Demand for Economic Grovrth and the Supply of All Inclusive Capital