Showing papers on "Capital deepening published in 1987"
01 Sep 1987
TL;DR: The authors showed that the hypothesis of a high degree of substitutability for claims on physical capital located in different countries is not supported by the data, and that there is no more reason for this assumption to hold than for the assumption that all goods are perfect substitutes.
Abstract: The finding that countries' investment rates are highly correlated with their national saving rates has been confirmed by many studies. Our interpretation of the saving-investment evidence is that the hypothesis of a high degree of substitutability for claims on physical capital located in different countries is not supported by the data. High international substitutability for bonds would imply the same for physical capital if capital were perfectly substitutable for bonds within each country, but there is no more reason for this assumption to hold than for the assumption that all goods are perfect substitutes.
392 citations
TL;DR: The authors examined the influence of taxes on capital formation, with specific focus on the determinants of saving and the process of investment in plant and equipment, and found that taxes can influence saving and investment.
Abstract: Research on capital formation has long been a major focus of studies sponsored by the National Bureau of Economic Research because of the crucial role of capital accumulation in the process of economic growth. The papers in this volume examine the influence of taxes on capital formation, with specific focus on the determinants of saving and the process of investment in plant and equipment.
154 citations
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48 citations
TL;DR: In this article, the authors examined the market price of used machine tools and five types of construction equipment after the energy price shocks and found that the prices of used construction equipment tended to increase after 1973.
Abstract: The growth rate of output per worker in the U.S. declined sharply during the 1970's. A leading explanation of this phenomenon holds that the dramatic rise in energy prices during the 1970's caused a significant portion of the U.S. capital stock to become obsolete. This led to a decline in effective capital input which, in turn, caused a reduction in the reduction in the growth rate of output per worker. This paper examines a key prediction of this hypothesis. If there is a significant link between energy and capital obsolescence, it should be revealed in the market price of used capital: if rising energy costs did in fact render older, energy-inefficient capital obsolete, prospective buyers should have reduced the price that they were willing to pay for that capital. An examination of the market for used capital before and after the energy price shocks should thus reveal the presence and magnitude of the obsolescence effect. We have carried out this examination for four types of used machine tools and five types of construction equipment. We did not find a general reduction in the price of used equipment after the energy price shocks. Indeed, the price of used construction equipment - the more energy intensive of our two types of capital - tended to increase after 1973. We thus conclude that our data do not support the obsolescence explanation of the productivity of slowdown.
47 citations
TL;DR: In this article, the substitution of capital goods, including new technology, for land and labour has played an important role and has influenced the structure of Sout African agriculture, where the amount of labour used, the remuneration of labour, the substitution for capital for labour and productivity trends are analyzed.
42 citations
TL;DR: This paper found that institutional sclerosis is the basic political factor that is related to the process of economic growth, and the next step is to analyse how political structures and public policy have an impact on the basic factor in economic growth.
Abstract: Traditional growth theory viewed economic growth as a resultant of economic factors, in particular capital investment. Development economics implied a broader approach, emphasizing social structure change and human capital. Finally, it was also hinted that political factors could influence the rate of change in the development of the economic system. Testing various theories of economic growth we find that institutional sclerosis is the basic political factor that is related to the process of economic growth. The next step is to analyse how political structures and public policy have an impact on the basic factor in economic growth, viz. investments.
32 citations
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TL;DR: For instance, the authors argues that the increase in real interest rates and other expected rates of return in the United States, relative to other countries, in the early 1980s was the major factor that began to attract large net capital inflows.
Abstract: This paper, written for the NBER Conference on the Changing Role of the United States in the World Economy, covers the capital account in the U.S. balance of payments. It first traces the history from 1946 to 1980, a period throughout which Americans were steadily building up a positive net foreign investment position. It subsequently describes the historic swing of the capital account in the 1980s toward massive borrowing from abroad. There are various factors, in addition to expected rates of return, that encourage or discourage international capital flows: transactions costs, government controls, taxes, default and other political risk and exchange risk. But the paper argues that the increase in real interest rates and other expected rates of return in the United States, relative to other countries, in the early 1980s was the major factor that began to attract large net capital inflows. It concludes that a large increase in the U.S. federal budget deficit, which was not offset by increased private saving, was the major factor behind the increase in real interest rates, and therefore behind the switch to borrowing from abroad.
25 citations
TL;DR: In this article, the authors examined the dynamics of capital accumulation in a small open economy where home capital is risky and consumers are risk-averse, and they showed that a rise in savings does not increase foreign investment by the same amount but by less, and in some situations the quantity of foreign assets may even decrease.
Abstract: This paper examines the dynamics of capital accumulation in a small open economy where home capital is risky and consumers are risk-averse. It is assumed that the economy participates in perfect international bond markets but that risky home capital is held by domestic residents only. Under these assumptions the rate of investment is no longer independent of the saving rate, and they are positively related. As a result, a rise in savings does not increase foreign investment by the same amount but by less, and in some situations the quantity of foreign assets may even decrease.
23 citations
TL;DR: In this article, the input demand and substitution elasticities for five manufacturing sector industries in Thailand were estimated using a three-factor (capital, labour and energy) translog cost function covering the first oil-shock period 1974-1977.
17 citations
TL;DR: The U.S. has been investing a proportion of its gross output in the last decade and a half that is not far below that of other developed countries, even in nominal terms.
Abstract: The belief that the U.S. is a nation of spendthrifts, unwilling to pro- vide for the future, rests on observations of particular narrow definitions of capital formation, on the use of nominal values that ignore inter- national differences in the relative prices of capital goods, and on concentration on the ratio of capital formation to total output rather than on the amount of capita1 formation per capita. By a broad definition of capital formation, the U.S. has been investing a proportion of its gross output in the last decade and a half that is not far below that of other developed countries, even in nominal terms. In world prices, or real terms, U.S. capital formation was a higher proportion of output than in nominal terms. Real gross capital formation per capita in the U.S., even by a narrow definition of capital formation, was above the average for developed countries. By a broad measure of capital formation, few countries surpassed the U.S. in per capita real capital formation.
TL;DR: In this paper, the authors investigated the nature of balance of payments crises in regimes with capital controls and showed that capital controls are effective in delaying, but not preventing, a breakdown of a fixed exchange rate regime in the presence of money-financed fiscal deficits.
Abstract: This paper investigates the nature of balance of payments crises in regimes with capital controls It extends earlier work on capital controls by assuming that households manage their consumption and asset portfolios to maximize intertemporal utility Our main result is that capital controls are effective in delaying, but not preventing, a breakdown of a fixed exchange rate regime in the presence of money-financed fiscal deficits
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TL;DR: In the early 1980s, there was a sharp decline in investment relative to GDP, as reductions in real labour costs relative to capital costs encouraged the substitution of labour for capital.
Abstract: By international and historical standards, Australia does not appear to be under-capitalised. Nevertheless, the past decade has seen a clear reversal of the steady upward trend in capital intensity; this reversal was most marked after the short-lived increase in capital spending associated with improved prospects in Australia's resource-intensive industries in the early 1980s. Since then, there has been a sharp decline in investment relative to GDP, as reductions in real labour costs relative to capital costs encouraged the substitution of labour for capital. The existence of excess capacity in the early 1980s meant that substitution of labour for investment in new capital was possible without a major slowdown in growth of economic activity or employment. The prospects for continued economic growth depend, in part, on the resumption of investment spending to complement the growth of labour. It will be important for investment to occur in those industries where recent gains in competitiveness have been greatest. Prospects for achieving these outcomes will be enhanced if government policies are directed towards further reducing distortions in investment incentives, encouraging the expansion of technology and providing a mix of overall stabilisation policies that reduces pressures on capital markets.
TL;DR: The authors analyzes the aggregative growth model subject to random production shocks and shows that for a higher discount factor the associated optimal plan maintains higher capital input at every time period and for almost all environments, in both the finite and infinite horizon problems.
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01 Jan 1987
TL;DR: The authors discusses on-the-job training programs organized during work, which are mutually supportive features of labor markets, both external and internal but most obviously and directly of internal labor markets.
Abstract: Publisher Summary This chapter discusses on-the-job training programs organized during work. The term on-the-job training is used in several overlapping ways, all of which are usually focused on post school learning. Studies of schooling as an investment as they were conducted in earlier years and are often conducted today constitute only one element in human capital theory. The firm and the individual both have a stake in the accumulation of specific human capital, and the result spelled out in human capital theory is a sharing of the costs of and returns to the formation of such capabilities. The relative importance of firm-specific human capital depends in part on the size of an economy. Stability in attachments between firms and their employees and the formation of firm-specific human capital are mutually supportive features of labor markets, both external and internal but most obviously and directly of internal labor markets. Line of work runs counter to human capital theories. On-the-job training is of crucial importance not only for economic growth but also for the sustained viability of an economy in the modern world.
TL;DR: In this paper, the role of health capital investments in enhancing farmworker productivity and employment earnings was examined, and it was found that health capital investment had a larger marginal effect on earnings than other forms of human capital investments, such as education or experience.
Abstract: Migrant farmworkers are essential to the supply of low-cost agricultural produce. However, employment earnings of this vital labor force are approximately equal to the federal poverty income. This study examines the role of health capital investments in enhancing farmworker productivity and employment earnings. Health capital investments are found to have a larger marginal effect on earnings than other forms of human capital investments, such as education or experience.
TL;DR: In this article, the interaction between human capital supply and the demand for human capital is modelled with a production block and a block describing the supply of labour, and both blocks have been explored empirically for the Netherlands on the basis of time-series.
TL;DR: In this paper, the supply side of a rational expectations macro model with an endogenous capital utilization rate is presented, including the usage of the flow of capital services, which equals the product of the capital utilisation rate and the amount of capital service obtainable by fully utilizing the fixed capital stock.
TL;DR: In this paper, a two-period model of the wealth effect of foreign capital flows on domestic investment in LDCs is developed, and it is shown that the link between foreign capital flow and increases in domestic consumption is conditional on the productivity of the capital flow, repayment conditions and complementarity with domestic investment.
Abstract: In this paper a two-period model of the wealth effect of foreign capital flows on domestic investment in LDCs is developed. It is shown that the link between foreign capital flows and increases in domestic consumption is conditional on the productivity of the capital flow, repayment conditions and complementarity with domestic investment. Generalizations are made regarding the relative productivity and repayment terms of such broad categories of capital flows as unrequited transfers, direct investments and long-term flows to governments. The impact of variations in the terms on which foreign capital is received is related to the ‘wealth effect’ of the capital. The model is tested with pooled cross-section data for seventy countries in 1976 and 1977. Data limitations permit estimation of the effect of foreign finance on domestic investment only up to a monotonic transformation of the true values. Nevertheless, the hypothesized role of the wealth effect of the major categories of external finance can be tes...
TL;DR: In this article, the authors introduce endogenous capital utilization into the Heckscher-Ohlin model and show that if workers differ internationally in their willingness to work the abnormal hours associated with higher levels of capital utilization, the factor-price equalization theorem will no longer be valid, nor will technology and endowments be the sole determinants of comparative advantage.
Abstract: International variations in capital utilization as a result of operations are a significant but neglected characteristic of the world economy. In this paper we introduce endogenous capital utilization into the Heckscher-Ohlin model and we show that: if workers differ internationally in their willingness to work the abnormal hours associated with higher levels of capital utilization, the factor-price equalization theorem will no longer be valid, nor will technology and endowments be the sole determinants of comparative advantage. An interesting feature of this result is that workers’ willingness to engage in shift-work, for example, affects, through firms’ decisions, the availability of capital services, and thus the production possibility set of the economy. Moreover, this same phenomenon also creates a situation in which capital mobility is likely to enhance rather than substitute for trade. A brief comparison with alternative approaches to the introduction of capital utilization in trade models is also ...
TL;DR: In this paper, the effect of free trade in capital on factor prices and the welfare of trade between economies whose production is characterized by nation-specific technological uncertainty was investigated using a two-country Diamond overlapping-generations model.
Abstract: This paper considers the effect on factor prices and welfare of trade between economies whose production is characterized by nation-specific technological uncertainty. The analysis is carried out using a two-country Diamond overlapping-generations model in which technological uncertainty is reflected in factor prices, and "equities" refer to claims on the returns to capital. We find that trade in capital is complementary to trade in commodities, in the sense that adding free trade in capital to the spectrum of permitted economic activities will cause significant changes in wages, output, and capital returns. Furthermore, for countries which are identical, or not very different, factor prices move in parallel when free trade in capital is introduced. Specifically, as we show in the text, capital returns fall, while wages rise, in both countries. These results are based on the portfolio diversification permitted by international capital market integration: the reduction of portfolio risk associated with portfolio diversification induces adjustments in savings behavior which, in turn, change factor prices. In the realm of normative economics we find that, upon the introduction of free trade in capital, the associated changes in portfolio risk and factor returns have welfare effects entirely distinct from those conventionally associated with open markets for goods.
01 Sep 1987
TL;DR: The life with a capital l, the life with the capital l is something that will lead you is thought to be better, Something that will make your feel so better, andSomething that will give you new things.
Abstract: When reading the PDF, you can see how the author is very reliable in using the words to create sentences. It will be also the ways how the author creates the diction to influence many people. But, it's not nonsense, it is something. Something that will lead you is thought to be better. Something that will make your feel so better. And something that will give you new things. This is it, the life with a capital l.
TL;DR: A country that follows a PPP exchange-rate rule with limited capital mobility will face a trade-off between output and price stability, providing money demand is not extremely sensitive to expectations as discussed by the authors.
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01 Jan 1987
TL;DR: In this paper, a global model is built based on the propagation of investments self-financing, showing the dependence of investment selffinancing growth to the decrease in the functioning standard period of fixed capital, to their structural youthfulness and economic efficiency increase.
Abstract: A balanced economic development is essentially based on self-financing of investment cycle. The efficient use of energy resources and raw materials could rise by increasing the renewal of fixed capital, which is meaning also a shift to a higher technological level. From this correlation is resulting that the technical progress stands for an accelerator type multiplier of investments effects. Taking into account the economic growth factors and also the relationship between the efficiency, the degree of depreciation and the technical level a global model is built based on the propagation of investments self-financing. The model is showing the dependence of investments self-financing growth to the decrease in the functioning standard period of fixed capital, to their structural youthfulness and economic efficiency increase, seen through the ratio between net income and depreciation.
TL;DR: The authors gave an account of recent work on the measurement, statistical analysis, and theoretical analysis of macroeconomic profitability, including the treatment of holding gains on physical assets and net financial liabilities, national income accounting practices, and the use of accounting rates of return.
Abstract: This paper gives an account of recent work on the measurement, statistical analysis, and theoretical analysis of macroeconomic profitability. Measurement issues include the treatment of holding gains on physical assets and net financial liabilities, national income accounting practices and recent revisions, and the use of accounting rates of return. Statistical work has focused on the identification of trends and shifts in profit rates not caused by cyclical fluctuations, and various theoretical explanations have been offered for the generally low rates of return that appeared in the 1970s. These include capital deepening stimulated by a reduction in the cost of capital funds; profit squeezes caused by some combination of slower productivity growth, real wage push, and raw material price inflation; declining capital productivity; and changes in effective tax rates.
01 Jan 1987
TL;DR: The old age security hypothesis as mentioned in this paper states that a better access to capital markets unambiguously reduces the demand for children, because children are less essential as a means of transferring income from the present to the future.
Abstract: The old age security hypothesis essentially views children as a capital good. This chapter discusses the old age security hypothesis. A common conclusion of many writers is that better access to capital markets unambiguously reduces the demand for children, because children are less essential as a means of transferring income from the present to the future. However, this conclusion does not always hold. There may be various reasons. The chapter discusses two of them. One reason lies in the microeconomics of fertility behavior. When child numbers and welfare enter parents' utility functions, introduction of a capital market for transferring present to future consumption may plausibly increase the demand for children because a better access to capital markets increases welfare and, thus, may create a positive income effect on the desired number of children. This effect may dominate the negative substitution effect that a better access to capital markets may have on the number of children. A second reason that the old age security hypothesis may not hold lies in the macroeconomic aspects of fertility and savings. The rate of interest that clears capital markets is endogeneously determined: it may be higher than the rate of return on investment in children for some families, but it may be lower for other families. The latter are induced to borrow to invest in children. The overall effect of access to capital markets on the aggregate number of children is, therefore, ambiguous, depending on the balance of families.