Showing papers on "Capital deepening published in 1989"

Externalities and Growth Accounting

Abstract: We reexamine several bodies of data on the growth of output, labor, and capital, within the context of a model that admits the possibility of an externality to the capital input. The model is an augmented version of Paul Romer's (1987) reformulation of the Solow model. Unlike Romer, however, we find no evidence of an externality to capital. This finding implies nothing about the size of possible spillovers in the creation of knowledge because in our model, causality runs exclusively from knowledge to capital.

Human Capital Responses to Technological Change in the Labor Market

Abstract: In a broad sense, the relation of human capital to economic growth is reciprocal. This study focuses more narrowly on labor market consequences of human capital adjustments to the pace of technological change. Using Jorgensons multifactor productivity growth indexes for industrial sectors in the 1960's and 1970's the study explores effects of differential pace of technological changes on industry demands for educated and trained workers as reflected in PSID data covering the 1968 to 1983 period. The findings show relative increases both in quantity demanded (utilization) and in price (wages) of skilled workers in the more progressive sectors. Steeper wage profiles, lesser turnover, and lesser unemployment characterize labor in sectors whose productivity grew faster in preceding years. The growth of sectoral capital intensity produces similar effects. But, as newer vintages of capital contain new technology, the skill bias of capital intensity partly reflects the skill bias of technology.

What determines the rate of growth and technological change

Abstract: There is substantial research about cross section and time series correlations between economic growth and various economic, social, demographic and political variables. After analyzing these correlations, the paper makes the following conclusions. Exogenous increases do not seem to cause increases in the rate of technological change, but instead seem to be associated with lower rates of return to capital. Increased openness to international trade speeds up growth and technological change as do an increase in scientists and engineers. Countries more open to trade have a higher level of investment and capital growth - which is not associated with a fall in the marginal product of capital. Countries that become more integrated with world markets seem to have a higher marginal product of capital. Increases in capital investment associated with a higher per capita GDP are associated with a fall in the marginal product of capital. Increases in capital investment associated with increases in trade are not. This suggests that policies to encourage more open trading may be as important to growth as additional foreign lending - especially in their cumulative effects - and at the same time enhance the efficient use of foreign loans.

Taxes and Capital Formation: How Important is Human Capital?

Abstract: This paper explores how explicit incorporation of human capital affects dynamic general equilibrium analysis of the effects of taxes on capital formation and welfare in a life-cycle growth model. In contrast to the results of partial equilibrium analysis, we find that estimates of the full dynamic welfare costs of capital income taxes are little affected by incorporating human capital. While the short-run impact effects of replacing income taxes with wage or consumption taxes are significantly affected by endogenizing human capital, these effects are short-lived. In the long-run the rate of return on non-human capital falls to approximately its initial net of tax level, and steady-state human capital investment plans are therefore little affected by the tax changes. Although incorporating human capital thus does not greatly alter results in our numerical simulations, a wide range of extensions and modifications of the model are discussed which could in principle modify this conclusion.

Rates of Return on Physical and R&D Capital and Structure of the Production Process: Cross Section and Time Series Evidence

Abstract: R&D investment is an outcome of a corporate plan and is influenced by the existing technology, by prices, by product demand characteristics, and by the legacy of past capital stock decisions. In this paper we focus on the determinants and interaction of labor, physical capital, and R&D capital. In particular, we investigate three major issues. The first issue relates to the nature of the factor substitution possibilities between the three inputs in response to changes in input prices in order to estimate the own and cross price elasticities of the factors of production. The second problem pertains to the magnitude by which output expansion increases labor, physical, and R&D capital. Lastly, we address the extent to which adjustment costs affect factor demands, and measure the marginal adjustment costs for physical and R&D capital.

Research and Development as an Investment

Abstract: About 20 percent of the gross investment expenditures of U.S. manufacturing firms is expenditures on research and development. Like investment in physical capital, R&D also responds to news about future prospects of the firm, such as profitability, technological opportunities, or changes in factor prices. Using data from a panel of large U.S. manufacturing firms that was developed within the Productivity Program of the NBER, we investigate the differential responses of these two types of investment to changes in the value of the firm's assets as perceived by financial markets and the interaction of these responses. In order to study this topic empirically, we develop a stochastic dynamic programming model of a firm with two types of capital (physical and knowledge capital) which are used to produce profits. A feature of the model is the distinction between the accumulation of the two kinds of capital: expenditures on the physical capital stock are incurred one or more years before the capital actually becomes productive, whereas R&D capital is produced jointly as a function of current expenditure and the past technological position of the firm. Two individual firm specific shocks are considered: one to the overall profitability of the firm, and one to the "productivity" of R&D. In the empirical estimates, we find that these two shocks account for about 20 percent of the total variance in net investment, 15 percent of the variance in the firm-level R&D to capital ratio, but only about 5 percent of the annual rates of return. The profitability shock is well described by a moving average process of order three, while the technology shock process is more nearly permanent: first order autoregressive with parameter near unity.

A life-cycle model of female labor supply time allocation among work general and specific human capital accumulation and fertility.

Abstract: This paper presents a formal life-cycle model of female labor supply in which a woman alters her human capital decision-making in accordance with the expected changes in marital status and family life. Within such a model observed state dependence is considered a result from either heterogeneity in human capital and child service stock (i.e. permanent income and wages) or from constraints on a womans decision-making (i.e. bang-bang controls). This dynamic life-cycle model allows a woman to allocate time among work children and general or specific human capital accumulation. The latter allocation makes the permanent wage an endogenous decision. Results of the model showed that without continuous decision-making options a woman might be forced to choose a suboptimal time allocation path and exhibit state dependence in participation. Likewise a womans stock of human capital and non-market income play a key role in her participation decision and also implicitly create state dependence in participation. The model specifically identifies the direct relationship between children and general human capital accumulation.

Capital and Labour Efficiencies: A Regional Analysis

Abstract: We use Sato's factor-augmenting technical progress approach to calculate rates of growth of capital efficiency, labour efficiency, and efficiency-based total factor productivity growth in manufacturing by state. Capital efficiency gains, but not labour efficiency gains, have accompanied the rapid output growth of southern and western states. Regression analysis indicates that variables measuring scale effects, education, urbanisation, capital intensity, and research and development activity are directly associated with productivity and/or input-efficiency growth and that variables measuring regulation, interest-group effects, and unionisation effects are inversely associated.

The Impact of Homeownership and Capital Gains upon Class and Consumption Sectors

Abstract: The debate about the impact of homeownership and capital gains upon class and consumption-sector formation is reviewed, from the work of Rex and Moore in 1967 to that of Saunders and Harris in 1988. A theme noted is that homeownership is seen as a base for class membership in the earlier work but by the most recent work this has shifted to a base for the formation of consumption sectors. Much of the debate has been centred upon the English case and the rise in homeownership over the postwar years. A wider comparative perspective is required for further elaboration within this debate. The main critique attempted within this paper is one developed around the empirical debate regarding returns to homeowners and whether these result in a redistribution or a concentration of wealth, and consequently whether homeownership serves to create a base for political and social action or whether it contributes to the present fragmenting tendencies within capitalist societies. Evidence is reviewed from Britain and New Zealand on the questions of whether real gains are made through property ownership and the author assesses the extent of variability created by such factors as the time period when the property was acquired, regional variations, the links between the property and the labour markets, household structures, and gender divisions within wealth generation and dispersal. It is concluded that homeownership constitutes a base for real accumulation but the rate and extent of this process is not an even one. The ability to gain wealth varies considerably by time, location, level of individual and family income, employment level, and household type. Consequently, the wealth generated through homeownership is a factor fragmenting rather than uniting social groups and, therefore, is unlikely in itself to be a basis of political mobilisation.

Social Returns to Housing and Other Fixed Capital

Abstract: This paper addresses the efficiency of the allocation of the capital stock between housing and other types of private capital. Using national income data from 1929 to 1986 the returns to housing capital relative to all other private fixed capital are computed. The analysis indicates that the real returns to capital have been much smaller and much more variable for housing than for non-housing fixed capital in the U.S. economy.

Age structure and capital dilution effects in neo-classical growth models.

Abstract: This paper reexamines the problem of the relationship between demographic growth and per capita income in neo-classical growth models with age-structured populations. It is suggested that, when they assume a constant rate of capital depreciation, such models overestimate the negative impact of population growth through capital dilution effects. With more realistic depreciation schedules, the ageing of the capital stock which results from lower growth implies a higher overall depreciation rate, which reduces benefits from lower capital dilution. The implications of this observation are examined for the existence of an optimum population growth rate, for models with heterogeneous capital, and for models where capital obsolescence is not fixed but is allowed to vary.

Co‐movements in relative commodity prices and international capital flows: a simple model

Abstract: CO-MOVEMENTS IN RELATIVE COMMODITY PRICES AND INTERNATIONAL CAPITAL FLOWS: A SIMPLE MODEL Suppose a number of countries produce a commodity which employs local labor and a type of capital that is internationally mobile. Within the framework of a specific-factors model the paper argues that there is a presumption about the international movement of capital when the relative price of the industry using that capital rises on world markets. Capital flows towards countries less heavily involved in producing the commodity; internal labor flows contribute towards worldwide industry dispersion; and the volume of international trade in that commodity tends to fall. I. INTRODUCTION Fluctuations in the composition of world demand may cause a particular commodity to experience periods during which price is high relative to other commodities to alternate with periods during which price is relatively low. A number of countries may share not only in the production of such a commodity but also in the use of some factor (call it capital) specific to its production but capable of being relocated from one country to another. That is, some productive activities may combine local factors with inputs that have international markets. What can be said about the location of internationally mobile capital as shifts in demand result in changes in relative commodity prices? Is there anything systematic about the likely degree of international concentration or diversification of production over periods in which a commodity's price is alternatively high and low? The purpose of this article is to sketch out a simple model in which a presumption does exist about the location of internationally mobile capital, the relative concentration of production, and the volume of international trade in a commodity during the course of a cycle in its price relative to the prices of other commodities. The model is a variant of the sector-specific general equilibrum production model in which one type of capital is internationally mobile so that rates of return remain equalized among countries. The presumption is that when a commodity's price is relatively high compared with other commodities, real capital specifically used to produce that commodity tends to leave regions that are relatively large producers. Furthermore, this tendency of international capital mobility to encourage a dispersion of world production when a commodity's price is relatively high and a concentration of the world's production when price is low is enhanced by the mobility within each country of factors used jointly with other sectors. Finally, international trade in a commodity experiencing such a price cycle tends to be "second best" compared with own production in the sense that the volume of trade tends to contract precisely when the commodity's price is high relative to other commodities. II. THE PRESUMPTION ABOUT INTERNATIONAL CAPITAL FLOWS Production structures within countries are assumed to follow the sector-specific model as described in Jones [1975]; mobile labor is combined with each of several types of specific capital goods in producing outputs. In one activity capital is assumed to be internationally mobile, although retaining its sectoral specificity. Such mobility serves to equalize the return to this factor in all areas in which it is employed. Although commodities are traded, technologies and factor endowments are not assumed to be the same, so the returns to local specific factors and national wage rates can differ from country to country. Although the argument can be posed in the context of a many-country trading world, the logic is more easily revealed in a two-country setting. Suppose both home and foreign countries each produce a number of traded commodities and one of these, say x1, makes use of a specific factor, say K1, which is mobile internationally. Such mobility ensures that the rental on type-1 capital at home, r1, is kept in line with the foreign return, r1*. …

An analysis of production relations in the large-scale textile manufacturing sector of Pakistan

Abstract: The strategy underlying Pakistan’s development during earlier decades was based on the concept of "industrial fundamentalism". A host of fiscal, trade, financial and technological policies were implemented to encourage the process of growth through industrialization. However, it was observed that the process of industrialization brought in increasingly capital-intensive techniques of production. There are two schools of thought as to why this occurred. The "technological determinists” believed that technical efficiency alone determined the eventual Choice of technique and since the technically efficient techniques were also the capital-Intensive ones, the norms of efficiency dictated continuous capital deepening in production.

Human Capital and Economic Growth in a Minimum-Wage Economy

Abstract: An increased stock of physical capital, within a Brecher-type minimum-wage economy with skilled and unskilled labor, may reduce national income in the short run. However, if capital accumulation stimulated the formation of human capital, the long-run level of national income can exceed its pregrowth level. The conditions are derived under which such reversals occur. It is also shown that correcting the distortions due to the minimum wage requires an additional instrument besides the economy-wide employment subsidy. A tax on the unskilled wage and an education subsidy are examined as possible second instruments. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Human capital and endogenous growth in a large scale life cycle model

Abstract: Most models of economic growth are infinite horizon models that neglect the role of human capital in shaping life-cycle variables. This paper introduces training decisions in a life-cycle model to study the role of human capital both in life-cycle behavior and as an engine of growth. The crucial assumption about growth of this model is that new generations are endowed with the average level of skills available when they were born. The paper studies the impact of demographics and taxation on the endogenous rate of growth. Population growth affects the age distribution of the population and the equilibrium spillover that sustains growth. Unlike what happens with infinite horizon models, this model shows per capita income growth and population growth to be inversely related. Also, different from fertility-based models, this model shows the direction of causality to go from exogenous population growth to endogenous growth. To forgo consumption, households hold human and physical capital. Tax policy can affect the proportion of these assets in household portfolios. Tax policy that favors human capital (as opposed to physical capital) translates into higher per capita growth in income.

Capital mobility and costs of adjustment

Abstract: The paper considers intersectoral capital mobility in the context of investment theory. Convex costs of adjustment explain imperfect mobility of capital between sectors. Stocks of capital are endogenous; the model essentially is a twosector growth model with Keynesian investment functions. The paper analyzes adjustment in a small open economy with balanced and imbalanced trade and adjustment in a closed economy.

A Complete Dynamic Input–Output Model Including the Production of Human Capital and Labour

Abstract: A complete dynamic input–output model, which along with the production of goods and services includes the production of human capital and of different kinds of labour, is introduced. The problem of long gestation periods of capital goods is solved by treating different phases of gestation as different sectors and thus preserving the original form of the basic equations. The fact that in the state of balanced growth the rate of scrappage depends on the rate of growth is taken into account in the flow coefficients from the sectors producing capital goods. The consumption of pensioners as well as the stocks needed by them are taken into account in the coefficients for the production of labour. Thus the model involves two sets of flow coefficients and one set of stock coefficients depending on the rate of growth, which makes the system itself capable of changing its parameters, thus ‘self-organizing’. Technical change can be estimated quantitatively as an increase or decrease in the growth potential, which is...

Capital Mobility, the Cost of Capital Under Certainty and Effective Tax Rates in Europe

Abstract: The degree of integration between financial markets has increased substantially in recent years. Casual observation of simple correlations of changes in nominal interest rates, such as those shown in Tables 1 and 2 suggest chat since the mid-1970s co-movements of long-term and to a lesser extent short-term nominal interest rates have tended to increase markedly, particularly during the 1980s and most noticeably amongst countries in the European Monetary System. Moreover, closer study of this question by Obstfeld (1986a, 1986b) have confirmed the basic trends implied by Tables 1 and 2 and cast doubt on an earlier empirical study by Feldstein and Horioka (1980) which suggested indirectly through simple correlations of national savings and investment that capital markets were segmented.1

Subsidy policies with capital accumulation: maintaining employment levels.

Abstract: We study a dual economy model of growth and unemployment in the presence of Harris-Todaro type labor migration. The model is a discrete time model of economic growth with given population but endogenous migration of labor. The economy tries to reach “development” in the quickest possible time while not allowing unemployment to rise above a ‘socially acceptable’ level. We characterize situations under which maximizing the accumulation of capital in each period is optimal. We also study how particular taxes and subsidies affect unemployment and capital accumulation. Finally, we show that a higher initial capital stock does not necessarily mean a quicker attainment of self-sustained full employment.

International Trade and the Acquisition of Skills

Abstract: This article incorporates human-capital accumulation into the two-sector, general-equilibrium model of international trade. Agents have the choice of using their endowment of capital in the production of final consumption goods or in increasing their education level. Thus, there is the potential for intertemporal substitution of human capital for physical capital in the production of goods. Nonetheless, the pattern of trade between two countries is still shown to depend upon their relative endowments of unskilled labor and capital. The comparative effectiveness of various instruments in achieving non-economic objectives is also discussed.

International Capital Movements and Trade in an Intertemporal Setting

Abstract: The following remarks concentrate on an aspect of the relation between trade and factor movements which has been neglected in the literature so far. It is the intertemporal dimension of factor movements, which in turn is closely linked to the relation between real and financial capital movements. The focus is on capital as a factor of production — analogies with labour and other factors will only be touched upon.