Showing papers on "Capital deepening published in 1995"
TL;DR: In this article, the authors analyze how the costs of financial market transactions affect the set of technologies in use and the equilibrium growth rate of a set of industrial technologies and show that transactions cost reductions may, depending on the capital structure, enhance or reduce growth.
405 citations
TL;DR: In this article, the authors explore relationships between industry performance measures and investments in high-tech office and information technology capital for two-digit manufacturing industries from 1968 through 1986, and find limited evidence of a positive relationship between profitability and the share of hightech capital in the total physical capital stock.
333 citations
TL;DR: In this article, the authors show that the decline of the Soviet growth rate from 1950 to 1987 can be explained by a declining marginal product of capital with a constant rate of growth of total factor productivity.
Abstract: Soviet growth from 1960 to 1989 was the worst in the world after we control for investment and human capital; the relative performance worsens over time. There is some evidence that the burden of defense spending modestly contributed to the Soviet debacle. The declining Soviet growth rate from 1950 to 1987 can be accounted for by a declining marginal product of capital with a constant rate of growth of total factor productivity. The Soviet reliance on extensive growth (rising capital-to-output ratios) was no greater than that of market economies, such as Japan and the Republic of Korea, but a low elasticity of substitution between capital and labor implied especially acute diminishing returns to capital compared with the case in market economies. Copyright 1995 by Oxford University Press.
228 citations
TL;DR: In this paper, the working capital position of small firms responds to changes in the level of economic activity and their investment in working capital, as measured by the inventory to total assets and current assets to total asset ratios, were relatively stable over the time period of this study.
Abstract: This paper studies how the working capital position of small firms responds to changes in the level of economic activity. Fifty small firms were studied for the time period 1980‐1991. The findings from this study showed that liquidity increased slightly for these firms during economic expansion with no noticeable change in liquidity during economic slowdowns. Their investment in working capital, as measured by the inventory to total assets and current assets to total assets ratios, were relatively stable over the time period of this study.Findings suggest that working capital management practices of small firms in response to changes in economic activity do not follow commonly held expectations.
220 citations
TL;DR: In this paper, the authors examined the 1988 Basel Agreement on risk-based capital standards as a possible shock to the credit supply system and found that banks with larger capital surpluses resulting from the riskbased requirements had faster loan growth between 1987 and 1991 than those with smaller or failed the new standards.
Abstract: The failure of the banking system to play its normal role in the transmission of the monetary stimulus to the economy may have contributed to the 1990-91 recession and the sluggish recovery from it. This paper examines the 1988 Basel Agreement on risk-based capital standards as a possible shock to the credit supply system and finds that banks with larger capital surpluses resulting from the risk-based requirements had faster loan growth between 1987 and 1991 than those with smaller surpluses or which failed the new standards. Newly issued capital in banks with larger capital surpluses was associated with greater loan growth than were the same capital additions in banks with smaller capital surpluses. Copyright 1995 by Ohio State University Press.
160 citations
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TL;DR: In this article, the authors show that an increase in uncertainty can either increase or decrease the expected long-run capital stock under irreversibility relative to that under reversibility, and that a firm with irreversible investment may have a higher or a lower expected capital stock, even in the long run, compared to an otherwise identical firm with reversible investment.
Abstract: When investment decisions cannot be reversed and returns to capital are uncertain, the firm faces a higher user cost of capital than if it could reverse its decisions. This higher user cost tends to reduce the firm's capital stock. Opposing this effect is the irreversibility constraint itself: when the constraint binds, the firm would like to sell capital but cannot. This effect tends to increase the firm's capital stock. We show that a firm with irreversible investment may have a higher or a lower expected capital stock, even in the long run, compared to an otherwise identical firm with reversible investment. Furthermore, an increase in uncertainty can either increase or decrease the expected long-run capital stock under irreversibility relative to that under reversibility. However, changes in the expected growth rate of demand, the interest rate, the capital share in output, and the price elasticity of demand all have unambiguous effects.
132 citations
TL;DR: In this paper, the authors developed a model of insurance supply with capacity constraints and endogenous insolvency risk that incorporates limited liability and potential loss of insurer intangible capital, and the model predicts that price will increase following a negative shock to capital, but by less than the amount needed to fully offset the shock.
Abstract: Negative shocks to industry capital and significant capital adjustment costs have been offered as an explanation of periodic “crises” in the property-liability insurance market. According to these capacity constraint models, in which post-shock production must meet a solvency constraint, increases in price can cause some or perhaps all of the cost of a negative shock to capital to be shifted to policyholders. This article develops a model of insurance supply with capacity constraints and endogenous insolvency risk that incorporates limited liability and potential loss of insurer intangible capital. If industry demand is inelastic with respect to price and capital, the model predicts that price will increase following a negative shock to capital, but by less than the amount needed to fully offset the shock. Equity value and the expected recovery by policyholders for post-shock production are predicted to decline. Elastic demand mitigates shock-induced price increases.
81 citations
TL;DR: This paper analyzed the causes and the welfare consequences of international differences in labor turnover and human capital investment and found that a high turnover equilibrium is superior in the Pareto sense to a low turnover equilibrium if matching uncertainty is large.
Abstract: We analyze the causes and the welfare consequences of international differences in labor turnover and human capital investment. The framework incorporates different views as special cases. Conditions are identified under which multiple equilibria or differences in deep economic parameters explain the observed differences in labor practices. We show that when there is an informational problem regarding job-changing workers' quality, general human capital, like firm-specific human capital, can also affect labor turnover, and that better job matching is obtained at the expense of lower human capital investment. Given multiple equilibria, a high turnover equilibrium is found superior in the Pareto sense to a low turnover equilibrium if matching uncertainty is large. The reverse is true when matching uncertainty is small.
73 citations
TL;DR: This paper reviewed recent experience with international capital flows in Latin America, and discussed the policy issues that surround them, concluding that capital flows to the region are an important source of macroeconomic disturbance.
Abstract: This paper reviews recent experience with international capital flows in Latin America, and discusses the policy issues that surround them. The paper is predicated on three basic premises. Capital flows to the region are an important source of macroeconomic disturbance. Also, capital flows are very volatile. Large fluctuations in these flows are due in substantial part to factors external to Latin America. In addition, the fluctuations require a policy response. Policy should respond to sudden inflows or outflows of capital.
65 citations
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TL;DR: In this paper, the authors investigated the extent to which financial markets in the Pacific Basin Region have become more integrated, by analyzing the comovements of real interest rates and found that there has been an increase in capital market integration with both U.S. and Japan during the 1980s.
Abstract: This paper investigates the extent to which financial markets in the Pacific Basin Region have become more integrated, by analyzing the comovements of real interest rates. The paper uses cointegration and error correction models and draws inferences on the degree of capital market integration by looking at the speed of adjustment of real interest rates following a shock. The results show that there has been an increase in capital market integration with both U.S. and Japan during the 1980s. Japan has not, however, overtaken U.S. in dominating the financial markets of these countries, except possibly in the case of Malaysia. Capital market integration is found to be greater in Singapore, Hong Kong and Taiwan Province of China. On the other hand, Japan is the least integrated country with the United States.
60 citations
TL;DR: In this paper, the authors find evidence of the importance of both roles of human capital and physical capital, and they also find that the relationship between growth and the external effects of human resources vary according to the trade regime.
Abstract: Human Capital, Trade, and Economic Growth. — Human capital, because of its special role in innovative activity and technological progress, has formed the bedrock of the new theories of endogenous growth. However, it not only serves as an engine of growth but also as a productive input along with labor and physical capital. In this study, the authors find evidence of the importance of both roles of human capital. They also find that the relationship between growth and the external effects of human capital vary according to trade regime. When literacy rates are relatively high, open economies grow about 0.65 to 1.75 percentage points more than closed economies.
TL;DR: The authors analyzes a two-sector small open economy with traded and non-traded goods and accumulating capital and analyzes the response of the economy to both demand and supply shocks.
Abstract: This paper analyzes a two-sector small open economy with traded and nontraded goods and accumulating capital. When capital is nontraded the behavior of the real exchange rate is shown to depend on the relative sectoral capital intensities. If the traded sector is relatively capital intensive, then any permanent disturbance leads to at most an initial jump in the real exchange rate. Thereafter, while the capital stock adjusts, no further change in the real exchange rate occurs. If the capital intensity is reversed, the real exchange rate undergoes a transitional adjustment, along with the capital stock. The response of the economy to both demand and supply shocks is analyzed. J. Japan. Int. Econ . 1995, 9 (1), pp. 29–55. Department of Economics, University of Washington, Seattle, Washington 98195; and Delhi School of Economics, University of Delhi, Delhi, India.
TL;DR: In this article, the authors empirically analyzed the determinants of long-term growth in selected African countries during 1970-91 using the framework of endogenous growth models which seeks to explain sustained long term growth across countries and over time as a basis.
Abstract: Using the framework of endogenous growth models which seeks to explain sustained long term growth across countries and over time as a basis, this paper empirically analyzes the determinants of long term growth in selected African countries during 1970-91. The most important explanatory variables considered include initial per capital income, investment, population growth, macroeconomic environment (inflation and exchange rates), external factors (export growth, external debt, terms of trade), political environment and human capital. On average, investment, external debt, population growth, human capital and proxies for macroeconomic environment appear to have more relative importance in influencing long-term growth. Copyright 1995 by Oxford University Press.
01 Jan 1995
TL;DR: In this paper, the authors investigated the relationship between growth and efficiency in an overlapping generations economy in which altruistic parents endow their children with human capital (education) and leave physical bequests.
Abstract: This paper investigates the relationship between growth and efficiency in an overlapping generations economy in which altruistic parents endow their children with human capital (education) and leave physical bequests. The author gives conditions under which the physical bequest motive is not operative in a balanced equilibrium when human capital exhibits externalities. He also shows that the efficient rate of growth is lower than the competitive one if the economy is bequest-constrained and externalities from education are not very strong. Some fiscal policy experiments are performed for both bequest-constrained economies and unconstrained ones. Copyright 1995 by Royal Economic Society.
TL;DR: The authors developed a life-cycle growth model with endogenous human capital accumulation and variable leisure, which is employed to simulate dynamic equal-yield changes from an income tax to a consumption tax.
Abstract: This paper develops a life-cycle growth model with endogenous human capital accumulation and variable leisure, which is employed to simulate dynamic equal-yield changes from an income tax to a consumption tax. Although endogenizing human capital investment decisions raises partial-equilibrium estimates of the efficiency costs of capital income taxation, general-equilibrium welfare impacts of unanticipated tax changes are little affected by the inclusion of endogenous human capital. This finding cannot be fully explained by the presence of general-equilibrium adjustments in factor prices and can be attributed in part to the existence of transitional rigidities in capital stocks. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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TL;DR: The empirical evidence in support of one view or another is largely missing, and it would be useful to know whether physical or human capital has a larger impact on output per capita and whether the returns to all capital are constant, increasing or decreasing.
Abstract: While it is largely uncontroversial that human capital can be considered as one of the shaping factors of economic growth, no agreement exists on the specific role of human capital formation. Competing theories all stressing different aspects of human capital formation are not in short supply, but the empirical evidence in support of one view or another is largely missing. To be able to discriminate between alternative interpretations, it would be useful to know whether physical or human capital has a larger impact on output per capita and whether the returns to all capital are constant, increasing, or decreasing. Depending on the answers, rather different implications for the role of human capital could emerge.
TL;DR: The authors analyzes the macroeconomic consequences of changes in fiscal policy and transfers of wealth from abroad on the capital stock and real output, and shows that both have well defined long-run effects on the stock and output.
TL;DR: In this article, the authors used Galor and Tsiddon's model of income distribution, endogenous human capital formation and growth, to analyze the interaction between income distribution and migration.
Abstract: This paper shows how a brain drain - the emigration of agents with a relatively high level of human capital in an economy - can paradoxically increase the productivity of an economy where productivity is a function of the average level of human capital. The model uses Galor and Tsiddon's model of income distribution, endogenous human capital formation and growth, to analyze the interaction between income distribution and migration. The paradoxical positive effect of a brain drain on productivity occurs when successful emigration is not a certainty and when the increase in human capital accumulation by people wishing to become eligible to emigrate, causes a change in the long run income distribution which outweighs the decrease in human capital caused by the brain drain itself.
TL;DR: In the traditional history of the British industrial revolution, much emphasis has been placed on the role of saving in capital formation; however, in an open economy, net flows of capital provide finance for investment in addition to domestic saving as discussed by the authors.
Abstract: In the traditional history of the British industrial revolution, much emphasis has been placed on the role of saving in capital formation. The theories emphasizing the role of saving are based on the premise that saving was the only way to finance investment; the literature has omitted foreign sources of investment. Therefore, many controversies regarding the industrial revolution omit the role of capital flows: the arguments about Rostow's take-off are based on the rise in the domestic saving rate;2 the debate on constraints on the rate of capital accumulation is linked to the relation between saving and investment; and Williamson's argument on crowding out is based on asserting that 'saving significantly constrained British accumulation'.3 However, in an open economy, net flows of capital provide finance for investment in addition to domestic saving. Crafts has emphasized that this way of financing capital formation during the first stages of industrial development is unique: 'countries with the same per capita income as Britain in the eighteenth century were experiencing a considerable inflow of capital'.4 Indeed, development economists have long shown the importance of foreign capital in the industrialization and development process: 'external borrowing is a normal feature of the development strategies of many countries' 5 Britain's unique way of financing its capital formation was assumed rather than proved. The assumption that domestic saving was equated with domestic investment is puzzling since the flow of capital from Holland to Great Britain, particularly in the second half of the eighteenth century, is
Journal Article•
TL;DR: In this paper, the authors examined the nature and composition of capital flows in selected countries in Central and Eastern Europe during 1987-93 and showed that there was a remarkable turnaround in the capital account in 1992-93.
Abstract: This paper examines the nature and composition of capital flows in selected countries in Central and Eastern Europe during 1987–93. The data show that there was a remarkable turnaround in the capital account in 1992–93. This improvement was accompanied by widening current account deficits, an increase in real consumption, and real exchange rate appreciation. In light of these developments, the paper discusses the main macroeconomic concerns raised by capital inflows and lays out the principal policy options relevant for the transition economies.
TL;DR: This article developed a new measure of human capital stock that allows for varying costs of education across time, countries, and level of education and found that human capital accumulation accounts for a relatively small (about ten percent) of per-capita GDP growth.
Abstract: I develop a new measure of human capital stock that has two advantages over previous measures. First, it allows for varying costs of education across time, countries, and level of education. Second, the unit of measurement is dollars, which allows comparison of human capital stocks with other macro- economic variables, including national income (GDP) and physical capital stocks. Using cross-country panel regression analysis, I find that human capital accumulation accounts for a relatively small (about ten percent) of per-capita GDP growth. I further find that, unlike physical capital, the stock of human capital as a share of GDP increases with GDP.
TL;DR: In this paper, the implications of endogenous capital utilization and investor effort on the structure and time consistency of optimal fiscal policy were studied, and the main results were that levies of old capital are distortionary and should therefore not be used at confiscatory rates, and that in a steady state capital and labor income should be taxed at the same rate and investment should be subsidized as the tax rate.
TL;DR: In this paper, a time-series analysis applied cointegration and error-correction techniques was performed to determine the growth factors for Korea by a time series analysis applying cointegrated and error correction techniques.
Abstract: Disparities between growth rates of different countries are only in part explainable by basic factors of production. New growth theory links economic growth, e.g., to increasing returns to scale, to human capital development and stresses the important role of institutions. Our aim is to determine the growth factors for Korea by a time-series analysis applying cointegration and error-correction techniques. The results show that human capital, investment and exports enhance economic development, while inflation and government consumption exert a negative influence on growth. Additionally, the import substitution phases during the 50ies and 70ies as well as a productivity oriented wage development contribute to economic growth. [F14, 047]
TL;DR: In this paper, the authors studied the relation between public capital accumulation and long-run economic growth and showed that the pattern of growth and the realization of a specific steady-growth equilibrium are quite sensitive to the rate of income tax as well as to expectations of agents.
Abstract: This paper studies the relation between public capital accumulation and long-run economic growth. We emphasize three phenomena that may be accompanied by the presence of public capital: increasing returns, rivalry, and threshold externalities. We formulate a simple growth model that captures these features of public capital in a tractable manner. Assuming that investment for public capital financed by income taxation, we show that the threshold externalities may generate multiple equilibria, so that the pattern of growth and the realization of a specific steady-growth equilibrium are quite sensitive to the rate of income tax as well as to expectations of agents.
TL;DR: In this paper, a model of development is presented where growth is initially driven by physical capital accumulation, as in the neoclassical model, and after a critical level of physical capital is reached, the economy takes off and enters a stage of sustained growth driven by human capital accumulation.
Abstract: A model of development is presented where growth is initially driven by physical capital accumulation, as in the neoclassical model. After a critical level of physical capital is reached, the economy ‘takes off’ and enters a stage of sustained growth driven by human capital accumulation. The link between these two stages is provided by the assumption that private incentives for human capital accumulation increase with the average levels of human and physical capital. At the early stages of development, these incentives are low so the level of human capital stays stagnant until sufficient physical capital is accumulated. Other results are that some economies may reach a steady state of physical capital before a ‘take-off’ is possible. This is especially likely for economies in which agents have low savings propensities. Such economies remain stuck in a no-growth equilibrium forever. Economies that do grow may experience endogenous cycles if the return to investment in human capital is sufficiently increasing in the level of physical capital.
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TL;DR: In this paper, the authors use a calibrated model of the dynamics of organization capital and industry evolution to measure the size of investment in organization capital in the steady state and the dynamic evolution of the organization capital during the transition following a major reform.
Abstract: We use a calibrated model of the dynamics of organization capital and industry evolution to measure the size of investment in organization capital in the steady state and the dynamics of organization capital during the transition following a major reform. We find that, in the steady state, aggregate net investment in organization capital is roughly one-fifth of measured output. During the initial phase of transition, the failure rate of plants rises 200-400 percent, measured output and aggregate productivity stagnate, physical investment falls, and net investment in organization capital rises between 300 and 500 percent above its steady-state level.
TL;DR: The authors used an augmented Solow growth model to study convergence in per-capita incomes of the fifty states using annual time-series data from 1955 to 1987, and found that accumulations of private-sector capital and human capital contribute to changes m percapita income.
TL;DR: In a model where money enters the production function, Wang and Yip (1992) find money to be superneutral with respect to the economy's long run rate of growth as mentioned in this paper.