Showing papers on "Capital deepening published in 1997"

The Neoclassical Revival in Growth Economics: Has It Gone Too Far?

Abstract: In our view there has been a "Neoclassical Revival" in growth economics spurred by the empirical findings of Mankiw, Romer, and Weil (1992), Barro and Sala-i-Martin (1995), and Young (1994 and 1995). By this we mean a revival of the neoclassical growth model-which features a common level of productivity but different levels of human and physical capital across countries-as a viable candidate for explaining the major part of country differences in levels and growth rates of output per worker. Marshaling existing evidence from the labor literature on the returns to schooling and experience, we construct new measures of human capital across countries. We find that productivity differences are the dominant source of the large international dispersion in levels and growth rates of output per worker. We conclude that, although models that focus on physical and human capital are clearly important, research needs to be re-focused on explaining the causes of productivity differences across countries.

Where Are We Now With Human Capital Theory in Australia

Abstract: The dominant economic paradigm for the study of wage determination is the human capital model. Increasingly, however, there is growing discontent with this model. The catalyst is the empirical literature on important earnings relationships which cannot be explained by competitive wage theory. Is human capital theory redundant? How useful is the model in the 1990s? This paper provides an assessment of the current status of human capital theory in Australia. The analysis demonstrates that even in a non-competitive environment such as Australia the human capital framework is extremely useful for the study of wage determination. Its weakness is its inability to explain significant and persistent interindustry, inter-occupational and gender wage differences.

Domestic and Systemic Determinants of Capital Controls in the Developed and Developing World

Abstract: This paper examines the utility of and preference for controls on short-term capital. Recent work in international political economy has argued that the increasing internationalization of finance has constrained the ability of governments to pursue independent monetary policies. For the most part this conclusion has been reached through an examination of a small number of advanced industrialized countries. This article argues not only that the globalization of finance is far from all-encompassing but also that domestic forces play a more significant role in explaining the implementation and removal of capital controls than do systemic factors. Capital controls are more likely to be put in place by governments that repress the financial sector, that choose to maintain a fixed exchange rate, and that are facing balance-of-payments crises. These propositions are tested using a random effects probit model on a panel of ninety-one countries from 1967 to 1992.

Public Infrastructure and Economic Growth: Time-Series Properties and Evidence*

Abstract: We examine whether economic growth is generated endoge-nously or exogenously, and estimate the externality effects due to private and public capital respectively. Applying a multivariate stochastic coinlegration method to US data, we find that the evidence is unfavourable to the endogenous growth model with public infrastructure. The estimated elasticity of output with respect to public capital is 0.11, smaller than typical values obtained in single-equation regression studies. On the other hand, if the share of capital income is taken to be one-third, then the spillover effect due to private capital is positive but may be as low as 0.10.

External Capital Factors and Increasing Returns in U.S. Manufacturing

Abstract: Theoretical models of endogenous growth identify capital accumulation and returns as a potential stimulus to economic growth. Existing empirical studies, however, are based on a limited notion of these returns, which follows from the simple production function framework used for estimation. The purpose of this study is to examine growth issues using dynamic cost function estimation. This methodology enables us to broaden the concept of returns to include returns arising from short-run quasi-fixity of private capital, long-run (internal) scale economies, and external “knowledge” factors—overall investment in research (R&D), technology (high-tech capital), and education (human capital). Based on detailed industry-level data, we find evidence of increasing returns to scale arising from cost savings on variable inputs, although diminishing returns to capital are prevalent. Our results also show that knowledge factors augment growth. More importantly, they appear to explain a substantial proportion of measured...

Capital Controls in Chile: Effective? Efficient?

Abstract: New empirical evidence with regards to the effectiveness and efficiency of Chile’s capital controls is provided here, based on more and better data on the range of controls and a broad assessment of their costs and benefits. The paper concludes that capital controls have been partially effective by raising the wedge between domestic and foreign interest rates, reducing aggregate net capital inflows, and changing the debt composition toward longer maturities, without significantly altering the real exchange rate. Part of these effects is temporary as the effectiveness of controls is eroded over time for a given interest rates differential. Controls may have been crucial by contributing to Chile’s lower exposure to short-term foreign liabilities at the time of the 1997-98 international financial turmoil. However, achieving temporary macroeconomic benefits by relying on capital controls involves incurring in financial and growth effects that raise concerns about their efficiency. The costs that resulted from the policy mix that comprised the capital controls, in terms of quasi-fiscal losses and lower investment and growth, were probably not negligible. Resumen Este trabajo presenta nueva evidencia empirica sobre la efectividad y eficiencia de los controles de capital en Chile. La evidencia se basa en mas y mejores datos sobre estos controles y en una estimacion aproximada de algunos de sus costos y beneficios potenciales. En el trabajo se concluye que los controles de capital han sido parcialmente efectivos en aumentar la diferencia entre las tasas de interes internas y externas, reducir los flujos netos de capitales, y cambiar la madurez de los pasivos externos, aunque sin afectar significativamente al tipo de cambio real. El efecto sobre la madurez de los pasivos externos (hacia plazos mas largos) pudo haber jugado un rol trascendente durante la crisis financiera internacional de 1997-98. Sin embargo, parte de estos efectos son transitorios debido a que la efectividad de los controles se erosiona a traves del tiempo por la existencia de diferenciales positivos de tasas de interes. Los controles de capitales, no obstante generar beneficios macroeconomicos transitorios, tambien producen efectos financieros y sobre el crecimiento, los que deben ser tomados en cuenta para evaluar su eficiencia. Existen costos importantes, en terminos de deficits cuasi-fiscales y menores tasas de inversion y crecimiento, resultantes de la combinacion de politicas de las cuales el encaje es parte integrante.

Capital Flows to Brazil: The Endogeneity of Capital Controls

Abstract: This paper investigates the determinants of capital flows to Brazil and constructs an index of capital controls that includes restrictions on both outflows and inflows. The paper explicitly takes into account the endogeneity of capital controls through a government reaction function that sets controls in line with capital flows. Using instrumental variables, the paper shows that the government reacts strongly to capital flows by increasing controls in booms and relaxing them in moments of distress. The paper estimates a vector autoregression with monthly capital flows, controls, and interest differentials. It shows that controls have been temporarily effective in altering the level and composition of capital flows within a 6-month period and have been responsible for up to 30 percent of the forecasted variance of capital flows, but have had no sustained long-run effects.

The determinants of agricultural production : a cross-country analysis

Abstract: In this analysis of capital's role in agricultural production, a new construction of data on capital allowed the authors to advance the cross-country study of production functions. The model reveals the relative importance of capital, a finding quite robust to modifications of the model and the disaggregation of capital to its two components. The model is also consistent with the view that lack of physical capital serves as a constraint on agricultural growth. The shift to more productive techniques is associated with a decline in labor, reflecting labor-saving technical changes. This is not news, but it is emphasized here because it comes out an integral view of the process which distinguishes between the core technology and the changes that took place over time and between countries. Not only is capital important to agricultural production, and agricultural development dependent on the economic environment, but agriculture is more cost-capital-intensive than nonagriculture. Capital is all the more important as a factor of production in that land (also important) varies little over time. The availability of agricultural capital determines whether the gap between available and applied technologies can be closed. Prices have little direct, immediate impact on agricultural growth, beyond their impact through inputs and choice of technology. The legacy of past policies that distorted the relative returns to economic activity is enshrined in current stocks, which may respond slowly to policy reform. The analysis assumes that the production technology is heterogeneous and the implemented technology is endogenous and determined jointly with the level of unconstrained inputs. Thus, a change in the state variables affects both the technology and the inputs, so the production function is not identified. To overcome that problem, changes in productivity are decomposed to three orthogonal components caused by the fundamentally different processes underlying panel data. The statistical framework explains the unstable results observed in production functions derived from panel data. Statistically, the results depend on how the data are projected. Comparisons between units over time or of deviations from unit-means or time-means all describe different processes. This is based on theory but has an intuitive appeal as well. In this case, the spread in productivity among countries is different from the spread in productivity for a country through time. The factors explaining the spread will differ. The modeling approach should explicitly recognize the fact that panel data measure a combination of economic phenomena.

Structural Change, Capital Investment and Productivity in the Food Processing Industry

Abstract: Investment in new technology affects structural change and economic performance through its effect on capital and input composition. This is particularly important for capital-intensive industries such as food processing, which lack short-run flexibility due to adjustment costs. This study considers the impacts of capital quasi-fixity on capital and noncapital input decisions made in the U.S. Food and Kindred Products industry from 1965 to 1991. A cost-based production theory model is used to evaluate investment motivations for three capital components. Productivity growth accompanying changing input patterns is then discussed, focusing on capital and farm input demand.

Asymmetric Information and Loan Contracts in a Neoclassical Growth Model

Abstract: The authors consider a neoclassical growth model with risky investment projects in which a borrower's (an investor's) risk type is private information. Their innovation is to determine jointly the equilibrium loan contract and the economy's growth path and the steady state capital stock. The authors show that as capital accumulates, credit rationing may fall as an increasing number of lenders choose to acquire costly information to separate borrowers as to type. This transition from credit rationing to screening in turn results in a higher capital accumulation path and a higher steady state capital stock. They also investigate the effects of a decrease in the cost of information on the economy's capital accumulation path and steady state capital stock. The authors show that the cost of information must fall below a threshold level before the economy moves from a credit rationing equilibrium to a screening one. Thus a threshold must be crossed before the steady state capital stock is increased with a decrease in the cost of information. Copyright 1997 by Ohio State University Press.

Regional convergence of output per worker in China: A neoclassical interpretation

Abstract: Regional output per worker has converged across Chinese provinces in 1979- 1989. The estimated rate of convergence is 2.2 percent. This rate of convergence can be explained by neoclassical growth model conditional on assumptions about factor mobility and production elasticities. My empirical results show that capital mobility has been high across Chinese provinces and that the production elasticity of human capital is about twice as high as the production elasticity of physical capital. With less interprovincial capital flows as the result of an expected increase in fiscal decentralization, the rate of convergence of regional output per worker is likely to decline.

Human Capital and Economic Growth: Operationalising Growth Theory, with Special Reference to the Netherlands in the 19th Century"

Abstract: This paper presents new estimates of the stock of human capital in the Netherlands between 1800 and 1913 The estimates of human capital are derived from data on primary, secondary and tertiary schooling It is argued that the measure of human capital presented here is conceptually better than alternative measures, such as enrollment rates or literacy rates The estimates were used in a growth accounting exercise employing an approximation of a translog production function with human capital as an additional factor of production The results suggest that economic growth in the Netherlands during the 19th century was to a large extent based on the accumulation of fixed tangible capital, with human capital playing a less important role

Regional convergence of output per worker in China: A neoclassical interpretation

Abstract: Regional output per worker has converged across Chinese provinces in 19791989. The estimated rate of convergence is 2.2 percent. This rate of convergence can be explained by neoclassical growth model conditional on assumptions about factor mobility and production elasticities. My empirical results show that capital mobility has been high across Chinese provinces and that the production elasticity of human capital is about twice as high as the production elasticity of physical capital. With less interprovincial capital flows as the result of an expected increase in fiscal decentralization, the rate of convergence of regional output per worker is likely to decline.

Balanced growth and public capital: an empirical analysis

Abstract: The balanced growth restrictions implied by the neoclassical growth model imply that output, the private capital stock and the public capital stock share the same stochastic trend. We analyse the postwar US data on real output, real private capital stock and real public capital stock and find that the balanced growth restrictions cannot be rejected by the data. Removing the common stochastic trend from each series allows the estimation of output elasticities that is free from the spurious regression problem. The results support Aschauer's (1989) claim that, at the margin, public capital is more productive than private capital.

The Human Capital Dimension to Foreign Direct Investment: Training, Adverse Selection and Firm Location

Abstract: While the theoretical literature on Foreign Direct Investment (FDI) focuses largely on movements in capital and firm specific technology, recent empirical evidence emphasizes primarily the local human capital necessary to absorb FDI technology. We examine how human capital affects FDI and add a new dimension to the trade and FDI literature: informational asymmetries. Multinationals (MNCs) must train labor to work with firm specific technology, but employers possess incomplete information about workers' abilities. We integrate an adverse selection model into a general equilibrium framework, and introduce Informational Gains From Trade. Examining the incentives for firm location, we can explain why FDI is more likely to occur among countries that are similar in terms of human capital and technology, and why there is little investment from developing countries in advanced economies. Informational asymmetries coupled with human capital differences give rise to empirical observed multiple wage equilibria, where MNCs pay the highest wage in advanced countries, but higher wages than domestic firms in developing countries. The dynamic analysis highlights the absence of scale effects in the model, driven by the fact that the costs of training workers with fixed human capital will eventually outweigh any benefits from productivity increases generated by research expenditures.

Revisiting European unemployment: Unemployment, capital accumulation, and factor prices

Abstract: This paper starts from two sets of facts about Continental Europe.The first is the steady increase in unemployment since the early 1970s. The second is the evolution of the capital share, an initial decline in the 1970s, followed by a much larger increase since the mid-1980s. The paper then develops a model of capital accumulation, unemployment and factor prices. Using this model to look at the data, it reaches two main conclusions: The initial increase in unemployment, from the mid-1970s to the mid-1980s, was mostly due to a failure of wages to adjust to the slowdown in underlying factor productivity growth. The initial effect was to decrease profit rates and capital shares. Over time, the reaction of firms was to reduce capital accumulation and move away from labor, leading to a steady increase in unemployment, and a recovery of the capital share. The reason why wage moderation, clearly evident in the data since the mid-1980s, has not led to a decrease in unemployment is that another type of shift has been at work, this time on the labor demand side. At a given wage and a given capital stock firms have steadily decreased employment. The effect of this adverse shift in labor demand has been to lead to both continued high unemployment, and increasing capital shares. What lies behind this shift in labor demand? There are two potential lines of explanation. The first is shifts in the distribution of rents away from workers, for example, the elimination of chronic excess employment by firms. The second explanation points to technological bias: firms in Continental Europe are introducing technologies biased against labor and towards capital.

Capital productivity and the nature of competition

Abstract: This paper measures capital productivity in West Germany, Japan and the United States and links capital productivity to financial performance. We show that West Germany and Japan have significantly lower levels of capital productivity than the United States, mainly due to lower capital utilization but also because less productive capacity was created per unit of physical assets. On a higher level of causality, we show that this mainly comes from less pressure from product market competition and weaker corporate governance in West Germany and Japan. While external factors such as government ownership and regulation were important, more than half of the productivity gap could in principle have been closed by managerial action. The lower level of capital productivity in West Germany and Japan explains a large part of the difference in per capita income between these two countries and the U.S. Moreover, the high level of capital productivity in the U.S. generated financial returns that created more new wealth than in West Germany and Japan in spite of the well-known low U.S. saving rates.

Public capital and private sector productivity in Ireland, 1958‐1990

Abstract: Academic research in the USA and more recently in the UK and Sweden, has highlighted public capital as a significant growth determinant. Public capital, it is argued, has a positive effect on private sector output, productivity and capital formation. However, controversy surrounds the empirical results emerging from this literature. Much of the controversy rests on research methods employed. Adds to this body of literature in two ways. First, estimates aggregate production functions for private sector output using Irish data. The stock of public capital is included as an input to investigate the effects of government investment on private sector productivity. Second, uses modern time‐series techniques to test the hypothesis. Employs the Johansen (1988) cointegration testing procedure and error correction modelling on annual data for the period 1958‐1990. These modern techniques produce empirical results which do not support the public capital hypothesis. Suggests several reasons to explain this outcome, and outlines possible policy implications.

Growth empirics: evidence from a panel of annual data

Abstract: The paper shows that the use of annual data pooled into a panel of several countries can be a good choice for analysing the properties of long-term economic growth. Of course, an appropriate regression specification must be considered, to account for the short-run components of such high frequency data. The results point out that conditional convergence is important, as well as physical capital accumulation, in growth process; the human capital accumulation, on the contrary, appears to be no longer significant when country fixed-effects are accounted for. More importantly, the estimates are consistent with very plausible values of the input shares.

Factor Taxation, Income Distribution and Capital Market Integration

Abstract: This paper addresses the optimal mix of capital and wage taxation when policymakers maximize the political support of workers and capitalists, subject to a fixed revenue requirement. Capital market integration increases the efficiency costs of a tax on capital hut simultaneously changes the political equilibrium through its effect on the distribution of factor incomes. These distributional effects are directly opposed in the capital importing and the capital exporting region. While the capital tax rate will always be lowered in the capital importing region, the tax rate in the exporting country will rise when political resistance to market-induced changes in the distribution of income is sufficiently high.

New Evidence on the effect of human capital on economic growth

Abstract: We improve results of the Mankiw, Romer and Weil (1992) augmented neoclassical growth model by considering broader measures of human capital. Compared with the MRW results, our approach increases the explanatory power of the model and the speed of conditional income convergence.

How Much Did the Liberty Shipbuilders Learn? New Evidence for an Old Case Study

Abstract: This paper uses previously unavailable historical records to show that several assumptions central to a learning by doing explanation of productivity growth in the construction of Liberty ships during World War II are mistaken. Impressive increases in output per worker recorded at one of the largest shipyards in the program, Calship, are shown to be strongly associated with increases in capital intensity and with a reduction in quality, where the latter is measured by the probability of a ship developing serious fractures that threatened the lives of its crew. Capital deepening and quality change, in conjunction with changes in production technologies and capacity utilization, account for virtually all the increase in labor productivity.