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Showing papers on "Capital deepening published in 2004"


Journal ArticleDOI
TL;DR: In this article, a calibrated dynamic trade-off model with adjustment costs is used to simulate firms' capital structure paths and the results of standard cross-sectional tests on this data are found to be qualitatively and quantitatively consistent with those reported in the empirical literature.
Abstract: In the presence of frictions firms adjust their capital structure only infrequently. As a consequence, in a dynamic economy the leverage of most firms, most of the time, is likely to differ from the optimum leverage at the time of readjustment. This paper explores the empirical implications of this observation. A calibrated dynamic trade-off model with adjustment costs is used to simulate firms' capital structure paths. The results of standard cross-sectional tests on this data are found to be qualitatively - and, in some cases, even quantitatively - consistent with those reported in the empirical literature. In particular, the standard interpretation of some test results would lead to the rejection of the model used to generate the data. The framework can explain a number of observed puzzles related to leverage. In particular, in the simulated cross-sectional samples leverage: (a) is inversely related to profitability; (b) can be largely explained by stock returns; (c) is mean-reverting. The results suggest that, in the presence of infrequent adjustment, cross-sectional properties of economic variables in dynamics may be fundamentally different from those derived assuming that they are always at their target levels. Taken together, the results suggest a rethinking of the way capital structure tests are conducted.

770 citations


Journal ArticleDOI
TL;DR: In this paper, the authors investigated the impact of foreign direct investment on economic growth in Nigeria, for the period 1970-2001, and found that both private capital and lagged foreign capital have small, and not a statistically significant effect, on the economic growth.

552 citations


Journal ArticleDOI
TL;DR: This paper considers the possibility that persistent poverty may arise from a high incidence of mortality, which is introduced in a two-period overlapping generations model and depends upon health capital that can be augmented through public investment.

433 citations


Journal ArticleDOI
TL;DR: In this paper, a simple urban economics framework is proposed to highlight how the trade-off between optimal and equilibrium city size behaves when introducing dynamic human capital externalities beside the classical congestion externalities.

358 citations


ReportDOI
TL;DR: In this article, the authors construct a hybrid of some prominent growth models that have international knowledge externalities and show that the hybrid model does a surprisingly good job of generating realistic dispersion of income levels with modest barriers to technology adoption.
Abstract: Externalities play a central role in most theories of economic growth. We argue that international externalities, in particular, are essential for explaining a number of empirical regularities about growth and development. Foremost among these is that many countries appear to share a common long run growth rate despite persistently different rates of investment in physical capital, human capital, and research. With this motivation, we construct a hybrid of some prominent growth models that have international knowledge externalities. When calibrated, the hybrid model does a surprisingly good job of generating realistic dispersion of income levels with modest barriers to technology adoption. Human capital and physical capital contribute to income differences both directly (as usual), and indirectly by boosting resources devoted to technology adoption. The model implies that most of income above subsistence is made possible by international diffusion of knowledge.

335 citations


Journal ArticleDOI
TL;DR: In this paper, a strictly positive probability of migration to a richer country, by raising both the level of human capital formed by optimizing individuals in the home country and the average level of nonmigrants in the country, can enhance welfare and nudge the economy toward the social optimum under a well-controlled restrictive migration policy.

311 citations


Journal ArticleDOI
TL;DR: In this article, the authors developed a theory of fertility and child educational choice that offers an explanation for the persistence of poverty within and across countries, under the key assumption that individuals' productivity as teachers increases with their own human capital.
Abstract: This Paper develops a theory of fertility and child educational choice that offers an explanation for the persistence of poverty within and across countries. The joint determination of the quality (education) and quantity of children in the household is studied under the key assumption that individuals' productivity as teachers increases with their own human capital. As a result, the poor choose high fertility rates with low education investment and therefore, their offspring are poor as well. Furthermore, the high fertility rates in poor economies dilute physical capital accumulation and amplify the effect of child quality choice on economic growth. The model generates multiple steady states even though the technologies employed in the production of human capital and output are convex and preferences are convex and homothetic.

302 citations


Journal ArticleDOI
TL;DR: In this paper, the authors introduce the concept of entrepreneurship cap, which identifies three types of capital as the drivers of economic growth: physical capital, human capital, and knowledge capital.
Abstract: Economics has identified three types of capital as the drivers of economic growth—physical capital, human capital, and knowledge capital. This article introduces the concept of entrepreneurship cap...

269 citations


Posted ContentDOI
TL;DR: This article provided internationally comparable capital stock estimates for 22 Organization for Economic Cooperation and Development (OECD) countries, including the United States, Canada, Australia, and New Zealand, to investigate the output effects of public investment.
Abstract: The issue of whether government capital is productive has received a great deal of recent attention. Yet empirical analyses of public capital productivity have generally been limited to the official capital stock estimates available in a small sample of countries. Alternatively, many researchers have investigated the output effects of public investment- recognizing that investment may be a poor proxy for the corresponding capital stock. This paper attempts to overcome the data shortage by providing internationally comparable capital stock estimates for 22 Organization for Economic Cooperation and Development (OECD) countries.

215 citations


Journal ArticleDOI
TL;DR: In this paper, the authors analyze the relationship between conglomerates' internal capital markets and the efficiency of economy-wide capital allocation, and identify a novel cost of conglomeration that arises from an equilibrium framework.
Abstract: We analyze the relationship between conglomerates' internal capital markets and the efficiency of economy-wide capital allocation, and identify a novel cost of conglomeration that arises from an equilibrium framework. Because of financial market imperfections engendered by imperfect investor protection, conglomerates that engage in "winner-picking" (Stein, 1997) find it optimal to allocate scarce capital internally to mediocre projects, even when other firms in the economy have higher productivity projects that are in need of additional capital. This bias for internal capital allocation can decrease allocative efficiency even when conglomerates have efficient internal capital markets, because a substantial presence of conglomerates might make it harder for other firms in the economy to raise capital. We also argue that the negative externality associated with conglomeration is particularly costly for countries that are at intermediary levels of financial development. In such countries, a high degree of conglomeration, generated for example by the control of the corporate sector by family business groups, may decrease the efficiency of the capital market. Our theory generates novel empirical predictions that cannot be derived in models that ignore the equilibrium effects of conglomerates. These predictions are consistent with anecdotal evidence that the presence of business groups in developing countries inhibits the growth of new independent firms due to lack of finance.

193 citations


Journal ArticleDOI
TL;DR: This paper showed that stock return asynchronicity is highly correlated with the strength of private property rights in general and public shareholders' rights in particular, and that sound property rights, solid shareholder rights, stock market transparency, and capital account openness appear to check this, and thus contribute to efficient capital allocation and economic growth.
Abstract: Recent work showing that a sounder financial system is associated with faster economic growth has important implications for transition economies. Stock prices in developed economies move in highly firm-specific ways that convey information about changes in firms’ marginal value of investment. This information facilitates the rapid flow of capital to its highest value uses. In contrast, stock prices in low-income countries tend to move up and down en masse , and thus are of scant use for microeconomic capital allocation. Some transition economy markets are coming to resemble those of developed economies, others those of low-income countries. Stock return asynchronicity is highly correlated with the strength of private property rights in general and public shareholders’ rights in particular. Other recent work suggests that small entrenched elites in low-income countries preserve their sweeping control over the corporate sectors of their economies by using political influence to undermine the financial system and deprive entrants of capital. The lack of cross-sectional independence in some transition economies’ stock returns may be a warning of such economic entrenchment . Sound property rights, solid shareholder rights, stock market transparency, and capital account openness appear to check this, and thus contribute to efficient capital allocation and economic growth. JEL classifications: O16, P2, F21.

Journal ArticleDOI
TL;DR: In this paper, the authors build a data set on financial and human capital flight for 48 countries for the period 1970-98 and analyse capital flight as a portfolio choice, finding that the severe financial capital flight that Africa experienced until the late 1980s has started to be reversed.
Abstract: We build a data set on financial and human capital flight for 48 countries for the period 1970-98 and analyse capital flight as a portfolio choice. Financial capital flight is measured as the stock of capital flight relative to domestically held private net wealth and human capital flight as the proportion of a country's educated population that is living outside the country. Our results suggest that the same economic factors influence human and financial portfolio decisions, namely the relative returns and the relative risks in the competing locations. We focus on the estimated model's implications for Africa, finding that the severe financial capital flight that Africa experienced until the late 1980s has started to be reversed. The factors that have accounted for this repatriation are probably the reduction in the parallel market premium and African indebtedness, the reduction in the incidence of civil war (a phenomenon true only of our sample countries, rather than a general African phenomenon) and the decline in real US interest rates. In contrast, we find that human capital flight is rapidly increasing, as the emigration of the educated is subject to much more powerful momentum effects than financial capital flight. Finally, we find that for both types of capital flight policy changes only affect outcomes with long lags, suggesting that Africa's human capital exodus will be an increasingly important problem.

Journal ArticleDOI
TL;DR: This paper found that very little of British capital exports went to poor countries, whether colonies or not, and that the three local fundamentals that mattered most were schooling, natural resources and demography.
Abstract: Why do rich countries receive the lion's share of international investment flows? Although this wealth bias is strong today, it was even stronger during the first global capital market boom before 1913. Very little of British capital exports went to poor countries, whether colonies or not. This paper constructs panel data for 34 countries that as a group received 92% of British capital. It concludes that international capital market failure had only second-order effects on the geographical distribution of British capital. The three local fundamentals that mattered most were schooling, natural resources and demography.

BookDOI
TL;DR: In this paper, the authors present empirical evidence on the determinants of industry-level multifactor productivity growth, focusing on traditional factors, including the process of technological catch up, human capital and R&D as well as institutional factors affecting labor adjustment costs.
Abstract: This paper presents empirical evidence on the determinants of industry-level multifactor productivity growth. It focus on traditional factors, including the process of technological catch up, human capital and R&D as well as institutional factors affecting labor adjustment costs. The link between R&D activity and productivity also depends on technological characteristics of the industries : while there is no evidence of R&D boosting productivity in low-tech industries, the effect is strong in high-tech industries, but the technology leaders tend to enjoy higher returns on R&D expenditure compared with followers. There is also evidence in the data that high labor adjustment costs (proxied by the strictness of employment protection legislation) can have a strong negative impact on productivity. In particular, when institutional settings do not allow wages or internal training to offset high hiring and firing costs, then the latter reduce incentives for innovation and adoption of new technologies, and lead to lower productivity performance.

Posted Content
TL;DR: This article reviewed the various explanations offered for the paradox that more capital does not flow from rich countries to poor countries and concluded that credit risk is a far more compelling reason for the paucity of rich-poor capital flows than expropriation risk.
Abstract: Lucas (1990) argued that it was a paradox that more capital does not flow from rich countries to poor countries. He rejected the standard explanation of expropriation risk and argued that paucity of capital flows to poor countries must instead be rooted in externalities in human capital formation favoring further investment in already capital rich countries. In this paper, we review the various explanations offered for this paradox.' There is no doubt that there are many reasons why capital does not flow from rich to poor nations yet the evidence we present suggests some explanations are more relevant than others. In particular, as long as the odds of non repayment are as high as 65 percent for some low income countries, credit risk seems like a far more compelling reason for the paucity of rich-poor capital flows. The true paradox may not be that too little capital flows from the wealthy to the poor nations, but that too much capital (especially debt) is channeled to debt intolerant serial defaulters.

Journal ArticleDOI
TL;DR: In this article, the authors revisited the issue of why productivity growth during the British industrial revolution was slow despite the arrival of famous inventions using a growth accounting methodology based on an embodied innovation model, and highlighted the relatively small and long-delayed impact of steam on productivity growth even when capital deepening was taken into account.
Abstract: The issue of why productivity growth during the British industrial revolution was slow despite the arrival of famous inventions is revisited using a growth accounting methodology based on an embodied innovation model. The results highlight the relatively small and long-delayed impact of steam on productivity growth even when capital deepening is taken into account. Even so, technological change including embodiment effects accounted entirely for the acceleration in labor productivity growth that allowed the economy to achieve “modern economic growth.”

Journal ArticleDOI
TL;DR: In this paper, the authors examined the effect of capital subsidies on four dimensions of the financial performance of firms, that is efficiency, profitability, capital structure, and growth, and provided evidence that capital subsidization affects solely firm growth.
Abstract: Capital subsidization is a widespread instrument of regional and industrial policy in Europe. A number of recent works have examined the influence of capital subsidization on the total factor productivity of recipient sectors and firms, and have provided strong evidence of neutral or even negative effects. The present study examines the effect of capital subsidization on four dimensions of the financial performance of firms, that is efficiency, profitability, capital structure, and growth, and provides evidence that capital subsidization affects solely firm growth.


Journal ArticleDOI
TL;DR: In this paper, the authors show that the medium to long-term effect of the spread of ICTs may increase potential output growth in the medium-to-long term via capital deepening effects and total factor productivity (TFP) gains, and in the short to medium term via the lagged adjustment of wages to productivity gains.
Abstract: The sustained increase in productivity gains from the spread of ICTs may increase potential output growth in the medium to long term via capital deepening effects and total factor productivity (TFP) gains, and in the short to medium term via the lagged adjustment of wages to productivity gains. The orders of magnitude resulting from the assessment data presented indicate that the medium to long-term effect could be significant. However, there does not appear to be any empirical evidence to support the existence of the temporary short to medium-term effect.

Posted Content
TL;DR: In this article, the causal relationship among human capital accumulation, exports, and economic growth using data pertaining to Taiwan's real GDP, real exports and higher education attainment over the period 1952-95.
Abstract: By using cointegration and error-correction representation methodology, this paper tested the causal relationship among human capital accumulation, exports, and economic growth using data pertaining to Taiwan's real GDP, real exports, and higher education attainment over the period 1952-95. The main findings of the paper are that human capital accumulation fosters growth and stimulates exports, while exports promote long-run growth by accelerating the process of human capital accumulation. Taiwan's case study thus supports the human capital-based endogenous growth theory and the export-led growth hypothesis.

Journal ArticleDOI
TL;DR: The authors examine the connection between the creation of stock exchanges and economic growth with a new set of data on economic growth that spans a longer time period than generally available, and find that economic growth increases relative to the rest of the world after a stock exchange opens.

Book ChapterDOI
TL;DR: In this paper, the authors analyzed the importance of ICT capital deepening and innovation for productivity in German and Dutch firms from the services sector and found that ICT use and innovation may be complementary.
Abstract: Using panel data for German and Dutch firms from the services sector, this paper analyses the importance of ICT capital deepening and innovation for productivity. We employ a model that takes into account that innovation and ICT use may be complementary. The results show that the contribution of ICT capital deepening is raised when firms combine ICT use and technological innovations on a more permanent basis. Moreover, the joint impact of ICT use and permanent technological innovation on productivity appears to be of the same order of magnitude in the two countries. However, the direct impacts of innovation on multi-factor productivity seems to be more robust for Germany than for the Netherlands.

Posted Content
TL;DR: In this article, the effects of population aging and pension reform on international capital markets were analyzed and the authors developed a computational general equilibrium model to quantify these effects and showed that capital flows from fast-aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings.
Abstract: We present a quantitative analysis of the effects of population aging and pension reform on international capital markets. First, demographic change alters the time path of aggregate savings within each country. Second, this process may be amplified when a pension reform shifts old-age provision towards more pre-funding. Third, while the patterns of population aging are similar in most countries, timing and initial conditions differ substantially. Hence, to the extent that capital is internationally mobile, population aging will induce capital flows between countries. All three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply. In order to quantify these effects, we develop a computational general equilibrium model. We feed this multi-country overlapping generations model with detailed long-term demographic projections for seven world regions. Our simulations indicate that capital flows from fast-aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings. We also conclude that closed-economy models of pension reform miss quantitatively important effects of international capital mobility.25 August, 2004

Book
04 Oct 2004
TL;DR: In this article, the problematic relationship between Neo-Walrasian Equilibrium Analyses and Real Economies is discussed, and the long-period method is proposed to solve it.
Abstract: Preface 1. The Long-Period Method 2. The Problematic Relationship Between Neo-Walrasian Equilibrium Analyses and Real Economies 3. Long-Period Equilibria 4. Must Long-Period Equilibria Be Stationary? With Initial Observations on Investment 5. Walras, the Shift to Neo-Walrasian Equilibria, and Some Confusions 6. Reswitching and Reverse Capital Deepening 7. Capital Theory and Macroeconomics: The Theory of Aggregate Investment 8. Capital Theory and Macroeconomics: The Labour Demand Curve 9. Summary of the Critical Argument, and Sketch of an Alternative Approach References

Posted Content
TL;DR: In this paper, the authors evaluate the effect of capital constraints on entrepreneurial performance on a panel of 1,000 Dutch entrepreneurs and find that initial capital constraints hinder entrepreneurs in their performance, even when they control for various human capital and other factors that might affect both performance and credit scoring outcomes.
Abstract: A novel method is applied to evaluate the effect of capital constraints on entrepreneurial performance on a panel of 1,000 Dutch entrepreneurs. We find that initial capital constraints hinder entrepreneurs in their performance, even when we control for various human capital and other factors that might affect both performance and credit scoring outcomes. We use a direct individual indicator variable for initial capital constraints. Previous research with the same objective used indirect indicators of wealth, inheritances or windfall gains, where it remains unknown whether the entrepreneur indeed suffered from capital constraints. This drawback is not attached to our (neither perfect) approach so that policy implications will become more evident.

Journal ArticleDOI
TL;DR: In this article, a measure of long-run capital mobility is proposed, which can be easily calculated as a byproduct of the estimation procedure of a cointegrated VAR.

Journal ArticleDOI
TL;DR: This paper provided internationally comparable capital stock estimates for 22 Organization for Economic Cooperation and Development (OECD) countries and found that public investment may be a poor proxy for the corresponding capital stock.
Abstract: The issue of whether government capital is productive has received a great deal of recent attention. Yet empirical analyses of public capital productivity have generally been limited to the official capital stock estimates available in a small sample of countries. Alternatively, many researchers have investigated the output effects of public investmentrecognizing that investment may be a poor proxy for the corresponding capital stock. This paper attempts to overcome the data shortage by providing internationally comparable capital stock estimates for 22 Organization for Economic Cooperation and Development (OECD) countries.

Posted Content
TL;DR: In this article, the authors investigated the effects of trade liberalization on the technical efficiency of the Bangladesh manufacturing sector by estimating a combined stochastic frontier-inefficiency model using panel data for the period 1978-94 for 25 three-digit level industries.
Abstract: The paper investigates the effects of trade liberalization on the technical efficiency of the Bangladesh manufacturing sector by estimating a combined stochastic frontier-inefficiency model using panel data for the period 1978–94 for 25 three-digit level industries. The results show that the overall technical efficiency of the manufacturing sector as well as the technical efficiencies of the majority of the individual industries has increased over time. The findings also clearly suggest that trade liberalization, proxied by export orientation and capital deepening, has had significant impact on the reduction of the overall technical inefficiency. Similarly, the scale of operation and the proportion of nonproduction labor in total employment appear as important determinants of technical inefficiency. The evidence also indicates that both export-promoting and import-substituting industries have experienced rises in technical efficiencies over time. Besides, the results are suggestive of neutral technical change, although (at the 5 per cent level of significance) the empirical results indicate that there was no technical change in the manufacturing industries. Finally, the joint test based on the likelihood ratio (LR) test rejects the Cobb-Douglas production technology as description of the database given the specification of the translog production technology.

Journal ArticleDOI
TL;DR: In this article, the authors examine the human capital-innovation-growth nexus, and test its insights against the economic evolution of an individual country, Portugal, using time series data from 1960 to 2001.
Abstract: In maintaining that the main flaw in empirical studies on economic growth derives from the fact that they employ Solow-style neoclassical growth models, rather than testing actual endogenous growth theory, we examine the human capital-innovation-growth nexus, thus testing new growth theory more directly. We test its insights against the economic evolution of an individual country, Portugal, using time series data from 1960 to 2001. Estimates based on vector autoregressive and cointegration analysis seem to confirm that human capital and indigenous innovation efforts were enormously important to the economic growth process in Portugal during the period of study. In particular, the indirect effect of human capital through innovation, emerges here as being critical, showing that a reasonably high stock of human capital is necessary to enable a country to reap the benefits of its indigenous innovation efforts.

Posted Content
TL;DR: In this paper, a simultaneous equations model was developed to test the process of interaction between foreign direct investment, exports and economic growth in three Middle Eastern countries: Egypt, Jordan, Oman, and test for any possible feedback effects.
Abstract: This paper develops a simultaneous equations model to test the process of interaction between foreign direct investment, exports and economic growth in three Middle Eastern countries: Egypt, Jordan, Oman, and test for any possible feedback effects. Most of the FDI in these countries flows from the EU. The simultaneous equations model results suggest that higher rates of economic growth result in a greater inflow of foreign capital. The regression results also suggest that interest rate differentials exert a much stronger effect than economic growth on the attraction of foreign capital in the case of Egypt. However, this variable does not seem to play a significant role in the case of Oman. Moreover, the simultaneous equations model results suggest that there is a feedback effect in the relationship between economic growth and capital inflow in all sample countries. A greater inflow of foreign capital leads to growth in the exports of good and services. The expansion in exports leads to growth in GNP, which in turn, encourages the attraction of more foreign capital.