Showing papers on "Capital deepening published in 2009"

Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education

Abstract: "Human Capital" is Becker's study of how investment in an individual's education and training is similar to business investments in equipment. Becker looks at the effects of investment in education on earnings and employment, and shows how his theory measures the incentive for such investment, as well as the costs and returns from college and high school education. Another part of the study explores the relation between age and earnings. This edition includes four new chapters, covering recent ideas about human capital, fertility and economic growth, the division of labour, economic considerations within the family, and inequality in earnings.

Intangible capital and u.s. economic growth

Abstract: Published macroeconomic data traditionally exclude most intangible investment from measured GDP. This situation is beginning to change, but our estimates suggest that as much as $800 billion is still excluded from U.S. published data (as of 2003), and that this leads to the exclusion of more than $3 trillion of business intangible capital stock. To assess the importance of this omission, we add intangible capital to the standard sources-of-growth framework used by the BLS, and find that the inclusion of our list of intangible assets makes a significant difference in the observed patterns of U.S. economic growth. The rate of change of output per worker increases more rapidly when intangibles are counted as capital, and capital deepening becomes the unambiguously dominant source of growth in labor productivity. The role of multifactor productivity is correspondingly diminished, and labor's income share is found to have decreased significantly over the last 50 years.

Evaluating the impacts of human capital stocks and accumulation on economic growth: some new evidence.

Abstract: Various hypotheses have been put forward in recent years concerning the contribution of human capital to economic growth. This paper argues that school enrolment rates — by far the most commonly used human capital measure in growth regressions attempting to test these hypotheses — conflate human capital stock and accumulation effects and lead to misinterpretations of the role of labour force growth. An alternative educationrelated human capital measure is constructed which is capable of distinguishing between stocks and flows. Applying this measure to samples of developed and less developed countries during the 1960–85 period suggests not only that there are important growth effects associated both with ‘initial’ stocks of, and subsequent growth in, human capital, but also that this new measure out-performs the simple school enrolment rates used in previous analyses.

Human Capital, the Structure of Production and Growth

Abstract: We document that countries with higher initial education levels experienced faster value-added and employment growth in schooling-intensive industries in the 1980s and 1990s. This effect is robust to controls for other determinants of international specialization and becomes stronger when we focus on economies open to international trade. Our finding is consistent with schooling fostering the adoption of new technologies if such technologies are skilled-labor augmenting, as was the case in the 1980s and the 1990s. In line with international specialization theory, we also find that countries where education levels increased rapidly experienced stronger shifts in production toward schooling-intensive industries.

Human capital development and its impact on firm performance: Evidence from developmental economics

Abstract: Human capital is getting wider attention with increasing globalization and also the saturation of the job market due to the recent downturn in the various economies of the world. Developed and developing countries put emphases on a more human capital development towards accelerating the economic growth by devoting necessary time and efforts. Thus human capital development is one of the fundamental solutions to enter the international arena. Specifically, firms must invest necessary resources in developing human capital which tend to have a great impact on performance. This paper examines the extent to which human capitals have direct impacts on firm performance from various critical perspectives. Firm performance is viewed in terms of financial and non-financial performance. Finally, this paper develops a model that explains the relationship between human capital and firm performance.

Trade and Capital Flows: A Financial Frictions Perspective

Abstract: The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes, in the sense that trade integration reduces the incentives for capital to ‡ow to capital-scarce countries. In this paper we show that in a world with heterogeneous …nancial development, the classic conclusion does not hold. In particular, in less …nancially developed economies (South), trade and capital mobility are complements. Within a dynamic framework, the complementarity carries over to (…nancial) capital ‡ows. This interaction implies that deepening trade integration in South raises net capital in‡ows (or reduces net capital out‡ows). It also implies that, at the global level, protectionism may back…re if the goal is to rebalance capital ‡ows, when these are already heading from South to North. Our perspective also has

What happened to the knowledge economy? ict, intangible investment, and britain's productivity record revisited

Abstract: Despite the apparent importance of the "knowledge economy," U.K. macroeconomic performance appears unaffected: investment rates are flat, and productivity has slowed. We investigate whether measurement issues might account for this puzzle. The standard National Accounts treatment of most spending on "knowledge" or "intangible" assets is as intermediate consumption. Thus they do not count as either GDP or investment. We ask how treating such spending as investment affects some key macro variables, namely, market sector gross value added (MGVA), business investment, capital and labor shares, growth in labor and total factor productivity (TFP), and capital deepening. We find: (a) MGVA was understated by about 6 percent in 1970 and 13 percent in 2004; (b) instead of the business investment/MGVA ratio falling since 1970 it has been rising; (c) instead of the labor share being flat since 1970 it has been falling; (d) growth in labor productivity and capital deepening has been understated and growth in TFP overstated; and (e) TFP growth has not slowed since 1990 but has been accelerating.

The returns to endogenous human capital in pakistan's rural wage labour market

Abstract: This paper estimates the private returns to human capital in Pakistani rural labour markets. The rich data used permit inclusion of several dimensions of human capital and control for endogeneity resulting from investment in human capital. The results suggest that, without data on determinants of human capital, it would not be possible to disentangle the separate effect of each dimension of human capital on wage differentials nor to distinguish human capital explanations for wage differentials from signalling and credentialist models. With control for endogeneity of human capital and selectivity into wage employment, cognitive achievement, but not schooling attainment separate from cognitive achievement nor long-run health status, affects wage differentials.

The Effect of Employment Protection Legislation and Financial Market Imperfections on Investment: Evidence from a Firm-Level Panel of EU Countries

Abstract: This paper analyzes the joint effect of EPL and financial market imperfections on investment, capital-labour substitution, labour productivity and job reallocation in a cross-country framework. In the spirit of Rajan and Zingales (1998) and Ciccone and Papaioannou (2006), we exploit variation in the need for reallocation at the sectoral and aggregate level to assess the average effect of EPL on firms’ policies. Then, exploiting firm-level information we study if the effect of EPL is stronger in firms with lower levels of internal resources. We find that, on average, EPL reduces investment per worker, capital per worker and value added per worker in high reallocation sectors relative to low reallocation sectors. The reduction in the capital-labour ratio is less pronounced in firms with higher internal resources, suggesting that financial constraints exacerbate the negative effects of EPL on capital deepening.

Measuring intangible capital and its contribution to economic growth in Europe.

Abstract: The recent economic downturn has changed the current debate on economic growth from one that emphasizes the long-run need for productivity and innovation to one that stresses economic recovery, particularly in employment. The focus on job growth is an inevitable aspect of any recession, and the deeper the recession, the greater the concern. This recession, however, is somewhat different because it has unfolded against the backdrop of the job losses and labour force restructuring brought about by the globalization of the world economy. One way to accomplish both short- and long-term objectives is to promote investment where the high-wage economies of Europe and the US have their greatest comparative advantage – the creation of knowledge. As the knowledge-content of the products and services that economies produce gradually increases, investment in knowledge production becomes the key source of economic growth. Moreover, the creation of knowledge both raises investment opportunities in the short run while creating the rewards of higher income and productivity growth in the future. Knowledge creation is part of a wide-ranging process of investment in intangible capital. This investment includes expenditures for human capital, in the form of education and training, public and private scientific research, and business expenditures for product research and development, market development, and organizational and management efficiency. These are strategic investments in the long-run growth path of individual companies and of the economy as a whole. They are increasingly seen by policy makers as essential for the sustained economic health of the economy as witnessed, for example, by the European Lisbon Strategy to revitalize growth, competitiveness and sustainable development and the America Competes Act in the United States. In order to manage intangibles both as a source of growth at the macroeconomic level, and as a driver of value creation for individual firms, it is important to measure them well. While nobody would disagree with their long-lasting benefits, the costs of most intangibles are still expensed in company financial statements and in national income and product accounts, implying that they detract from value-added growth rather than increasing it. To paraphrase Solow’s quip about the computer revolution, one could say that today “the knowledge economy is all around us, but where can we see it in the official statistics?” 1 One answer is that much of the activity we associate with knowledge creation, especially by businesses, isn’t there. Conventional measures of investment in the accounts consist primarily of tangible assets such as plant and equipment, vehicles, office buildings and other commercial structures. In reality, as the reported estimates in this article show, investment in intangibles in many advanced economies approaches the value of investment in tangible assets, and in some cases (such as in the United Kingdom and the United States) it even exceeds tangible investment. In recent decades, the accounting treatment of intangibles has begun to change, with the decision to capitalize software expenditures and treat the result as a contribution to GDP. Software is a major category of intangibles and a primary means of transforming knowledge (or “blueprints”) into computerized information. More recently, it has been proposed to extend the capitalization of intangibles to expenditure on research and development (R&D). For example, the US Bureau of Economic

Financial deepening and economic development of nigeria: an empirical investigation

Abstract: This empirical study examined financial deepening and economic development in Nigeria between 1986 and 2007. The central focus is that a high level of financial deepening is a necessary condition for accelerating growth in an economy. This is because of the central role of the financial system in mobilizing savings and allocating same for the development process. The study made use of secondary data, sourced for a period of 22 years. We specified nine explanatory variables for the study based on theoretical underpinnings. We sought to establish a relationship between these variables and financial deepening index. The two stages least squares analytical framework was used in the analysis. A trend analysis was also done in the study. At the end of the study, we found that financial deepening index is low in Nigeria over the years. We also found that the nine explanatory variables, as a whole were useful and had a statistical relationship with financial deepening. But four of the variables; lending rates, financial savings ratio, cheques/GDP ratio an d the deposit money banks/GDP ratio had a significant relationship with financial deepening. We concluded that: the financial system has not sustained an effective financial intermediation, especially credit allocation and a high level of monetization of the economy. Thus the regulatory f r a m e w o r k s h o u l d b e r e s t r u c t u r e d t o e n s u r e g o o d r i s k man agemen t, corporate governance an d stemmin g s ystemic crisis in the system.

Understanding labour income share dynamics in Europe

Abstract: This paper seeks to understand labour share dynamics in Europe over the medium run. After documenting basic empirical regularities, we quantify the contribution of shifts in the sectoral and the employment composition of the economy to labour share movements. The findings from the shift-share analysis being on the descriptive side, we next identify the factors underlying labour share behaviour through a model-based approach. We proceed along the lines of Bentolila and Saint Paul (2003) but adopt a production function with capital-skill complementarity. We show that labour share movements are driven by a complex interplay of demand and supply conditions for capital and different skill categories of labour, the nature of technological progress and imperfect market structures. Based upon robust calibration, we show that most of the declining pattern in labour shares in nine EU15 Member States is governed by capital deepening in conjunction with capitalaugmenting technical progress and labour substitution across skill categories. Although institutional factors also play a significant role, they appear to be of somewhat less importance. To illustrate the relevance of the technological explanation we quantitatively assess the dynamic impact of a permanent reduction in the fraction of unskilled employment on the labour share. We find that, for a given elasticity of substitution between skilled and unskilled labour, the more skilled labour is complementary to capital, the more pronounced the decline in the labour share.

Appraisal of Capital Market Efficiency on Economic Growth in Nigeria

Abstract: The paper is an appraisal of the impact of capital market efficiency on economic growth in Nigeria, using time series data on market capitalization, money supply, interest rate, total market transaction and government development stock that ranges between 1961 to 2004. The model specification for the analysis of data is multiple regression and ordinary lest squares estimation techniques. The result of the study shows that the capital market in Nigeria has the potentials of growth inducing, but it has not contributed meaningfully to the economic growth of Nigeria. This is as a result of low market capitalization, low absorptive capitalization, illiquidity, misappropriation of funds among others. The empirical test indicates that, these variables satisfied the economic apriori and are statistically significant except total transactions and money. Thus it was concluded and recommended that, the capital market remain one of the mainstream in every economy that has the power to influence economic growth, hence the organize private sector is encourage to invest in it. This will enable the capital market improve its illiquidity status for economic growth and development. Therefore the government must contribute in order to achieve these objectives through investing government securities in productive sectors and relaxing laws that spell threat to the capital market.

Quantifying the Effects on Lending of Increased Capital Requirements

Abstract: There is a strong consensus that reform of the financial regulatory system must include significant increases in the capital requirements for banks. All else equal, this should make the banks safer by providing a greater cushion to survive the mistakes and accidents from which they inevitably suffer. Higher capital requirements should also discourage transactions of lower economic value by creating a higher hurdle rate, since the extra units of capital need to be paid for by additional expected return. Some of the regrettable transactions that seemed attractive during the bubble might not have been undertaken at a higher hurdle rate.

Foreign direct investment and economic growth: the growth accounting perspective

Abstract: I. INTRODUCTION During the past few decades, world foreign direct investment (FDI) flows have increased dramatically, with an annual average growth rate of over 20% in the 1980s and nearly 40% by the late 1990s (UNCTAD 2006). Such a significant expansion of foreign capital flows has captured the attention of both policy makers and researchers. Growth theories predict that physical capital accumulation and technology improvement lead to better economic growth performance (e.g., Aghion and Howitt 1992; Romer 1990; Solow 1956). This provides a promising prediction about the growth effect of FDI in the host country, since FDI is considered to transfer both physical capital and intangible assets such as better technology. As a result, policy makers and governments of many host countries have attempted to attract more inward FDI by giving special incentives, such as tax breaks, to multinational corporations (MNCs). According to the UNCTAD (2000), between 1991 and 1999, 974 FDI regulatory changes have been made in over 100 countries to attract inward FDI. However, the existence of an absolute growth effect of FDI is often debated in the empirical literature (Carkovic and Levine 2005; Choe 2003). Recent researchers turn their attention toward whether FDI promotes economic growth given certain social and/or economic conditions. Two influential studies, Borensztein, De Gregorio and Lee (1998) (hereafter, BDL [1998]) and Alfaro, Chanda, Kalemli-Ozcan and Sayek (2004) (hereafter, ACKS [2004]), capture the positive effect of FDI on economic growth under two conditions: a sufficient level of human capital and a well-developed financial system, respectively. Based on data from 69 countries over the period of 1970-1989, BDL (1998) find that inward FDI promotes the host country's economic growth only when the host country obtains a threshold level of human capital, measured by average years of secondary schooling. ACKS (2004) argue that FDI alone does not necessarily contribute to economic growth in the host country. However, according to a sample of 71 countries between 1975 and 1995, the host country with a well-functioning financial system benefits significantly from inward FDI. While these important previous studies have determined the conditions under which FDI will affect overall growth, there has not been investigation into which components of growth (i.e., productivity growth and capital stock growth) are affected by FDI. (1) Such evidence is important for understanding the mechanisms by which FDI affects growth and can better inform policy. In this paper, we seek to shed light on the empirical literature of FDI growth in the perspective of growth accounting. (2) Based on the conjectures from BDL (1998) and ACKS (2004), which will be explained later, we study the effect of FDI on different growth components and how human capital and financial development affect the interaction between FDI and components of growth. To our knowledge, although some conjectures have been made in the FDI literature, there is no systematic research on this issue. We also provide a possible connection between the results in BDL (1998) and the results in ACKS (2004). Their conditions can be fundamentally different catalysts for FDI to promote economic growth. (3) On the one hand, empirical results from BDL (1998) suggest the existence of complementarity between human capital and FDI on economic growth. The authors also find that FDI does not significantly simulate domestic investment. Hence, they conclude (page 118) that "... the main channel through which FDI contributes to economic growth is by stimulating technological progress, rather than by increasing total capital accumulation in the host economy." They conjecture that FDI drives technological progress only when there is a sufficient level of human capital in the host country. The idea is later echoed by Xu (2000), who tests the impact of FDI on technology transfer and finds that U. …

Human capital and economic growth: Sweden 1870–2000

Abstract: This paper presents newly constructed series on human capital in Sweden 1870–2000. The estimates are based on enrolment in different forms of education, stretching as far back as 1812, and the size and age distribution of the population within age range 15–65 years. The secular accumulation of human capital has closely matched the long-term trend in aggregate productivity and both grew at a rate of 2.4% annually. Our estimates differ significantly from the data attributed to Sweden in the international short-cut estimates of human capital for the period since 1960. The basic question addressed is about causality: whether human capital causes economic growth or if causality goes in the other direction. We address this problem with modified Granger-causality tests. According to our results, changes in the stock of human capital have in a systematic way preceded changes in aggregate productivity up to the structural crisis in the 1970s. This allows us to conclude that human capital has been a causal factor in Swedish economic growth since the industrialisation. However, after 1975, the growth of human capital has not been able to match the demands of the third industrial revolution.

Human Capital In China

Abstract: In this paper we estimate China's human capital stock from 1985 to 2007 based on the Jorgenson-Fraumeni lifetime income approach. An individual's human capital stock is equal to the discounted present value of all future incomes he or she can generate. In our model, human capital accumulates through formal education as well as on-the-job training. The value of human capital is assumed to be zero upon reaching the mandatory retirement ages. China's total real human capital increased from 26.98 billion yuan in 1985 (i.e., the base year) to 118.75 billion yuan in 2007, implying an average annual growth rate of 6.78%. The annual growth rate increased from 5.11% during 1985-1994 to 7.86% during 1995-2007. Per capita real human capital increased from 28,044 yuan in 1985 to 106,462 yuan in 2007, implying an average annual growth rate of 6.25%. The annual growth rate also increased from 3.9% during 1985-1994 to 7.5% during 1995-2007. Therefore, although population growth contributed significantly to the total human capital accumulation before 1994, per capita human capital growth was primary driving force after 1995. The substantial increase in educational attainment during 1985-2007 contributed significantly to the growth in total and per capita real human capital.

Interest Rate Reforms, Financial Deepening and Economic Growth in Kenya: An Empirical Investigation

Abstract: This paper examines the impact of interest rate reforms on financial deepening and economic growth in Kenya, using two models: the financial deepening model and the dynamic Granger causality model. The study attempts to answer two critical questions: Does interest rate liberalization in Kenya have any positive influence on financial deepening? Does the financial depth which results from interest rate liberalization lead to economic growth? Using cointegration and error-correction models, the study finds strong support for the positive impact of interest rate liberalization on financial deepening in Kenya - although the strength and clarity of its efficacy is sensitive to the level of the dependency ratio. The study also finds financial depth to Granger cause economic growth in Kenya. The study, therefore, concludes that the interest rate liberalization in Kenya has succeeded in increasing economic growth through its influence on financial depth. This applies irrespective of whether the models are estimated in a static long-run formulation (cointegration model) or in the dynamic formulation (error-correction model).

Foreign Direct Investment and Economic Growth in Malaysia: Interactions with Human Capital and Financial Deepening

Abstract: This paper explores the role of foreign direct investment (FDI) in economic growth in Malaysia, appropriately controlling for other proximate drivers of economic growth: domestic investment, exports, financial markets, and human capital. Domestic capital formation, FDI, human capital, and financial deepening significantly affect economic growth. FDI has a positive and significant effect on economic growth, but its effect is of lesser magnitude than that of domestic investment. Human capital and financial markets interact with FDI and, thus, are important for both short- and long-term growth processes. The results suggest that it is important to encourage domestic as well as foreign investment to put Malaysia back on its precrisis growth path.

Financial sector development and economic growth: an empirical analysis of developing countries

Abstract: Using a panel data set for 35 developing countries over the period 19702003, this study analyzes the role of financial sector development in economic growth and domestic and foreign capital accumulation. A major finding of the study is that financial sector development affects per capita GDP mainly through its role in efficient resource allocation, rather than its effects on capital accumulation. Furthermore, it is the domestic rather than foreign capital accumulation that is instrumental in increasing per worker output and hence promoting economic growth in the long run. Furthermore, foreign capital also does not stimulate domestic capital accumulation, while domestic capital plays a significant role as a complementary factor for attracting foreign capital.