Showing papers on "Capital deepening published in 2010"

Capital Inflows: The Role of Controls

Abstract: There is no surefire one-size-fits-all way to deal with the impact of potentially destabilizing short-term capital inflows. From an individual-country point of view, the usual elements of the toolkit to manage inflows include currency appreciation, reserves accumulation, adjustments in fiscal and monetary policy, and strengthening the prudential framework. In some circumstances, however, the usual macro policy remedies will not be appropriate so the construction of new regulation mechanisms of capital flow is needed.

Poverty Capital: Microfinance and the Making of Development

Abstract: 1. Small Worlds: The Democratization of Capital and Development 2. Global Order: Circuits of Capital Truth 3. Dissent at the Margins: Development and the Bangladesh Paradox 4. The Pollution of Free Money: Debt, Discipline, and Dependence in the Middle East 5. Subprime Markets: Poverty Capital

Sustainability and the Measurement of Wealth

Abstract: We develop a consistent and comprehensive theoretical framework for assessing whether economic growth is compatible with sustaining well-being over time. The framework focuses on whether a comprehensive measure of wealth - one that accounts for natural capital and human capital as well as reproducible capital - is maintained through time. Our framework also integrates population growth, technological change, and changes in health. We apply the framework to five countries that differ significantly in stages of development and resource bases: the United States, China, Brazil, India, and Venezuela. With the exception of Venezuela, significant increases in human capital enable comprehensive wealth to be maintained (and sustainability to be achieved) despite significant reductions in the natural resource base. We find that the value of "health capital" is very large relative to other forms of capital. As a result, its growth rate critically influences the growth rate of per-capita comprehensive wealth.

Fertility, Human Capital, and Economic Growth over the Demographic Transition

Abstract: Do low fertility and population aging lead to economic decline if couples have fewer children, but invest more in each child? By addressing this question, this article extends previous work in which the authors show that population aging leads to an increased demand for wealth that can, under some conditions, lead to increased capital per worker and higher per capita consumption. This article is based on an overlapping generations (OLG) model which highlights the quantity–quality tradeoff and the links between human capital investment and economic growth. It incorporates new national level estimates of human capital investment produced by the National Transfer Accounts project. Simulation analysis is employed to show that, even in the absence of the capital dilution effect, low fertility leads to higher per capita consumption through human capital accumulation, given plausible model parameters.

What Capital Is Missing in Developing Countries

Abstract: What capital is missing in developing coun tries? We put forward "managerial capital," which is distinct from human capital, as a key missing form of capital in developing countries. And it has also been curiously missing in the research on growth and development. We argue in this paper that lack of managerial capital has broad implications for firm growth as well as for the effectiveness of other input factors. A large literature in development economics aims to understand the impediments to firm growth, particularly in small and medium enterprises. Standard growth theories have explored the importance of input factors such as capital and labor in the production function of firms and countries. At the micro level, empirical studies

How important is human capital? A quantitative theory assessment of world income inequality

Abstract: We develop a quantitative theory of human capital investment in order to evaluate the magnitude of cross-country dierences in total factor productivity (TFP) that explains the variation in per-capita incomes across countries. We build a heterogeneousagent economy with cross-sectional variation in ability, schooling, and expenditures on schooling quality. In our theory, the parameters governing human capital production and random ability process have important implications for a set of cross-sectional statistics Mincer return, variance of earnings, variance of schooling, and intergenerational correlation of earnings. These restrictions of the theory and U.S. household data are used to pin down the key parameters driving the quantitative implications of the theory. Our main finding is that human capital accumulation strongly amplifies TFP dierences across countries. In particular, we find an elasticity of output per worker with respect to TFP of 2.8: a 3-fold dierence in TFP explains a 20-fold dierence in output per worker. We argue that the cross-country dierences in human capital implied by the theory are consistent with a wide array of evidence including earnings of immigrants in the United States, average mincer returns across countries, and the relationship between average years of schooling and per-capita income across countries. The theory implies that using Mincer returns to measure human capital understates dierences across countries by a factor of 2.

Accounting for China's growth

Abstract: China has achieved impressive growth over the last three decades. However, there has been debate over the sources of the growth, and the role of the intensive versus extensive margin. Growth accounting exercises at the aggregate level (Rawski and Perkins, 2008; Bosworth and Collins, 2008) suggest an equal role for both. For the non-agricultural sector, there have been doubts about the contribution of TFP improvements to growth. For the period between 1978 and 1998, Young (2003) stresses the role of labor deepening, including the reallocation from agriculture, while more recent analysis points to the role of rising rates of investment. Because labor reallocation across sectors, TFP growth at the sector level and investment are all inter-related, simple growth decompositions that are often used in the literature are not appropriate for quantifying their contributions to growth. In this paper, we develop a three-sector dynamic model to quantify the sources of China's growth. The sectors include agriculture, and within non-agriculture, the state and non-state components. We find only a modest role for labor reallocation from agriculture and capital deepening, and identify rising TFP in the non-state non-agricultural sector as the key driver of growth. We also find significant misallocation of capital: The less efficient state sector continues to absorb more than half of all fixed investment. If capital had been allocated efficiently, China could have achieved the same growth performance without any increase in the rate of aggregate investment. This has important implications for China as it tries to re-balance its growth. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data sets.

Some Macroeconomic Aspects of Global Population Aging

Abstract: Across the demographic transition, declining mortality followed by declining fertility produces decades of rising support ratios as child dependency falls. These improving support ratios raise per capita consumption, other things equal, but eventually deteriorate as the population ages. Population aging and the forces leading to it can produce not only frightening declines in support ratios but also very substantial increases in productivity and per capita income by raising investment in physical and human capital. Longer life, lower fertility, and population aging all raise the demand for wealth needed to provide for old-age consumption. This leads to increased capital per worker even as aggregate saving rates fall. However, capital per worker may not rise if the increased demand for wealth is satisfied by increased familial or public pension transfers to the elderly. Thus, institutions and policies matter for the consequences of population aging. The accumulation of human capital also varies across the transition. Lower fertility and mortality are associated with higher human capital investment per child, also raising labor productivity. Together, the positive changes due to human and physical capital accumulation will likely outweigh the problems of declining support ratios. We draw on estimates and analyses from the National Transfer Accounts project to illustrate and quantify these points.

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

Abstract: Exploiting information from a panel of European firms we study the joint effect of EPL and financial market imperfections on investment, capital-labour substitution, labour productivity and job reallocation. We find that EPL reduces investment per worker, capital per worker and value added per worker in high reallocation sectors relative to low reallocation sectors, while increasing the average frequency at which firms adjust their capital stock. The reduction in capital per worker and value added per worker is less pronounced in financially sound firms. Also, the propensity to invest appears to increase only in firms that are likely to be financially unconstrained. Overall, poor access to credit markets seems to exacerbate the negative effects of EPL on capital deepening and productivity. —Federico Cingano, Marco Leonardi, Julian Messina and Giovanni Pica

Institutions, Capital, and Growth

Abstract: The international development community has encouraged investment in physical and human capital as a precursor to economic progress. Recent evidence shows, however, that increases in capital do not always lead to increases in output. We develop a growth model where the allocation and productivity of capital depends on a country's institutions. We find that increases in physical and human capital lead to output growth only in countries with good institutions. In countries with bad institutions, increases in capital lead to negative growth rates because additions to the capital stock tend to be employed in rent-seeking and other socially unproductive activities.

Human Capital Development

Abstract: This paper has two main objectives. First, it assesses and measures the gaps in the stock of human capital across the world. It presents how effectively different regions are improving their stock of human capital, and how long it will take for developing countries to catch up with the current level of human capital in industrialized countries. Second, it revisits the contribution of human capital to economic growth, proposing a decomposition method to account for employment growth – which is also impacted on by human capital growth – in explaining growth in total output per worker. The proposed methodology introduces employment growth in the growth decomposition through the employment growth elasticity. It is conjectured that as human capital increases, employment growth elasticity will decrease, making the economy less labor-intensive, resulting in higher economic growth. The proposed method points to the importance of the micro linkage between human capital and the labor market.

Demographic Change, Human Capital and Welfare

Abstract: This paper employs a large scale overlapping generations (OLG) model with endogenous human capital formation using a Ben-Porath (1967) technology to evaluate the quantitative role of human capital adjustments for the economic consequences of demographic change. We find that endogenous human capital formation is a quantitatively important adjustment mechanism which substantially mitigates the macroeconomic impact of population aging. On the aggregate level, the predicted decrease of the rate of return to physical capital is only one third of the predicted decrease in a standard model with a fixed human capital profile. In terms of welfare, while young agents with little assets gain up to 0.8% in consumption from increasing wages in both models, welfare losses from decreasing returns of older and asset rich households are substantial. But importantly, these losses are about 50-70% higher in the model without endogenous human capital formation. Ignoring this adjustment channel thus leads to quantitatively important biases of the welfare assessment of demographic change. We also document that not reforming the social security system but letting contribution rates increase will largely offset any positive welfare effects for future generations.

Chapter 72 Total Factor Productivity Growth in Agriculture: The Role of Technological Capital

Abstract: In this chapter we compute measures of total factor productivity (TFP) growth for developing countries and then contrast TFP growth with technological capital indexes. In developing these indexes, we incorporate schooling capital to yield two new indexes: Invention-Innovation Capital and Technology Mastery. We find that TFP performance is strongly related to technological capital and that technological capital is required for TFP and cost reduction growth. Investments in technological capital require long-term (20- to 40-year) investments, which are typically made by governments and aid agencies and are the only viable escape route from mass poverty. JEL classifications: Q16, Q18, Q11, O13, O47

Foreign capital inflows-growth nexus and role of domestic financial sector: an ARDL cointegration approach for Pakistan

Abstract: This study explores the roles of foreign capital inflows and domestic financial sector development on economic growth in the case of Pakistan. Using annual data series of World Bank and Economic Survey of Pakistan over the period of 1971-2008, ARDL bounds testing approach to cointegration and Error Correction Model (ECM) are employed for long run and short run relationships, respectively. Empirical evidence reveals that foreign capital inflows have positive effect on economic growth. Financial sector’s development and public investment stimulate economic growth. Human capital stock and inflation also contribute to economic growth positively. The present study suggests that Pakistan government should undertake financial reforms to improve the efficiency of the domestic financial sector which will ultimately increase the rate of economic growth in the country.

Capital Flows and Real Exchange Rates in Emerging Asian Countries

Abstract: This paper examines the nexus between capital flows and real exchange rate (RER) in emerging Asian countries using a dynamic panel-data model for 2000-2009. In contrast to previous studies, capital flows here are separated into foreign direct investment (FDI), portfolio investment, and other investment (bank loans) flows. Inflows and outflows are also treated separately in the model. The estimation results show that compositions of capital flows matter in determining impacts of the flows on the RER. Portfolio investment and other investment (including bank loans) bring in a faster RER appreciation than FDI. However, the magnitudes of appreciation among capital flows are close to each other. The increasing importance of merger and acquisition activities in FDI makes the flows behave closer to other forms of capital flows, especially portfolio investment. The estimation results also show that capital outflows bring about a greater degree of exchange rate adjustment than capital inflows. All in all, the results imply that the swift rebound of capital flows in the region could result in excessive appreciation of the (real) currencies, especially when capital flows are in a form of portfolio investment and bank loans.

Public Capital and Growth

Abstract: This paper estimates the impact of public capital on economic growth for forty-eight OECD and non-OECD countries during 1960 - 2001. Using the production function and its extensions, it finds a positive - but concave - elasticity of output with respect to public capital, which is robust to changes in time intervals and varying depreciation rates. Furthermore, in non-OECD countries the growth impact of public capital is higher once longer time intervals are considered.

Accounting for China's Growth

Abstract: China has achieved impressive growth over the last three decades. However, there has been debate over the sources of the growth, and the role of the intensive versus extensive margin. Growth accounting exercises at the aggregate level (Rawski and Perkins, 2008; Bosworth and Collins, 2008) suggest an equal role for both. For the non-agricultural sector, there have been doubts about the contribution of TFP improvements to growth. For the period between 1978 and 1998, Young (2003) stresses the role of labor deepening, including the reallocation from agriculture, while more recent analysis points to the role of rising rates of investment. Because labor reallocation across sectors, TFP growth at the sector level and investment are all inter-related, simple growth decompositions that are often used in the literature are not appropriate for quantifying their contributions to growth. In this paper, we develop a three-sector dynamic model to quantify the sources of China's growth. The sectors include agriculture, and within non-agriculture, the state and non-state components. We find only a modest role for labor reallocation from agriculture and capital deepening, and identify rising TFP in the non-state non-agricultural sector as the key driver of growth. We also find significant misallocation of capital: The less efficient state sector continues to absorb more than half of all fixed investment. If capital had been allocated efficiently, China could have achieved the same growth performance without any increase in the rate of aggregate investment. This has important implications for China as it tries to re-balance its growth. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data sets.

Entrepreneurship, income distribution and economic growth

Abstract: Traditionally different factors and variables have been considered in the economic growth models. Following Solow’s model, economists considered physical capital and technology during 1950s–1980s. With the introduction of endogenous growth models, new forms of capital were introduced in the production function; human capital, public capital and more recently social capital. However, the consideration of qualitative variables is necessary to improve the economic growth analysis. The improvement of statistical information has favored their introduction in the economic growth models. Recently, “entrepreneurship” concept has been considered in this type of analysis. Entrepreneurship considers the capacity and ability to create new business and production activity. It is an activity not an occupation. Some authors like Schumpeter have included it in their models and they have analysed its effects on economic growth. But it is also necessary to include the role of social climate, that in a schumpterian way it could be represented by income distribution. The main objective of the paper is to analyze the relationship between entrepreneurship, income distribution and economic growth following the ideas developed by Schumpeter and we will contrast them from a empirical analysis using the GEM (Global Entrepreneurship Monitor) data.

Re-estimating the Capital Stock of China:1952～2008

Abstract: This paper ameliorates the method of ascertaining the base-year capital stock and the depreciation rate.The base-year capital stock is ascertained according to the increasing rule of the capital-GDP ratio.The increasing depreciations rate are assumed and the capitals of architecture installation project and equipment purchase are respectively estimated.Then two kind of the capitals are added to obtain the total capital.

Interjurisdictional Spillovers, Decentralized Policymaking and the Elasticity of Capital Supply

Abstract: This paper points to the important role which the elasticity of aggregate capital supply with respect to the net rate of return to capital plays for the efficiency of policymaking in a decentralized economy with mobile capital and spillovers among jurisdictions. In accordance with previous studies, we show that under the assumption of a fixed capital supply (zero capital supply elasticity) the decentralized policy choice is optimal. If the capital supply elasticity is strictly positive, however, capital tax rates are inefficiently low in the decentralized equilibrium.

Human Capital Composition and Economic Growth

Abstract: The objective of this paper is to analyze the effect of various compositions of human capital on economic growth. We construct alternative measures of human capital composition using five fields of study. In each instance, the measure represents the number of graduates in the respective field as a percentage of all graduates. The measures are as follows: agriculture human capital (AGR); high-tech human capital (TECH); business and service human capital (SERVICE); the humanities human capital (HUMAN); and health and welfare human capital (HEALTH). This paper uses the OLS and System-Generalized Method of Moments (GMM) models to explain differential rates of growth among developed and developing countries. The evidence indicates the significant effects of education and high-tech human capital on growth.

Is the Export-led Growth Hypothesis Enough to Account for China's Growth?

Abstract: One of the missing pieces preventing us from understanding recent Chinese economic development is the role played by openness and capital accumulation in this process. The question is whether the sharp economic growth that the Chinese economy has experienced is another case of export-led growth due to the open-door policy or whether, on the contrary, this growth has been caused by high domestic savings and investment rates (and the consequent capital accumulation). To answer this question, we employed an empirical framework of the cointegrated vector autoregressive model. The empirical results show that both investment (in physical capital and R&D) and exports, as well as the exchange rate policy, are relevant factors in explaining China's long-run economic growth over the past 4 decades.

The effects of public capital on the productivity of the Italian regions

Abstract: This article investigates the role played by public capital in increasing the productivity levels in Italy. For construction of the regional series for the public capital stock over the period 1996 to 2003, the study benefits from the use of the rich dataset on public expenditure, recently published by the Italian Ministry of Economy. We have estimated panel production functions with the inclusion of traditional factors and also intangible inputs like research and development (R&D) expenditure, human capital (HK) and social capital (SK). The results point out that public capital has a positive and significant effect on production. Moreover, the effects of all production factors vary considerably between the two macro-areas of the country, namely Centre-North and Mezzogiorno. More specifically, while private capital is more effective in the South, labour exhibits an elasticity much higher in the Centre-North with respect to the Mezzogiorno. The disaggregation of the public capital stock into functional cat...

Is the relationship between inequality and growth affected by physical and human capital accumulation

Abstract: Using the latest available data and semiparametric methods, we investigate how human and physical capital accumulation affects the relationship between income inequality and subsequent economic growth. We find that higher income inequality generally reduces economic growth over the next 5-year period. Within nations possessing little human capital, this inequality-growth penalty is exacerbated by higher levels of physical capital, thus implying that as the returns to human capital rise relative to physical capital, inequality becomes more harmful to growth. This inequality-growth pattern does not hold in well educated nations.

Capital Flight Repatriation: Investigation of its Potential Gains for Sub‐Saharan African Countries*

Abstract: Despite the substantial recent increase in capital flows to sub-Saharan Africa (SSA), the sub-continent remains largely marginalized in financial globalization and chronically dependent on official development aid. The current debate on resource mobilization for development financing in Africa has overlooked the problem of capital flight, which constitutes an important untapped source of funds. This paper argues that repatriation of flight capital deserves more attention on economic as well as moral grounds. On the moral side, the argument is that a large proportion of the capital flight legitimately belongs to the African people and therefore must be restituted to the legitimate claimants. The economic argument is that repatriation of flight capital will contribute to propelling the sub-continent on a higher sustainable growth path while preserving its financial stability and independence and without mortgaging the welfare of its future generations through external borrowing. The anticipated gains from capital repatriation are large. In particular, this paper estimates that if only a quarter of the stock of capital flight was repatriated to SSA, the sub-continent would go from trailing to leading other developing regions in terms of domestic investment. The paper proposes some strategies for inducing capital flight repatriation, but cautions that the success of this program is contingent on a strong political will on the part of African and Western governments and effective coordination and cooperation at the global level.

The Legacy of Surveillance: An Explanation for Social Capital Erosion and the Persistent Economic Disparity between East and West Germany

Abstract: This paper presents an exemplary case of social capital destruction through state action. We investigate the patterns of economic backwardness in East Germany and put forward a formal model and empirical evidence in favor of an intuitive yet novel conjecture: the differences in the scale and depth of state security penetration of people's private lives as well as of the institutions of state and society across the regions in the former GDR have significant bearing on the social capital patterns observed in East Germany today. Our empirical evidence suggests that a one standard deviation increase in Stasi informer density is associated with a 0.6 percentage point decrease in electoral turnout, a 10% decrease in organizational involvement, and a 50% reduction in the number of organs donated across the districts in East Germany. We furthermore find robust evidence that surveillance intensity has a strong negative effect via social capital on current economic performance, and may explain approximately 7% of the East-West differential in income per capita and 26% of the unemployment gap. Our results are rare empirical evidence towards a better understanding of the mechanisms through which social capital accumulates and depreciates, and thus informative for policy-makers.