Showing papers on "Capital deepening published in 2015"

Deciphering the fall and rise in the net capital share

Abstract: In the postwar era, developed economies have experienced two substantial trends in the net capital share of aggregate income: a rise during the last several decades, which is well-known, and a fall of comparable magnitude that continued until the 1970s, which is less well-known. Overall, the net capital share has increased since 1948, but when disaggregated this increase comes entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other. When decomposed into a return on fixed assets and a residual share of pure profits, the fall and rise of capital income outside the housing sector in the US owes mostly to the residual: it is not paralleled by fluctuations in the measured value of non-housing capital. This observation-- combined with the theory of factor substitution, and simulation results from a multisector model--casts doubt on explanations of changes in the net capital share that rely on changes in the value of capital. There is greater support in the data for narratives that emphasize cyclical and trend variation in market power

About Capital in the Twenty-First Century

Abstract: In this article, I present three key facts about income and wealth inequality in the long run emerging from my book, Capital in the Twenty-First Century, and seek to sharpen and refocus the discussion about those trends. In particular, I clarify the role played by r > g in my analysis of wealth inequality. I also discuss some of the implications for optimal taxation, and the relation between capital-income ratios and capital shares.

The impact of human capital on economic growth

Abstract: The EU's 2020 Strategy is focused on three area of growth: smart, sustainable and inclusive that couldn’t be achieved without major contribution of skills, knowledge or value of people, common knew as human capital. It is difficult to believe that these goals could be realized without a good education and training system, a large diffusion of knowledge in manufacturing services, a creative industries and a great effort to create a research-intensive economy. Using a panel methodology, the paper tried to reveal the role of human capital as a factor of the growth and to argue that the slow investment in human capital should influence the sustainable development of the countries.

Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account

Abstract: As shown in the 1930s by Hicks and Robinson, the elasticity of substitution (σ) is a key parameter that captures whether capital and labor are gross complements or substitutes. Establishing the magnitude of σ is vital, not only for explaining changes in the distribution of income between factors but also for undertaking policy measures to influence it. Several papers have explained the recent decline in labor's share in income by claiming that σ is greater than 1 and that there has been capital deepening. This paper presents evidence that refutes these claims. It shows that despite a rise in measured capital-labor ratios, labor-augmenting technical change in the United States has been sufficiently rapid that effective capital-labor ratios have actually fallen in the sectors and industries that account for the largest portion of the declining labor share in income since 1980. In combination with estimates that corroborate the consensus in the literature that σ is less than 1, these declines in the effective capital-labor ratio can account for much of the recent fall in labor's share in US income at both the aggregate and industry level. Paradoxically, these results also suggest that increased capital formation, ideally achieved through a progressive consumption tax, would raise labor's share in income.

Human Capital Investment and Economic Growth in Nigeria

Abstract: The role of human capital in the growth process of any nation is crucial. It is a major tool for poverty reduction. The main aim of this paper is to carry out an empirical investigation on the relationship between investment in education, health and economic growth in Nigeria, using time series data from 1982 to 2011. This paper employs trend analysis, the Johansen cointegration and ordinary least square technique. Empirical findings however indicate that there is a long-run relationship between government expenditure on education, health and economic growth. The variables: health and education expenditure, secondary and tertiary enrolment rate and gross fixed capital formation appear with the expected positive signs and are statistically significant (except government expenditure on education and primary enrolment rate). The findings of this work have strong implications on education and health policies and considering that they are of great debate in the country. Therefore, this study recommends that in order to accelerate growth and liberate Nigerians from the vicious cycle of poverty, the government should put in place policies geared towards massive investment in the education and health. Key words : Economic growth, Human Capital, Education, Health and Gross fixed capital formation.

Capital Imports Composition, Complementarities, and the Skill Premium in Developing Countries

Abstract: We study how the composition of capital imports affects relative demand for skill and the skill premium in a sample of developing economies. Capital imports per se do not affect the skill premium; in contrast, their composition does. While imports of R&D-intensive capital equipment raise the skill premium, imports of less innovative equipment lower it. We estimate that R&D-intensive capital is complementary to skilled workers, whereas less innovative capital equipment is complementary to unskilled labor. which explains the composition effect. This mechanism has substantial explanatory power. Variation in tariffs, freight costs and overall barriers to trade, over time and across types of capital, favors imports of skill-complementary capital over other types. We calculate that reductions in barriers to trade increase inequality substantially in developing countries through the composition channel.

Physical Capital, Human Capital, and Social Capital: The Changing Roles in China’s Economic Growth

Abstract: This paper examines the roles of physical capital, human capital, and social capital in China's economic growth during the reform period 1981-2010. Empirical estimation confirms that physical capital and human capital contribute to the economic growth, probably due to the capital accumulation and the improvement of labor productivity. The impact of social capital turns from being insignificant in the 1980s and the 1990s to be positive in the 2000s, suggesting its rising importance in recent decades. A declining role of physical capital in the economic growth in China from 1990s to 2000s is also found. The findings hold for several additional robustness checks, including focusing on longer term determinants of the economic growth, subregional analysis, and endogeneity. Furthermore, the foreign direct investment inflows and adjustment of economic ownership structure are also important for economic growth in China.

CES and VES Production Functions in a Cross-Section Context

Abstract: Recent years have witnessed a growing interest in variable-elasticity-ofsubstitution (VES) production functions. Alternative parametric forms have been derived, analyzed, and tested on various bodies of data by Lovell (1968), Lu and Fletcher (1968), and Revankar (1971), among others. Several studies have found the elasticity of substitution between capital and labor to vary, usually inversely and often significantly, as capital deepening occurs. Such evidence naturally casts some measure of doubt on the empirical usefulness of any constant-elasticity-of-substitution (CES) specification as a descriptive tool.' The purpose of this study is to shed some theoretical and empirical light on the subject. It is well known that time-series evidence can be misleading if consideration is not accorded the manner in which technical change affects a production function. If technical change is biased in Hicks's sense, the net relationship between the elasticity of substitution and factor proportions along an isoquant is obscured by a nonradial displacement of the isoquant map as technical change occurs. Cross-section evidence is subject to analogous, but less widely recognized, reservations. Nonneutral geographical variation in production technology causes the same estimation problems as biased technical changes does in a time-series context. In either case discrimination between alternative functional forms becomes a difficult proposition. After elaborating on this point in Section II, we introduce two specifications of an aggregate production function that are amenable to estimation in a cross-section context. One function is CES, the other VES, and both encompass the Cobb-Douglas (CD) form as a special case. Both functions contain three factors of production (capital, production labor, and non-

Social Capital, Investment and Economic Growth: Some Evidence for Spanish Provinces

Abstract: This article analyses the impact of social capital on regional economic growth in Spain during the 1985–2005 period. The literature in this context is virtually nonexistent and, in addition, whereas most studies, regardless of their context, have used survey data in order to measure social capital, we use a measure whose construction is based on similar criteria to other measures of capital stock. Compared with more standard measures of social capital and trust, our measure is available with a high level of disaggregation, and with annual frequency for a long time period. Following a panel data approach, our findings indicate that social capital has a positive impact on GDP per capita growth in the context of Spanish provinces, implying that ‘social features’ are important for explaining the differences in wealth that one might find across Spanish provinces. We also explore the transmission mechanisms from social capital to growth, finding a highly positive relation between social capital and priv...

Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account

Abstract: As shown in the 1930s by Hicks and Robinson, the elasticity of substitution () is a key parameter that captures whether capital and labor are gross complements or substitutes. Establishing the magnitude of  is vital, not only for explaining changes in the distribution of income between factors but also for undertaking policy measures to infl uence it. Several papers have explained the recent decline in labor’s share in income by claiming that  is greater than 1 and that there has been capital deepening. Th is paper presents evidence that refutes these claims. It shows that despite a rise in measured capital-labor ratios, labor-augmenting technical change in the United States has been suffi ciently rapid that eff ective capital-labor ratios have actually fallen in the sectors and industries that account for the largest portion of the declining labor share in income since 1980. In combination with estimates that corroborate the consensus in the literature that  is less than 1, these declines in the eff ective capital-labor ratio can account for much of the recent fall in labor’s share in US income at both the aggregate and industry level. Paradoxically, these results also suggest that increased capital formation, ideally achieved through a progressive consumption tax, would raise labor’s share in income.

Transformation and concentration of intellectual capital as a factor of economic growth in the modern economy

Abstract: World experience shows that the high economic and social performance of the industrialized countries, their dynamism and flexibility in a progressive change in the structure of production in the direction of post-industrial society is directly related to the development of scientific and technological revolution, the effective use of its achievements. The hypothesis of the study is the assumption that the capacity of scientific and intellectual potential and its penetration into all areas without exception social production contributes to economic growth. At the present stage the concentration of intellectual capital has significant potential for economic activity, projecting the vector of development of society. This is a key factor, the development of which has a fairly comprehensive resource for qualitative and quantitative changes and time parameters. The study attempts to influence the transformation of scientific evidence and the concentration of intellectual capital on economic growth. The author defines the concept and essence of the concentration of intellectual capital, explores the main ways the concentration of intellectual capital, analyzes the process of reproduction of the intellectual capital and reveals a link gain imbalance of scientific and technological development of the major subsystems of the world economy and individual countries with the outflow of intellectual capital.

Human Capital and Development

Abstract: Perhaps no question has attracted as much attention in the economics literature as "Why are some countries richer than others?" In this article, the author revisits the "development problem" and provides some estimates of the importance of human capital in accounting for cross-country differences in output per worker. His results suggest that human capital has a central role in determining the wealth of nations and that the quality of human capital varies systematically with the level of development.

Ethiopia — an Agrarian Economy in Transition

Abstract: Ethiopia has experienced rapid economic growth since 2005. Real gross domestic product (GDP) grew at an average rate of 10.5 per cent per annum for the period between 2004–05 and 2013–14. Public investment in key infrastructure and interventions in the agriculture sector have made important contributions to GDP growth. This growth has been accompanied by a process of capital deepening and signs of structural shift away from traditional and primary sectors towards secondary and tertiary sectors. Both processes of high growth and structural shift have important implications for poverty reduction and income distribution. One potential channel through which these influences work is the labour market. The indications of structural transformation that Ethiopia has shown in the last decade, including a continuous decline in the role of agriculture and rise in that of services, have led to reallocation of jobs and labour from low-productivity agriculture to more productive industrial—in particular the construction sub-sector—and service sectors. The rise in total factor productivity, overall increase in labour force participation rate, and fall in the labour share of the agriculture sector are indicative of the nature and extent of structural shift in the Ethiopian economy. A more durable shift of economic activities towards the manufacturing sector is expected to follow the rising trend in investment in the sector. This study explores the impact of the high economic growth and slow but unmistakable structural change on a number of economic outcomes working through the labour market. The growth opportunities and challenges of the Ethiopian economy are also discussed.

The Rise of Data Capital

Abstract: If exploited correctly, data can offer economic advantage, spur innovations, and generate revenue to enterprises. Cloud computing and big data are often intertwined. In fact, "cloud-based big data services" is becoming a general phrase, with examples including cloud-based big data analytics and cloud-based big data storage services. This issue looks at various topics in cloud computing, from the emerging cloud of sensors, which builds on the Internet of Things and wireless sensors, to cloud brokering and its challenges when deploying in an enterprise, to a unique method to classify and grade security aspects.

INTELLECTUAL CAPITAL, INNOVATION, AND PERFORMANCE: EMPIRICAL EVIDENCE FROM SMEs

Abstract: This research paper examines the relationship between intellectual capital, product innovation and performance based on a study of Austrian firms covering a 10-year period. It is argued that intellectual capital enhances a firms ability to successfully realise innovations and thus contributes positively to its performance. Our study found that human capital and structural capital were both significantly associated with performance in product innovating firms, but that each had a different impact on this performance. While human capital had a positive impact on profitability and growth in the long run, contrary to expectations, structural capital had a negative effect on profitability and growth indicating that apparent strength can turn into a weakness over time. In addition, the study found that human capital and structural capital had no joint effect on the performance of product innovating firms.

Social Capital, Inequality, and Economic Crisis

Abstract: Economic growth is produced in part by the accumulation of different kinds of capital, including social capital in its several forms. If such capital depreciates, including social capital, the economy can be undermined and financial and economic crises can follow. The author compares experiences in the United States to those in Sweden and Iceland to draw useful lessons.

Productivity and Digitilization in Europe: Paving the Road to Faster Growth

Abstract: This paper reviews the latest evidence on the contribution of Information and Communication Technology (ICT) – and the digital economy more broadly – on economic growth for Europe and the United States since the late 1990s until most recently. The paper provides estimates on the contributions from ICT to growth from three channels affecting the long-term growth performance of entire economies: 1) a productivity effect through the ICT-producing sector, 2) an investment effect from ICT-using industries through capital deepening, and 3) a productivity effect from an efficiency rise through the use of ICT which goes beyond the direct capital deepening effect. The study finds that the slowing of the total factor productivity growth rate in Europe reflects a failure to effectively adopt new technologies and innovation. It is also argued that the lack of rapid accumulation of intangible capital (such as information assets, innovative property, and economic competencies) constrains Europe's ability to accelerate and facilitate the innovation effects from digital technology. Finally, we discuss some policy implication emerging from our work, in particular the need to complete the Single Market in Europe to improve the productivity effects from the digital economy.

Social capital as a key driver of productivity growth of the economy: across-countries comparison

Abstract: The aim of this work was to show the possible impact of social capital on productivity of the economy. That impact can be measured by such indicators of productivity of the economy as used in our study: the GDP, the total value added of the economy (TVE), and the GNI per total labour force. Thus, this paper was organized as follows: its first part presents the relationship between the development of social capital and productivity growth of the country in the light of the economic development theory. In this context, it is pointed out that the significance of social capital as a component of the productivity potential of a given country increases when such country moves to the next stages of economic development. Therefore, social capital becomes a very important driver of the upgrading of national incomes in those countries, in which competitive advantages are based primarily on intellectual capital assets. The another part of the paper describes the methodology and the results of a research conducted on a group of 100 countries in the years 2012-2013 with an aim to illustrate the link between social capital and productivity of the economy as a whole referred to, or indicated, in the first part of the study. The results of the research allowed us to formulate a conclusion that without an appropriate ethical behaviour, not only in business, the productivity growth is hampered because it translates into a lower level of trust and unwillingness to cooperate. In other words, as, among others, W. Bartoszewski stressed, "it is worth to be decent".

Capital Unemployment, Financial Shocks, and Investment Slumps

Abstract: Recoveries from financial crises are characterized by low investment rates and declines in capital stocks. This paper constructs an equilibrium framework in which financial shocks have a persistent effect on aggregate investment. The key assumption is that physical capital is traded in a decentralized market with search frictions, generating 'capital unemployment.' After a negative financial shock, the share of unemployed capital is high, and the economy dedicates more resources to absorbing existing unemployed capital into production, and less to accumulating new capital. An estimation of the model for the U.S. economy using Bayesian techniques shows that the model can generate the investment persistence and half of the output persistence observed in the Great Recession. Investment search frictions also lead to a different interpretation of the sources of business-cycle fluctuations, with a larger role for financial shocks, which account for 33% of output fluctuations. Extending the model to allow for heterogeneity in match productivity, the framework also provides a mechanism for procyclical capital reallocation, as observed in the data.