Showing papers on "Capital deepening published in 2016"

Technology, Skill, and the Wage Structure: Insights from the Past

Abstract: Recent technological advances and a widening of the wage structure have led many to conclude that technology and human capital are relative complements. The possibility that such a relationship exists today has prompted a widely held conjecture that technology and skill have always been relative complements. According to this view, technological advance always serves to widen the wage structure, and only large injections of education slow its relentless course. A related literature demonstrates that capital and skill are relative complements today and in the recent past (Zvi Griliches, 1969). Thus capital deepening appears also to have increased the relative demand for the educated, serving further to stretch the wage structure. Physical capital and technology are now regarded as the relative complements of human capital, but have they been so for the past two centuries? Some answers have already been provided. A literature has emerged on the bias to technological change across history that challenges the view that physical capital and human capital have always been relative complements. Many of the major technological advances of the 19th century substituted physical capital, raw materials, and unskilled labor for highly skilled artisans (John A. James and Jonathan S. Skinner, 1985). But if physical capital and human skill were not always relative complements, when did they become so, and when did new technology become skilled labor's complement? We argue that capital-skill complementarity was manifested in the aggregate economy as particular technologies spread, specifically batch and continuous-process methods of production. Across the past two centuries, manufacturing shifted first from artisanal to mechanized and nonmechanized factory production, then from simple factories to assembly lines, and finally from assembly lines to continuous and batch processes. Although few products were manufactured by more than two of the technologies mentioned, manufacturing, as a whole, progressed in the fashion described. In considering our argument it is useful to envision manufacturing as having two distinct stages: (i) a machine-installation and machine-maintenance segment and (ii) a production or assembly portion. Capital and educated (skilled) labor, we will argue, are always complements in the machine-maintenance segment of manufacturing, regardless of the technology. Machinists, for example, are needed to install machinery and make it run. The workable capital created by skilled labor plus raw capital is then used by unskilled labor to create the final product in the production or assembly segment of manufacturing. How the adoption of a technology alters the relative demand for skilled workers will depend on whether the machinemaintenance demand for skilled labor is offset by the production-process demand for unskilled labor.

Capital account liberalization, free long-term capital flows, financial crises and economic development

Abstract: Trade Organization (WTO) in relation to foreign direct investment (FDI) flows. This paper focuses on developing countries and it considers policy from the perspective of (a) economic development and (b) the global rules of the game rather than the economic policy within individual countries. The paper essentially examines the question: what kind of global economic order in relation to capital flows can best serve the interests of developing countries? Capital account liberalization is an area where economic theory is the most disconnected from real-world events. In analyzing liberalization of capital flows, it is customary to distinguish between short-term (for example, portfolio flows and shortterm bank loans) and long-term flows (for example, FDI). Neoclassical theory suggests that free flows of external capital (including short-term capital) should be equilibrating and help smooth a country’s consumption or production paths. However, in the real world, exactly the opposite appears to happen. Liberalization of the shortterm capital account has invariably been associated with serious economic and financial crises in Asia and Latin America in the 1990s. The proponents of neoclassical theory argue that the case for free capital flows is no different from that for free trade; the former could simply be regarded as a form of inter-temporal trade. The first part of the paper addresses this central controversy in relation to developing countries and specifically asks the following questions:

Deciphering the Fall and Rise in the Net Capital Share: Accumulation or Scarcity?

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 once disaggregated this increase turns out to come 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. Several influential accounts of the recent rise emphasize the role of increased capital accumulation, but this view is at odds with theory and evidence: it requires empirically improbable elasticities of substitution, and it presumes a correlation between the capital-income ratio and capital share that is not visible in the data. A more limited narrative that stresses scarcity and the increased cost of housing better fits the data. These results are clarified using a new, multisector model of factor shares.

The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy

Abstract: In this paper, we aim to bring the debate on the global productivity slowdown – which has largely been conducted from a macroeconomic perspective – to a more micro-level. We show that a particularly striking feature of the productivity slowdown is not so much a lower productivity growth at the global frontier, but rather rising labour productivity at the global frontier coupled with an increasing labour productivity divergence between the global frontier and laggard (non-frontier) firms. This productivity divergence remains after controlling for differences in capital deepening and mark-up behaviour, suggesting that divergence in measured multi-factor productivity (MFP) may in fact reflect technological divergence in a broad sense. This divergence could plausibly reflect the potential for structural changes in the global economy – namely digitalisation, globalisation and the rising importance of tacit knowledge – to fuel rapid productivity gains at the global frontier. Yet, aggregate MFP performance was significantly weaker in industries where MFP divergence was more pronounced, suggesting that the divergence observed is not solely driven by frontier firms pushing the boundary outward. We contend that increasing MFP divergence – and the global productivity slowdown more generally – could reflect a slowdown in the diffusion process. This could be a reflection of increasing costs for laggard firms of moving from an economy based on production to one based on ideas. But it could also be symptomatic of rising entry barriers and a decline in the contestability of markets. We find the rise in MFP divergence to be much more extreme in sectors where pro-competitive product market reforms were least extensive, suggesting that policy weaknesses may be stifling diffusion in OECD economies.

Impact of Government Expenditure on Economic Growth in Nigeria: A Disaggregated Analysis

Abstract: The purpose of this paper was to assess the impact of government capital expenditures on economic growth in Nigeria during 1970 and 2012. A multiple regression model based on a modified endogenous growth framework was utilized to capture the interrelationships among capital expenditures on agriculture, education, health economic infrastructure and economic growth. Drawing on error correction and cointegration specifications, an OLS technique was used to analyze annual time series. Both short and long run effects of government capital expenditures on economic growth were estimated. Government capital expenditures had differential effects on economic growth. Capital expenditures on Agriculture did not exert any significant influence on growth both in the long and short runs. Similarly, the corresponding short-run and long-run impacts on growth of capital expenditures on Education were 0.45 and 0.48, respectively. These results were positive and statistically significant at the 5% level. The short-run impact of health capital expenditures on economic growth was 0.21, while the long-run impact was 0.16. These impacts were negative and insignificant. Expenditures on economic infrastructure had significant positive impacts on growth of 0.28 in the short-run and 0.32 in the long-run.

Measuring the value of groundwater and other forms of natural capital.

Abstract: Valuing natural capital is fundamental to measuring sustainability. The United Nations Environment Programme, World Bank, and other agencies have called for inclusion of the value of natural capital in sustainability metrics, such as inclusive wealth. Much has been written about the importance of natural capital, but consistent, rigorous valuation approaches compatible with the pricing of traditional forms of capital have remained elusive. We present a guiding quantitative framework enabling natural capital valuation that is fully consistent with capital theory, accounts for biophysical and economic feedbacks, and can guide interdisciplinary efforts to measure sustainability. We illustrate this framework with an application to groundwater in the Kansas High Plains Aquifer, a rapidly depleting asset supporting significant food production. We develop a 10-y time series (1996−2005) of natural capital asset prices that accounts for technological, institutional, and physical changes. Kansas lost approximately $110 million per year (2005 US dollars) of capital value through groundwater withdrawal and changes in aquifer management during the decade spanning 1996–2005. This annual loss in wealth is approximately equal to the state’s 2005 budget surplus, and is substantially more than investments in schools over this period. Furthermore, real investment in agricultural capital also declined over this period. Although Kansas’ depletion of water wealth is substantial, it may be tractably managed through careful groundwater management and compensating investments in other natural and traditional assets. Measurement of natural capital value is required to inform management and ongoing investments in natural assets.

Estimating the impact of changes in aggregate bank capital requirements on lending and growth during an upswing.

Abstract: This paper estimates the effect of changes in banks’ capital requirements on lending by studying the joint dynamics of the historic aggregate capital ratio of the UK banking system and a set of macro-financial variables. This is achieved by means of sign restrictions that attempt to identify shocks in past data that match a set of assumed directional responses of other variables to future changes in capital requirements aimed at increasing the resilience of the banking system to losses during an upswing. This may provide policy-makers with a plausible ‘upper bound’ on the short-term effects of future increases in macroprudential capital requirements in certain states of the UK economic cycle. An increase in the aggregate bank capital requirement during an economic upswing is associated with a reduction in lending, with a larger effect on lending to corporates than on that to households. The impact on GDP growth is statistically insignificant.

Capital and labour (mis)allocation in the euro area: Some stylized facts and determinants

Abstract: We analyse the evolution of capital and labour (mis)allocation across firms in five euro-area countries (Belgium, France, Germany, Italy and Spain) and eight main sectors of the economy during the period 2002-2012. Three key stylized facts emerge. First, in all countries with the exception of Germany, capital allocation has worsened over time whereas the efficiency of labour reallocation has not changed significantly. Second, the observed increase in capital misallocation has been particularly severe in services as opposed to industry. Third, misallocation of both labour and capital dropped in all countries in 2009 and again for some country-sectors in 2011-2012. We next take stock of the possible drivers of input misallocation dynamics in a standard panel regression framework. Controlling for demand conditions and for the initial level of misallocation, heightened uncertainty, restrictive bank credit standards and tight product and labour market regulation are found to have boosted input misallocation, whereas the Great Recession per se exerted a cleansing effect. JEL Classification: D24, D61, O47

Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy

Abstract: This article estimates the causal impact of dismissal costs on capital deepening and productivity, exploiting a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees, leaving firing costs unchanged for larger firms. We show that the rise in firing costs induced an increase in the capital-labour ratio and a decline in total factor productivity in small firms relative to larger firms. Our results indicate that capital deepening was more pronounced at the low-end of the capital distribution - where the reform hit arguably harder - and among firms endowed with a larger amount of liquid resources. We also find that stricter Employment Protection Legislation (EPL) raised the share of high-tenure workers, which suggests a complementarity between firm-specific human capital and physical capital in moderate EPL environments. [ABSTRACT FROM AUTHOR]

The mother of all sudden stops: capital flows and reversals in Europe, 1919-32: Capital Flows and Reversals

Abstract: We present new data documenting European capital issues in major financial centers from 1919 to 1932. Push factors (conditions in international capital markets) perform better than pull factors (conditions in the borrowing countries) in explaining the surge and reversal in capital flows. In particular, the sharp increase in stock market volatility in the major financial centers at the end of the 1920s figured importantly in the decline in foreign lending. We draw parallels with Europe today.

Human Capital Investment, Inequality, and Economic Growth

Abstract: We treat rising inequality as an equilibrium outcome in which human capital investment fails to keep pace with rising demand for skills. Investment affects skill supply and prices on three margins: the type of human capital in which to invest, how much to acquire, and the intensity of use. The latter two represent the intensive margins of human capital acquisition and utilization. These choices are substitutes for the creation of new skilled workers, yet they are complementary with each other, magnifying inequality. When skill-biased technical change drives economic growth, greater inequality reduces growth.

The Effects of Capital Formation on Economic Growth in India: Evidence from ARDL-bound Testing Approach:

Abstract: This article examines the impact of capital formation on economic growth in India covering the period from 1970 to 2012. This paper traces a long-run equilibrium relation between capital formation and economic growth and other control variables by using autoregressive distributed lag (ARDL) model. The error correction (ECM) model shows that the capital formation, trade openness, exchange rate and total factor productivity positively affect the economic growth and the inflation negatively affects the economic growth in the short run. It is recommended that government increases the level of capital formation in order to achieve a higher level of economic growth.

Macroeconomics, aging and growth

Abstract: Inevitable population aging and slower population growth will affect the economies of all nations in ways influenced by cultural values, institutional arrangements, and economic incentives. One outcome will be a tendency toward increased capital intensity, higher wages, and lower returns on capital, a tendency partially offset when the elderly are supported by public or private transfers rather than assets, and when economies are open, in which case aging will lead to increased flows of capital and labor. Rising human capital investment per child accompanies the falling fertility that drives population aging, and partially offsets slower labor force growth. Research to date finds little effect on technological progress or labor productivity. National differences in labor supply at older ages, per capita consumption of the elderly relative to younger ages, strength of public pension and health care systems, and health and vitality of the elderly all condition the impact of population aging on the economy. Policy responses include increasing the size of the labor force, mainly by raising the retirement age; reducing benefits and/or raising taxes for public transfer programs for the elderly, with concern for deadweight loss and the fair distribution of costs across socioeconomic classes; investing more in children to increase the quality and productivity of the future labor force; and public programs that promote fertility by facilitating market work for women with children.

Measuring the Level of Industrial Green Development and Exploring Its Influencing Factors: Empirical Evidence from China’s 30 Provinces

Abstract: Nowadays, with the green economy becoming mainstream in the world, an industrial revolution as the core of green development has emerged. Based on the empirical evidence from China’s 30 provinces, this study establishes an evaluation index system of China’s industrial green development and applies the analytic hierarchy process to determine the indices’ weights and properties to measure the level of industrial green development in China’s 30 provinces. Then, an empirical study is conducted to explore the relevant factors influencing China’s industrial green development by using the dynamic panel data model and a panel threshold test. The results show that China’s level of industrial green development has the characteristic of typical regional differentiation with a ladder-like distribution from the east and middle to the west, and the eastern region has the highest level on industrial green output, industrial green efficiency and industrial green innovation. Technological progress and innovation can stimulate industrial green development. The impact of environmental regulation and foreign investment on industrial green development presents a nonlinear “N”-type trend, and the positive effects are mainly observed in eastern China. Capital deepening, heavy chemical industries and an unreasonable energy structure are not effective in industrial green development. There is no direct relation between the enterprise scale and industrial green development.

Human Capital and Economic Growth of Pakistan

Abstract: Human capital consists of set of resources which define individuals' overall ability and includes skills, education, training, health and other talents. These abilities collectively shape up the potential of citizens of a country and help in charting the course of economic growth and development of that country. The ranking of Pakistan in terms of human capital index is reported to have dropped to 113 from 109 out of 124 countries (Human Capital Report 2014-2015) and thus requires a lot of attention. The main aim of this paper is to investigate the relationship between human capital and economic growth in Pakistan. Explaining human capital by the proxies of primary enrolments rate, birth rate, and infant mortality rate, this paper confirms the role of human capital in promoting development in Pakistan. Physical capital was used as a fixed capital and one of the factors of production. Result indicates that the two main sectors which need considerable amount of attention are education and health. This objective can be achieved by allocating high percentage of GDP to these sectors

The Contribution of Capital to Economic Growth

Abstract: How important to economic growth in advanced countries is the accumulation of physical capital? My short answer is that increased capital is one of several important sources of output growth. This appraisal, which is amply supported by research results, should surprise no one-but doubtless it will. Capital is not the source of growth despite the contrary view common in financial circles and on Capitol Hill. Output, and therefore growth, are governed by many determinants. Moreover, there is no substance to the recurring notion that the United States' growth rate would have matched those of countries like Germany or Japan if only we invested as much as they did. Finally, it is quite wrong to blame investment for the recent sharp reduction in the growth of American output and productivity, or to suppose that merely raising investment would go far toward restoring the old growth rate of productivity. Why many people share a vision of growth that assigns exclusive attention to capital I do not know. Growth models that feature capital, while assigning other output determinants to ceteris paribus, may be partly responsible, but it should have been apparent to all that such models were meant only to illuminate a relationship, not to describe a whole economic system. Analyses based on incremental capital-output ratios may have contributed to the illusion. If so, as Robert Solow says of these ratios, "Economists have a responsibility to do better." To deny that capital is everything is not to imply that it is nothing. I do not share the other extreme view, sometimes encountered, that capital can be ignored because its significance is hard to establish if one fits a production function by correlation analysis. I stress again: capital is an important growth source. It has sometimes contributed importantly to differences in growth rates between periods and places. More capital formation would raise the growth rate. The contribution of capital to growth is evaluated best in the context of a complete analysis of the sources of growth. The following summary, drawn from my Accounting for Slower Economic Growth, refers to total potential national income originating in nonresidential business. During the period from 1948 to 1973 the growth rate of this series was 3.8 percent per year. Of that amount, 15 percent resulted from more capital, that is, more nonresidential structures and equipment and more inventories. Another 15 percent is ascribed to changes in employment and working hours, with account also taken of the age-sex composition of workers. Fourteen percent was due to increased capabilities of workers resulting from more education. Ten percent resulted from improved resource allocation, taking the form of a reduction in the amount of labor overallocated to farming and to self-employment and unpaid family labor in nonfarm establishments too small for efficiency. Thirty-seven percent was contributed by advances in technological, managerial, and organizational knowledge as to how to produce at low cost, together with miscellaneous output determinants not separately estimated. This is the residual in the calculation. In the 1948-73 period it probably provides a tolerable approximation to the contribution of advances in knowledge alone. If so, advances in knowledge were much the largest single source of growth. Economies of scale made possible by the growth of markets contributed an estimated 11 percent of the growth rate. Finally, certain changes in the legal and human environment, together with irregular factors, subtracted 2 percent. *Associate Director for National Economic Accounts, Bureau of Economic Analysis.

Education, Human Capital and Economic Growth: Empirical Research on 55 Countries and Regions (1960-2009)

Abstract: This article constructed a panel data model to investigate the effect of education human capital on economic growth, using the latest education data of 55 countries and regions from 1960 to 2009. Meantime, by subdividing education human capital into higher education, secondary education and primary education, it also examines the effect of different education level on economic growth. Furthermore, while introducing health human capital into the model, we explored the influence of different economic development level and some important historical events. The result shows that in general, education human capital has a significant positive impact on economic growth. The positive impact of higher education on economic growth is especially significant, however, the primary education and secondary education does not have a significant impact on economic growth; as for human capital, life expectancy and per capita GDP growth also showed a significant positive correlation.

Sustainability and Development

Abstract: Sustainable development requires that per capita welfare does not decline over time. The minimum condition is ensuring that any depletion of natural capital is compensated by reproducible and human capital, so that the value of the aggregate stock does not decrease. Meeting this condition is problematic if natural capital includes ecosystems, which not only provide unique goods and services but are also prone to irreversible conversion and abrupt collapse. Net domestic product accounting rules for the depreciation of the total stock of reproducible, human, and natural capital of an economy can be extended to incorporate the direct benefits provided by ecosystems. They also can integrate any capital revaluation that occurs through ecosystem restoration and conversion and the threat of irreversible collapse. These approaches confirm the economic interpretation of sustainability as nondeclining welfare. They can also be used to estimate the changes in the value of ecological capital due to economic activity.

Capital Account Liberalization and Aggregate Productivity: The Role of Firm Capital Allocation

Abstract: We study the effects of capital account liberalization on firm capital allocation and aggregate productivity in ten Eastern European countries. Using a large firm-level dataset, we show that capital account liberalization decreases the dispersion of the return to capital across firms, particularly in sectors more dependent on external finance. We provide evidence that capital account liberalization improves capital allocation by allowing financially-constrained firms to demand more capital and produce at a more efficient level. Finally, we use a model of misallocation and document that capital account liberalization increases aggregate productivity through a more efficient firm capital allocation by 10% to 16%.

South–South Trade in Capital Goods – The Market-Driven Diffusion of Appropriate Technology

Abstract: This article introduces a Special Section addressing technology diffusion as a result of south–south trade in capital goods; taking forward, and updating, arguments from the appropriate technology literature in the 1970s and 1980s. We review capital goods utilised in three sectors of considerable development significance in low- and middle-income economies (agricultural mechanisation in Tanzania, furniture in Kenya and apparel in Uganda). In each sector, southern-origin equipment is distinctive by comparison with northern-origin capital goods. At observed capacity utilisation rates, southern-origin capital goods are economically efficient, accessible and profitable to users, and demonstrably appropriate to operating conditions in these three economies. As a consequence, not only are Chinese-origin capital goods diffusing rapidly in these three economies, but so too are they diffusing in other developing economies. Chinese-origin capital goods now account for almost one-third of all capital goods imports in Africa, Latin America and South-East Asia, and Indian equipment is also widely utilised in many low- and middle-income economies. This suggests a wider significance of our findings and calls for policymakers to harness the opportunities provided by market-driven south–south trade in capital goods.

Investment in Human Capital and Economic Growth in Singapore

Abstract: Since independence in 1965, the economy of Singapore has transited from a low-income economy to a high-income developed economy. Over the period, the educational policy of the country has been fram...

Rhetorics of saving–investment correlations and the international mobility of capital: A survey

Abstract: This study surveys the literature on saving–investment (SI) correlations and international mobility of capital (IMC) generated over more than three decades since the 1980s. Several studies have shown the presence of paradoxically high SI correlations for the developed countries with observed high IMC, and low SI correlations for the developing countries with observed low IMC. The studies accounting for structural breaks in model parameters provide dominant support for the decrease in SI correlations and increase in IMC after the switch from fixed to flexible exchange rate regime and the removal of policy restrictions on capital flows. The intertemporal optimisation approach to current account and the open-economy growth and dynamic stochastic general equilibrium models mainly provide theoretical predictions and suggest that it is possible to find high SI correlations in the wake of high IMC. The increases in international capital flows have been the natural corollary of the growth of international...

Does female human capital formation matter for the income effect of remittances? Evidence from developing countries

Abstract: The existing literature has focussed extensively on the development outcomes resulting from international migrant remittances. Yet, the human capital channel promoting remittance effectiveness has received little attention. Given the multilateral policy drive to promote female literacy in recent decades, it is relevant to examine whether female human capital formation improves the effectiveness of remittances in terms of its impact on per capita income. Using a panel of 103 developing economies over the period 1970–2012, this paper attempts to answer this question empirically. The paper finds that female human capital affects the remittance-growth relationship differently according to whether it is the primary, secondary or tertiary level of human capital. Our estimates of the marginal impacts of remittances show that while higher levels of skilled human capital (secondary and tertiary enrolments) enhance the marginal impact of remittances on per capita income, low-skilled human capital (primary e...

Education and Human Capital Effect on Malaysian Economic Growth

Abstract: In this globalization era, more knowledgeable human capital is needed to gain better economic growth. The ability of a country’s human resources in providing skillful labors in various scopes ensures the success of implementation of the economic policies. Education and human capital has two essential keys that have relation in contributing towards the economic growth. Human capital is a set of resources that combines knowledge, training and skills that is correlated to education. The attention in higher education increases from time to time as people realizing the importance of providing better education for the future of their children and the economy as a whole.