Showing papers on "Capital deepening published in 2019"
TL;DR: In this article, the role of financial development in the human capital-growth relationship was examined in 19 sub-Saharan African countries between 1999 and 2014 using the system generalized method of moments estimation technique.
Abstract: This paper examines the role of financial development in the human capital-growth relationship. The core activity of this study involves the use of different measures of human capital (school enrolment and total factor productivity) in the examination of its impact on inclusive growth and interrogating how financial sector serves as catalyst in this process. We explore the system generalized method of moments estimation technique to examine this relationship in 19 sub-Saharan African countries between 1999 and 2014. The findings show indications of largely positive direct impact of both human capital and financial development on inclusive growth. The results also show that financial development promotes the extent to which human capital can facilitate inclusive growth, however the choice of measures of both human capital and financial development are important in examining their complemental influence on inclusive growth. Thus, enhancing the efficiency of the financial sector through reforms would have greater spillover effect on human capital development thereby promoting growth inclusiveness.
41 citations
TL;DR: In this article, the authors presented new data on real output per worker, schooling per worker and human capital per worker for 168 countries, including the United States. And they found that variation in inputs can explain about 46% of the variation in long run living standards using standard covariance accounting.
32 citations
TL;DR: The authors presented a stylized mechanism to reconcile these findings, at the centre of which is routinization, that is, the automation of labour in occupations highly exposed to substitution by computer capital.
Abstract: The labour share of income has been on a downward trend in both advanced and emerging economies. Declining labour shares in emerging economies, though less pronounced, present an important puzzle as they contradict the predictions of classical trade theory. This paper presents a stylized mechanism to reconcile these findings, at the centre of which is routinization, that is, the automation of labour in occupations highly exposed to substitution by computer capital. We assemble a novel dataset and introduce a new measure of the exposure to routinization to analyse the drivers of falling labour shares. While technological progress and exposure to routinization explain over half the overall decline in advanced economies, in emerging markets, the globalization of trade and the accompanying capital deepening are the most significant driver, with technological progress and routinization playing a negligible role.
28 citations
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TL;DR: In this article, the authors estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share.
Abstract: We estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share. Our methodology derives from transition paths in the neo-classical growth model. The elasticity of substitution is identified from the cross-country correlation between trends in the labor share and (a proxy for) the rental rate of capital. Trends in labor's share and the rental rate are weakly correlated across countries, and inversely related in most samples. Previous cross-country estimates of this elasticity were substantially greater than one, which we show was partly due to omitted variable bias: earlier studies used investment prices alone to proxy for the rental rate, whereas the growth model relates rental rates to investment prices and consumption growth.
21 citations
TL;DR: The second stage of the Cambridge capital controversy concerned the neo-Walrasian theory of value and distribution as mentioned in this paper, where production is not understood in this theory as employing factors of production but rather commodities, i.e. goods and services with date and place of delivery, some scholars maintained that it is not affected by the problems that emerged, during the first stage, as regards the conception of capital as a factor of production and the rate of interest as the price for its use.
Abstract: The second stage of the Cambridge capital controversy concerns the neo-Walrasian theory of value and distribution. Since production is not understood in this theory as employing factors of production but rather commodities, i.e. goods and services with date and place of delivery, some scholars maintained that it is not affected by the problems that emerged, during the first stage of the controversy, as regards the conception of capital as a factor of production and the rate of interest as the price for its use. The reply of the ‘neo-Ricardians’ was based on two arguments. The first regarded the relevance of the new notions of equilibrium adopted in the neo-Walrasian approach, with particular reference to temporary and Arrow-Debreu equilibria, and the second the possibility that the phenomena of re-switching and reverse capital deepening, by affecting the working of the saving-investment market, could cause equilibrium multiplicity and instability also in a neo-Walrasian framework.
20 citations
TL;DR: In this article, the authors investigated whether and to what extent patterns of performance microfinance institutions converge over time, and found that capital deepening is the most important source of improved performance, especially during the first half, while capital deepening and technological innovations are important during the second half of the period.
20 citations
TL;DR: In this article, the authors investigated the trends in labour productivity of the major developing and developed economies of the Asia-pacific region and examined its determinants over the period 1980-2014.
Abstract: The current study investigates the trends in labour productivity of the major developing and developed economies of the Asia‐Pacific region and examines its determinants over the period 1980–2014. The study analyses capital deepening, human capital, technology, share of agriculture in GDP, financial development, institutional quality, inflation as well as macroeconomic variables as potential determinants of productivity, and identifies the differences in the impact of these factors on the productivity of developing and developed countries. Using panel cointegration and group‐mean fully modified ordinary least squares estimation, the study finds that capital deepening, human capital, technology, institutional quality and macroeconomic variables (i.e. government size and openness) are significant determinants of labour productivity of both developing and developed economies of the Asia‐Pacific region. The study further finds that while both trade openness and foreign direct investment affect productivity of developing economies positively, only trade openness has a positive and significant impact on the productivity of developed economies. The share of agriculture in GDP affects the labour productivity of developing Asia‐Pacific economies significantly but not that of developed economies. Furthermore, capital deepening has a much higher impact on the productivity of developing Asia‐Pacific economies than that of developed economies.
18 citations
TL;DR: In this article, the authors investigate how industrialised economies managed to achieve the transition from low to high levels of human capital, and to identify lessons for green growth, and highlight the importance of understanding governments' incentives and roles in transitions.
Abstract: A potentially important source of green growth in the future is the expansion of the weightless or dematerialised knowledge economy. Along with information and communication technology (ICT) and infrastructure, and the innovation system, human capital is a key pillar of this knowledge economy with its scope for increasing returns. With this in mind, the purpose of this paper is to investigate how industrialised economies managed to achieve the transition from low to high levels of human capital, and to identify lessons for green growth. The first phase of the human capital transition was the result of the interaction of supply and demand, triggered by technological change and boosted by the demands for (immaterial) services. The second phase of the human capital transition (i.e. mass education) resulted from enforced legislation and major public investment. The state’s aim to influence children’s beliefs appears to have been a key driver in public investment. Nevertheless, the roles governments played differed according to the developmental status and inherent socioeconomic and political characteristics of their countries. These features of the human capital transition are directly relevant to future transitions associated with green growth, and highlight the importance of understanding governments’ incentives and roles in transitions.
18 citations
TL;DR: In this article, the authors show that the decline in the relative price of tangible tradable capital goods provided a significant impetus to the capital deepening that took place during the same time period.
Abstract: Over the past three decades, the price of machinery and equipment fell dramatically relative to other prices in advanced and emerging market and developing economies. Using cross-country and sectoral data, we show that the decline in the relative price of tangible tradable capital goods provided a significant impetus to the capital deepening that took place during the same time period. The broad-based decline in the relative price of machinery and equipment, in turn, was driven by the faster productivity growth in the capital goods producing sectors relative to the rest of the economy, and deeper trade integration, which induced domestic producers to lower prices and increase their efficiency. Our findings suggest an additional channel through which rising trade tensions and sluggish productivity could threaten real investment growth going forward.
16 citations
TL;DR: In this article, the causes of China's energy transition were analyzed using time series data from 1978 to 2015, and the results of a Granger Causality test showed that increasing capital intensity causes transition to modern energy in the long run, but not vice versa.
Abstract: This paper analyses the causes of China's energy transition since 1978 when the economic reform policy was launched. We aim to determine if increasing capital intensity in the Chinese economy is driving a shift in the energy mix towards modern energy sources, such as solar electricity. The empirical investigation is based on national level time series data from 1978 to 2015. The results of a Granger Causality test show that increasing capital intensity causes transition to modern energy in the long run, but not vice versa. The impulse-response analysis, based on the Johanson cointegration and vector error correction model (VECM), verifies that capital intensity determines energy transition in the long-run and the adjustment period to an exogenous shock from capital intensity is around five years. This is in line with China's National Five-year Plans which often introduce major shifts in energy and industrial policy. We conclude China's energy transition is driven by capital deepening and biased technical change towards capital-intensive modern energy in the long run. The rate of change is increased by exogenous investment shocks partly as a result of policy initiatives introduced by China's Five Year Plans.
16 citations
TL;DR: In this article, the authors show that the "great recession" of 2007 in the USA is of the classical type with basic features the rising value composition of capital which more than fully offset the rising rate of surplus value giving rise to a falling rate of profit.
Abstract: The purpose of this article is to show that the ‘great recession’ of 2007 in the USA is of the classical type with basic features the rising value composition of capital which more than fully offset the rising rate of surplus value giving rise to a falling rate of profit. The tendential fall of the latter, from a point onwards, led to a stagnant mass of real net profits, thereby decreased net investment and eventually impacted on employment. The evolution of capital intensity and the consequences of unproductive activities remain key issues in the discussions of capital accumulation and its periodic ruptures
TL;DR: In this paper, the effect of migration from a less advanced economy to a more advanced economy on economic growth is analyzed in a two-country growth model with endogenous fertility, in which congestion diseconomies are incorporated.
Abstract: This article analyzes the effect of migration from a less advanced economy to a more advanced economy on economic growth. The analysis is performed in a two-country growth model with endogenous fertility, in which congestion diseconomies are incorporated. The model shows that out-migration increases fertility and reduces human capital in the source economy. At the same time, in-migration reduces fertility and can increase or decrease the average level of human capital in the host economy. I show how migration affects the inter-temporal evolution of human capital in the world economy. I also demonstrate that a tax imposed on immigrants in the host economy can increase human capital accumulation in the receiving and sending economies and the world as a whole.
TL;DR: In this article, the authors assess the efficacy of capital controls and potential deflection effects on other countries by constructing a comprehensive global econometric model which captures the dynamic interactions of capital flows with domestic and global fundamentals.
TL;DR: In this paper, the authors investigate the trends and determinants of labour productivity of the two broad sectors and their components, namely, manufacturing and market services sectors, in the case of major developing and developed economies of Asia-Pacific over the period 1980-2014 and make a comparison thereof.
Abstract: The study aims to empirically investigate the trends and determinants of labour productivity of the two broad sectors –industry and services – and their components, namely, manufacturing and market services sectors, in the case of major developing and developed economies of Asia-Pacific over the period 1980-2014 and make a comparison thereof.,The study uses econometric methodology of panel unit root tests, panel cointegration and group-mean full modified ordinary least squares (FMOLS).,The study finds that while capital deepening, government size, institutional quality, productivity of the other sector and financial openness affect productivity of all the sectors significantly, the impact of human capital and trade openness varies across sectors in the case of developing economies. Furthermore, the impact of technological progress becomes significant in the post-liberalization reforms period in the developing economies. The study further finds that capital deepening, human capital, government size, institutional quality, productivity of the other sector, government size and trade openness are significant determinants of productivity of all sectors of developed economies under consideration. However, the impact of technological progress is stronger for manufacturing sector than services and its components. Furthermore, while both equity and debt liabilities (as measures of financial openness) influence sectoral productivity of industry and manufacturing sectors positively and significantly in case of developed economies, only equity liabilities have a significant influence on the productivity of developing economies. This may indicate existence of more developed financial markets in the case of developed economies.,The study identifies important structural differences in determinants of productivity both across sectors and across developing and developed economies of Asia-Pacific.
TL;DR: In this article, a theoretical model to explain the causality between China's energy transition and capital deepening was provided, and it was shown that in the equilibrium, Chin et al.
Abstract: This paper provides a theoretical model to explain the causality between China’s energy transition and capital deepening found by the empirical study. We prove that in the equilibrium, Chin...
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TL;DR: In this article, the authors estimate a structural vector autoregressive model to quantify four main explanations for the decline of the US labor income share: (i) rising market power of firms, (ii) falling labor power of workers, (iii) higher investment-specific technology growth, and (iv) the widespread emergence of automation or robotization in production processes.
Abstract: We estimate a structural vector autoregressive model in order to quantify four main explanations for the decline of the US labor income share: (i) rising market power of firms, (ii) falling market power of workers, (iii) higher investment-specific technology growth, and (iv) the widespread emergence of automation or robotization in production processes. Identification is achieved with theory robust sign restrictions imposed at medium-run horizons. The restrictions are derived from a stylized macroeconomic model of structural change. Across specifications we find that automation is the main driver of the long-run labor share. Firms’ rising markups can, however, account for a significant part of the accelerating labor share decline observed in the last 20 years. Our results also point to complementarity between labor and capital, thus ruling out capital deepening as a major force behind declining labor shares. If anything, investment-specific technology growth has contributed to higher labor income shares in our sample.
TL;DR: In this article, the authors identified the structural forces and legacies of the financial crisis, explaining the productivity growth slowdown and providing possible policy solutions. But, they did not consider the impact of the mismeasurement hypothesis.
Abstract: The growth of total factor productivity (TFP) in advanced economies has slowed significantly after the 1970s. The global financial crisis (GFC) has resulted in the second productivity growth slowdown. This paper, on the basis of a broad literature review, identifies the structural forces and legacies of the financial crisis, explaining the productivity growth slowdown and providing possible policy solutions. The mismeasurement hypothesis is also discussed. The slowing pace of innovations, population aging, slowing human capital accumulation, limits of structural transformation, capital misallocation, and firm-level factors are identified as structural forces slowing TFP growth. Lack of capital deepening, financial frictions, and slowdown of international trade are the most important legacies of GFC affecting productivity growth.
TL;DR: In this article, the authors examined the effects of various policy tools on capital accumulation and found that they were applied intensively to specific sectors and firms and that government intervention partially affected those firms' capital investment decisions.
TL;DR: In this article, the authors construct an international dataset of fourteen OECD countries and present contributions to growth for each ICT asset (IT hardware, CT equipment and software) using alternative ICT deflators.
TL;DR: In this paper, the authors construct an applied general equilibrium model to account for diverging patterns of the skill premium and find that increases in relative skilled labor supply due to demographic changes lead to a decline in the skill value, while equipment capital deepening raises the relative demand for skilled labor, which in turn increases the skill price.
Abstract: We construct an applied general equilibrium model to account for diverging patterns of the skill premium. Our framework assesses the roles of various factors that affect the demand and supply of skilled and unskilled labor—shifts in the skill composition of the labor supply, changes in the terms of trade and the complementarity between skilled labor and equipment capital in production. We find that increases in relative skilled labor supply due to demographic changes lead to a decline in the skill premium, while equipment capital deepening raises the relative demand for skilled labor, which in turn increases the skill premium. In addition, terms of trade changes lead to the reallocation of resources toward sectors in which countries enjoy comparative advantages. Since our model incorporates multiple factors simultaneously, it can generate either rising or falling skill premium paths. When we parametrize the model to the Baltic states—countries that were similar along many dimensions at the onset of their transition from centrally planned to market-oriented economies—our model can closely account for the diverging patterns of skill premia observed in the Baltics between 1995 and 2008.
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01 Jan 2019
Abstract: We estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share. Our methodology derives from transition paths in the neo-classical growth model. The elasticity of substitution is identified from the cross-country correlation between trends in the labor share and a theoretically derived proxy for the rental rate of capital. Trends in labor's share and the rental rate are weakly correlated across countries, and inversely related in most samples. Previous cross-country estimates of this elasticity were substantially greater than one, which we show was largely due to omitted variable bias: earlier studies used investment prices alone to proxy for the rental rate, whereas the growth model relates rental rates to investment prices and consumption growth. (Copyright: Elsevier)
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TL;DR: In this article, the authors investigate the impact of research and development subsidies on R&D inputs of large and medium-sized firms and on additional innovation and economic activities in Chinese provinces.
Abstract: We investigate the impact of research and development (R&D) subsidies on R&D inputs of large- and medium-sized firms and on additional innovation and economic activities in Chinese provinces. A panel vector autoregressive (VAR) model and corresponding impulse response function (IRF) analysis allow us to differentiate between direct and indirect effects, which add up to total effects. We find that an increase of R&D subsidies significantly decreases private R&D investments, although there is a significant positive effect on the R&D personnel employed in firms. We interpret these findings as a partial crowding-out effect because public funds substitute some private funds while total R&D inputs still increase. Complementarily, we find a positive secondary effect on the provincial patent activity, our measure of technological progress. Interestingly, we also find potentially unintended effects of R&D subsidies on increases in the investment rate in physical capital and residential buildings. Although R&D subsidies fail to incentivise private R&D expenditures, firms increase total R&D inputs, and provincial economies benefit from secondary effects on technological progress and capital deepening.
TL;DR: In this paper, the authors compare the early neoclassical theories of value and distribution with the modern neo-Walrasian models of stationary equilibrium, in which the stock of capital is not considered among the data, and show that the attempt to put capital on the same footing as labour and land led to the zero net accumulation condition, which was required by the stationarity of relative prices, in the form of a market clearing condition between supply of and demand for capital.
Abstract: In the traditional versions of the neoclassical theory of value and distribution, the stock of existing
capital—understood as either an amount of value or an endowment of capital goods—was taken as
given, together with the available quantities of labour and natural resources. This characteristic of
the early neoclassical theories is analysed by the comparison with the modern neo-Walrasian
models of stationary equilibrium, in which the stock of capital is not considered among the data.
We show that the attempt to put capital on the same footing as labour and land—i.e. to present it as a factor of production—led the early neoclassical author to write the zero netaccumulation condition, which was required by the stationarity of relative prices, in the form of a market clearing condition between supply of and demand for capital. The rate of interest was then understood as the price to determine by this market. However, as is well known, the conception of capital as a factor of production—and of the rate of interest as the price for its use—did not work and involved several problems, some of which are discussed in this paper.
TL;DR: In this article, Morris et al. concluded that educational attainment will play a diminished role in future U.S. economic growth, and pointed out that growth in the medium term will be driven by growth in capital, total factor productivity and revival of participation rates with a smaller role for improvements in educational attainment.
01 Jan 2019
TL;DR: In this paper, the authors argue that investment in ICT can spur gains in productivity in many ways: it contributes to overall capital deepening, helping to increase labour productivity; technological progress may contribute to faster multifactor productivity growth in the ICT-producing industry.
Abstract: It is an open secret that we live in a technology-mediated world. Over the past decade, information and communication technology (ICT) has become an invaluable tool in most if not all facets of life. In addition to the overwhelming use for entertainment and leisure, these tools democratize access to goods and services, afford faster and more efficient communication and decision-making, and connect persons across the globe in an instant, all the while cutting costs and waste in many organizations. Investment in ICT can spur gains in productivity in many ways: it contributes to overall capital deepening, helping to increase labour productivity; technological progress may contribute to faster multifactor productivity growth in the ICT-producing industry. In addition, greater use of ICT outside the ICT industry helps firms and public and private institutions to increase efficiency and develop new products and services and, hence, it increases multifactor productivity growth.
TL;DR: In this article, the authors show that the decline in the relative price of tangible tradable capital goods provided a significant impetus to the capital deepening that took place during the same time period, and suggest an additional channel through which rising trade tensions and sluggish productivity could threaten real investment growth going forward.
Abstract: Over the past three decades, the price of machinery and equipment fell dramatically relative to other prices in advanced and emerging market and developing economies. Using cross-country and sectoral data, we show that the decline in the relative price of tangible tradable capital goods provided a significant impetus to the capital deepening that took place during the same time period. The broad-based decline in the relative price of machinery and equipment, in turn, was driven by the faster productivity growth in the capital goods producing sector relative to the rest of the economy, and its deeper trade integration, which induced domestic producer to lower prices and increase their efficiency. Our findings suggest an additional channel through which rising trade tensions and sluggish productivity could threaten real investment growth going forward.
TL;DR: In this paper, the authors reviewed the inner oriented developing countries' economic performance and then considered how the presence of sizeable private capital flows has altered the situation, and the belief that the Great Depression and the Second World War had destroyed the private international capital markets, which was borne out by the fact that during 1950s and the 1960s international capital flows were overwhelmingly on official account.
Abstract: Since the 1950s and the 1960s when Ramaswamy deliberated on issues of development, developing economies have undergone major changes. Increased urbanisation, introduction of more complex and sophisticated technologies and reduced dependence on exports of primary commodities have brought in their wake considerable changes which warrant a new outlook on development policies. At the centre of this is the capability of governments to regulate economic activity and the associated insulation of domestic economics from international markets denoted here by the term “inner oriented” policies. Moreover, the belief that the Great Depression and the Second World War had destroyed the private international capital markets, which was borne out by the fact that during 1950s and the 1960s international capital flows were over-whelmingly on official account, is no longer valid today. This paper first reviews what is now understood as a “stylised fact” of inner oriented developing countries’ economic performance and then consider how the presence of sizeable private capital flows has altered the situation.
TL;DR: In this article, the authors divide the question of a possible revival in productivity growth into two questions: the possibility of a procyclical response in the gap between actual and trend productivity growth, and the second is a revival in the productivity growth trend itself.
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TL;DR: In this article, the authors analyze the sources of Japan's economic growth from 1885 to 1970 and try to answer why Japan was not able to accomplish such high-speed growth before 1955, since until the mid-1960s the primary sector accounted for a large share of economic activity and was a major determinant of overall economic growth.
Abstract: After the Meiji Restoration of 1868, Japan modernized its institutions and economic growth gradually picked up. Growth accelerated especially during the so-called high-speed growth era from 1955 to 1970, when Japan rapidly caught up with Western economies. The long-term sustained high-speed growth recorded during this period was unprecedented not only in Japan but worldwide. While other East Asian countries such as Singapore, Taiwan, South Korea, and China subsequently also experienced remarkable growth over a prolonged period, Japan's place in history as the first country to record such sustained high-speed growth means that its experience continues to garner worldwide interest. Using newly constructed Hitotsubashi estimates of Japan's historical GDP statistics and a growth accounting framework, we analyze the sources of Japan's economic growth from 1885 to 1970 and try to answer why Japan was not able to accomplish such high-speed growth before 1955. Since until the mid-1960s the primary sector accounted for a large share of economic activity and was a major determinant of overall economic growth, we use a Hayashi and Prescott (2008) type two-sector model in which the economy overall is divided into the primary sector and the non-primary sector.
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TL;DR: In this paper, the authors evaluate the economic impacts of the various Indonesian free trade agreement (FTA) strategies in enhancing export-led growth by calculating the potential impact of abolishing tariffs on three key sectors or commodities.
Abstract: This paper aims at evaluating the economic impacts of the various Indonesian free trade agreement (FTA) strategies in enhancing export-led growth. The potential impact of abolishing tariffs on three key sectors or commodities – (i) oil seeds, vegetable oils, and fats (VegOil); (ii) fishery and processed foods (FisheryPFD); and (iii) textile and apparel products (TextWapp) – with three trading partners – the European Union (EU28), members of the Gulf Cooperation Council (GCC), and India – is calculated using a computable general equilibrium model. To explore the long-term influence, we also take into account capital deepening and technological spillovers induced by trade. We derive the following implications from the exercise. First, amongst the three key sectors or commodities, TextWapp generates the largest spillover effects in the economy, as it uses more intermediary inputs. By contrast, although Indonesia has a comparative advantage in VegOil, that sector does not create large spillover effects in the economy. Second, amongst the three trading partners, it would be best to liberalise trade barriers further with the EU28 and India since India would bring gains to Indonesia by correcting a large price distortion in VegOil, while the EU28 would do so through TextWapp as well as VegOil. Since the initial trade volume of the GCC with Indonesia is not large, we might underestimate gains from trade with that region. Finally, the economic merits of abolishing tariffs are generated primarily through improvement of resource allocation in the affected countries. Improved resource allocation generates additional income, which increases imports. Without these income effects, Indonesia can only increase its exports via substitution effects.