Capital deepening

About: Capital deepening is a research topic. Over the lifetime, 5203 publications have been published within this topic receiving 230297 citations.

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-

The Production of Human Capital and the Life of Earnings

Abstract: After a brief summary of Ben Porath's 1967 model approach, I enquire into the empirical validity and some implications of his insights. Section 2 is an attempt to answer the question: Are the shapes and magnitudes of growth in wage profiles largely attributable to human capital investments? Section 3 tests the proposition that over the working age capacity wages (i.e. wages before netting out investment) decline before observed wages do. Implied timing of labor supply provides the test. The findings shed light on developments in the U.S. labor market in the past several decades. In section 4 some implications are drawn from Ben-Porath's model for interpersonal differences and historical changes in life-cycle human capital investments. The positive correlation between schooling and training, predicted by the model is found in cross-sections. It also shows up in parallel movements in schooling and training in the 1980's as the demand for human capital increased. Once again, observed U.S. patterns are highlighted.

Should the US have locked heaven's door? Reassessing the benefits of postwar immigration

Abstract: This paper examines the economic impact of the second great immigration wave (1945–2000) on the US economy. Our analysis relies on a computable general equilibrium model combining the major interactions between immigrants and natives (labor market impact, fiscal impact, capital deepening, endogenous education, endogenous inequality). Contrary to recent studies, we show that immigration induced important net gains and small redistributive effects among natives. According to our simulations, the postwar US immigration is beneficial for all natives cohorts and all skill groups. Nevertheless, the gains would have been larger if the US had conducted a more selective immigration policy.

Substitution, fixed proportions, growth and distribution

Abstract: The labor requirements of machines are fixed forever at the time of construction. The utilization of these machines may change over time. One of the products of this model is a theory of the operating life and labor intensity of capital goods. A machine is retired here when rising wages have absorbed all its revenues. A machine will operate longer the smaller its labor intensity. The labor intensity of the optimal type of new machine depends upon the anticipated course of wages and the rate of interest. These relationships introduce a new dimension to the connection between investment and the growth of productivity. An increase in thrift lowers the rate of return on capital and the labor intensity of new machines, and thus ultimately lengthens the operating life of all machinery. Increased thrift affects productivity through both the lengthening and deepening of capital. An increase in thrift, far from modernizing the capital stock, except temporarily, must eventually increase the average age of machinery.

Capital Controls: Mud in the Wheels of Market Discipline

Abstract: Widespread support for capital account liberalization in emerging markets has recently shifted to skepticism and even support for capital controls in certain circumstances. This sea-change in attitudes has been bolstered by the inconclusive macroeconomic evidence on the benefits of capital account liberalization. There are several compelling reasons why it is difficult to measure the aggregate impact of capital controls in very different countries. Instead, a new and more promising approach is more detailed microeconomic studies of how capital controls have generated specific distortions in individual countries. Several recent papers have used this approach and examined very different aspects of capital controls from their impact on crony capitalism in Malaysia and on financing constraints in Chile, to their impact on US multinational behavior and the efficiency of stock market pricing. Each of these diverse studies finds a consistent result: capital controls have significant economic costs and lead to a misallocation of resources. This new microeconomic evidence suggests that capital controls are not just sand', but rather mud in the wheels' of market discipline.