Capital deepening

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

The Effects of Irreversibility and Uncertainty on Capital Accumulation

Abstract: When investment decisions cannot be reversed and returns to capital are uncertain, the firm faces a higher user cost of capital than if it could reverse its decisions. This higher user cost tends to reduce the firm's capital stock. Opposing this effect is the irreversibility constraint itself: when the constraint binds, the firm would like to sell capital but cannot. This effect tends to increase the firm's capital stock. We show that a firm with irreversible investment may have a higher or a lower expected capital stock, even in the long run, compared to an otherwise identical firm with reversible investment. Furthermore, an increase in uncertainty can either increase or decrease the expected long-run capital stock under irreversibility relative to that under reversibility. However, changes in the expected growth rate of demand, the interest rate, the capital share in output, and the price elasticity of demand all have unambiguous effects.

Some Macroeconomic Aspects of Global Population Aging

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

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

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