Capital deepening

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

Information Technology and Productivity: Evidence from Country-Level Data

Abstract: This paper studies a key driver of the demand for the products and services of the global IT industry--returns from IT investments. We estimate an intercountry production function relating IT and non-IT inputs to GDP output, on panel data from 36 countries over the 1985--1993 period. We find significant differences between developed and developing countries with respect to their structure of returns from capital investments. For the developed countries in the sample, returns from IT capital investments are estimated to be positive and significant, while returns from non-IT capital investments are not commensurate with relative factor shares. The situation is reversed for the developing countries subsample, where returns from non-IT capital are quite substantial, but those from IT capital investments are not statistically significant. We estimate output growth contributions of IT and non-IT capital and discuss the contrasting policy implications for capital investment by developed and developing economies.

Entrepreneurship Capital and Economic Performance

Abstract: The neoclassical model of the production function, as applied by Robert Solow to build the neoclassical model of growth, linked labour and capital to output. More recently, Romer and others have expanded the model to include measures of knowledge capital. In this Paper we introduce a new factor, entrepreneurship capital, and link it to output in the context of a production function model. This Paper explains what is meant by entrepreneurship capital and why it should influence economic output. A production function model including several different measures of entrepreneurship capital is then estimated for German regions. The results indicate that entrepreneurship capital is a significant and important factor shaping output and productivity. These results suggest a new direction for policy that focuses on instruments to enhance entrepreneurship capital.

Do Tests of Capital Structure Theory Mean What They Say

Abstract: In the presence of frictions firms adjust their capital structure only infrequently. As a consequence, in a dynamic economy the leverage of most firms, most of the time, is likely to differ from the optimum leverage at the time of readjustment. This paper explores the empirical implications of this observation. A calibrated dynamic trade-off model with adjustment costs is used to simulate firms' capital structure paths. The results of standard cross-sectional tests on this data are found to be qualitatively - and, in some cases, even quantitatively - consistent with those reported in the empirical literature. In particular, the standard interpretation of some test results would lead to the rejection of the model used to generate the data. The framework can explain a number of observed puzzles related to leverage. In particular, in the simulated cross-sectional samples leverage: (a) is inversely related to profitability; (b) can be largely explained by stock returns; (c) is mean-reverting. The results suggest that, in the presence of infrequent adjustment, cross-sectional properties of economic variables in dynamics may be fundamentally different from those derived assuming that they are always at their target levels. Taken together, the results suggest a rethinking of the way capital structure tests are conducted.

Optimal Taxation in Models of Endogenous Growth

Abstract: We study the problem of optimal taxation in three infinite-horizon, representative-agent endogenous growth models. The first model is a convex model in which physical and human capital are perfectly symmetric. Our second model incorporates elastic labor supply through a Lucas-style technology. Analysis of these two models points out the danger of assuming that government expenditures are exogenous. In our third model, we include government expenditures as a productive input in capital formation, showing that the limiting tax rate on capital is no longer zero. In numerical simulations, we find similar effects on growth and welfare in all three models.

Explaining saving-investment correlations

Abstract: National saving and investment rates are highly positively correlated in virtually all countries. This is puzzling, as it apparently implies a low degree of international capital mobility. This paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital. The model is consistent with the fact that saving-investment correlations are larger for larger countries but are still substantial for small countries. Further, the model is consistent with the finding that current-account deficits tend to be associated with investment booms. Copyright 1993 by American Economic Association.