Showing papers on "Physical capital published in 1986"

The Dynamic Demand for Capital and Labor

Abstract: A model of the dynamically interrelated demand for capital and labor is specified and estimated. The estimates are of the first-order conditions of the firm's problem rather than of the closed-form decision rules. This use of the first-order conditions allows a random rate of return and a flexible specification of the technology. The estimates do not imply the very slow rates of adjustment displayed in other, related estimates of the demand for capital. Because adjustment is estimated to be rapid, there is, contrary to the standard view, scope for factor prices to affect investment at relatively high frequencies.

Industry influence on corporate working capital decisions

Abstract: This paper provides evidence that corporate working capital decisions are affected by the industry/sector in which firms belong

The effects of rapid population growth on labor supply and employment in developing countries.

Abstract: This document examines the principal effects of rapid population growth on labor supply and employment in the developing countries of the world. On the supply side of labor markets the discussion focuses on the lags between population growth and labor force participation; the independent effects on labor supply of accelerated population growth due to changes in fertility mortality and migration; patterns and trends in labor force participation rates; and gender differences in labor supply behavior. On the demand side attention is directed to the way in which the nature of labor markets in developing economies including government and privately induced wage distortions and rigidities conditions their labor absorption capacity. Most of the statistics analyzed were drawn from the various publications of the World Bank with some statistics from the United Nations and the International Labor Office. Countries are grouped in 2 conventional ways for purposes of the analysis: by income group and by geographic location. This review of the evidence reveals that developing countries have faced a very rapid increase in the population in the past 2 decades. Fertility and mortality patterns and developing country age structures guarantee a similar large increase in the future. Yet the experience of the past indicates that despite population increasing more than the labor force and despite inefficient dualistic labor markets (due potentially to government-induced and other imperfections) developing countries were on the whole relatively successful in improving their economic positions over the 1960-80 period. The labor markets absorbed a large population increase with per worker incomes rising and shifts occurring in the labor force distribution toward more productive sectors of the economy. Overall the experiences of the 1960-80 period provide little support for either the optimistic view that rapid population growth promotes development or the pessimistic view that it necessarily hinders development. The "neutralist" view that population growth has had little net association with economic development seems to be the most sensible conclusion to draw from the evidence though of course economic growth per capita might have been faster under slower population growth. For the remainder of the 20th century predicted population growth can likely be accommodated provided the developing economies generate human and physical capital investments of comparable relative magnitudes to the past 2 decades.

Capital utilization and capital accumulation: Theory and evidence

Abstract: A firm may acquire additional capital input by purchasing new capital or by increasing the utilization of its current capital. The margin between capital accumulation and capital utilization is studied in a model of dynamic factor demand where the firm chooses capital, labour and their rates of utilization. A direct measure of capital utilization-the work week of capital-is incorporated into the theory and estimates. The estimates imply that capital stock is costly to adjust while the work week of capital is essentially costless to adjust. The estimated response of the capital stock to changes in its price and in the required rate of return is more rapid than found in other estimates.

International Capital Mobility in Developing Countries vs. Industrial Countries: What do Saving-Investment Correlations Tell Us?

Abstract: The finding of Feldstein and Horioka (1980) that countriesf investment rates are highly correlated with their national saving rates has by now been confirmed by many subsequent studies, even though their inference that international capital mobility nust be low has not been as widely accepted This paper examines the statistical relationship between national saving and investment in a sample that includes not only 14 industrialized countries, but also 50 developing countries The paper addresses some of the econometric critiques that have been aimed at the Feldstein-Horioka work Contrary to what one would expect from consideration of capital mobility, the coefficient appears higher for industrialized countries than for developing countries, and higher after 1973 than before Our interpretation of the saving-investment evidence is that the hypothesis of a high degree of substitutability for claims on physical capital located in different countries is not supported by the data International substitutability for financial capital may be nigh, but this is a separate condition (which is properly tested by looking directly at rates of return) High international substitutability for bonds would imply high international substitutability for physical capital if capital were perfectly substitutable for bonds within each country, but there is no reason for this to hold, any more than there is for all goods to be perfect substitutes

Human Capital Investment Specialization and the Wage Effects of Voluntary Labor Mobility

Abstract: Ahstract-Analyses of voluntary labor mobility suggest that job search facilitates job change while specific training inhibits mobility. Further, given that specific skills cannot be transferred between jobs, and since both search and training are costly, it is reasonable for workers to specialize in search or specific training on a given job. Training or search specialization, however, implies that estimation methods which treat the incidence of a quit as exogenous underestimate mobility effects on wages. The larger wage effects reported here result from simultaneous estimation but also reflect more accurate measurement of wage growth between jobs.

The Efficiency of Capital Allocation

Abstract: In this paper we present an intertemporal general equilibrium model of the U.S. economy. The purpose of this model is to analyze the efficiency of capital allocation. We have implemented our model econometrically for annual data covering the period 1955-80. The model encompasses the critical features of U.S. tax laws applicable to income from capital. Equilibrium is determined by market clearing conditions for consumption and investment goods and for capital and labor services in each time period. Under perfect foresight, there exists a unique balanced growth equilibrium corresponding to any stationary tax policy. An intertemporal general equilibrium model of the U.S. economy is presented in this paper. The purpose of this model is to analyze the efficiency of capital allocation. The model is kindred in spirit to the model of the Swedish economy developed by Ragnar Bentzel (1978).

Population Growth, Labor Supply, and Employment in Developing Countries

Abstract: The economies of the less developed countries are about to face perhaps the greatest challenge in their histories: generating a sufficient number of jobs at reasonable wages to absorb their rapidly growing populations into productive employment In terms of absolute magnitude, this challenge has no precedent in human history In some respects, this challenge is also unprecedented in terms of its nature, given, on the one hand, the limited availability of natural resources in many countries and, on the other hand,the widespread availability of advanced technologyThis paper examines the nature and magnitude of the principal effects of population growth on labor supply and employment in the developing economies of the world On the supply side of labor markets, we discuss key features of the interrelations between population growth and the labor force These include the lags between population growth and labor force participation; the independent effects on labor supply of accelerated population growth due to changes in fertility, mortality, and migration; patterns and trends in labor force participation rates; and gender differences in labor supply behavior On the demand side, we describe and analyze the nature of labor markets in developing economies and attempt to identify the key factors that condition their labor absorption capacity Descriptive statistics on the characteristics of developing country labor markets and on the relationships between population growth, labor supply, employment shifts, and growth of output per worker are presented and discussedThe key result of our analysis is that, despite the unprecedented magnitude of population growth and the existence of imperfections in labor markets, developing economies tended to shift between 1960 and 1980, from low-productivity agriculture to the higher productivity service and industrial sectors and, albeit with some exceptions, to raise real income per capita With respect to their prospects for the remainder of this century, we also conclude that Malthusian disasters will not necessarily be the result of forecasted population growth, provided the developing economies can generate human and physical capital investments of comparable relative magnitudes to the past two decades However, on the basis of past history, the middle-income developing countries are likely to perform better in this respect than the low-income countries, some of whom may need considerable help if they are to absorb increased population while shifting labor to more productive sectors and raising output per worker

An economic assessment of capital requirements in the banking industry

Abstract: The paper uses a two-period model to evaluate the capital requirements imposed on banks. In particular, the interaction between capital requirements and other regulatory measures is analyzed. It is shown that, in a competitive set-up, there is a tradeoff between the capital ratio and the liquidity of assets.

Cross-Sectional and Time-Series Biases in Factor Demand Studies: Explaining Energy-Capital Complementarity

Abstract: Engineering and econometric studies of the ability to substitute energy for capital often give different results. Engineering studies typically show substitution to be normal while many econometric studies show energy and capital to be complements. Berndt and Wood recently [13] attempted a reconciliation by showing that there was no logical conflict between two factors being gross substitutes but net complements. There is an alternative reconciliation based on differing output definitions in the engineering and econometric literatures. In addition, differences between cross-sectional and time-series studies appear to be due to holding different output measures constant. The econometric studies that found substitution were cross-sectional studies comparing either different countries [25; 47] or comparing different U.S. states [3; 27;28]. The work of Field and Grebenstein [19] for physical capital appears to be an exception. In contrast, the studies based on time-series data, whether static models of the U.S. [2; 12; 31] or dynamic models of the U.S. economy [6; 11; 16; 45], a generalized Box-Jenkins function for the U.S. [9], or time series data for the Netherlands [37], show complementarity. The pooled time-series, cross-sectional Canadian data of Fuss [20] and Denny, Fuss, and Waverman [16] do not show a clear pattern. The differences among estimates of energy-capital substitution are large enough to cast grave doubt on the basic hypothesis that elasticities of substitution can be measured econometrically. These results are embarrassing for econometrics, and cry out for explanation. This consistent pattern of opposite answers from cross-sectional and timeseries studies suggests either that different things are being estimated, or systematic biases exist in one or both methodologies. The proposed resolution involves a failure to control for product mix differences, which biases the two methodologies in opposite directions. Energy-capital substitution elasticities will be overestimated in cross-sectional studies. In contrast, a failure to control for product mix (along with other statistical problems) biases time-series studies towards complementarity. Thus, the difference in estimates is argued to be due to biases in opposite directions. A similar problem has been pointed out by Berndt [4] who notes that estimates of capitallabor substitution are much greater for cross-sectional studies than for time-series studies. This will also be argued to be due to failure to control for product mix. The basic points to be made in this paper include:

The sophistication of capital budgeting in Malaysian companies

Abstract: The sophistication of capital budgeting in 70 Malaysian companies is assessed in terms of a three-stage model of the capital budgeting process with reference to the following: the percentage of capital investments for which the techniques are used, explicit assessment of risk, the method of determining the cost of capital, the method of measuring cash flows, the formal profit contribution analysis, the extent of use of management science/operations research in capital budgeting, information systems support and the planning and control of capital expenditures. The assessment reveals a general tendency in the direction of increasing sophistication in the various phases of capital budgeting in Malaysian companies.

How Burdensome are Capital Gains Taxes

Abstract: Several recent and provocative studies have described portfolio trading strategies which permit investors to avoid all taxes on capital gains and to shelter a substantial part of their ordinary income as well. Other studies adopt the more traditional view that the capital gains tax raises the effective tax burden on capital income. This paper uses capital gain realization data from the 1982 IRS Individual Tax Model in an effort to distinguish between these views. It shows that for about one-fifth of the investors who realize gains or losses, the ordinary income loss-offset limitations are binding constraints. Since additional gain realizations do not affect these investors' current tax liability, they may be effectively untaxed on capital gains. Another significant group escapes taxation by not reporting realized gains. However, the largest group of investors trades in a less elaborate and more honest manner, realizing and reporting gains without offsetting losses. The capital gains tax may reduce the after-tax return earned by these investors.

Capital adequacy and the valuation of large commercial banking organizations

Abstract: Bankers argue that regulatory agencies require excessive capital adequacy. As a consequence, banks cannot achieve optimal capital structure. This study investigates the capital adequacy issue for bank holding companies over the 1974—1983 period, one of the most turbulent periods in recent banking history. During this time, capital is never excessive from the stockholders' viewpoint, and financial markets, on average, perceive capital levels as inadequate. Assuming the public wants no lower capital levels than shareholders, recent regulatory action to require higher capital ratios is a Pareto superior decision.

Insurance and Labor Market Contracting: An Analysis of the Capital Market Assumption

Abstract: In recent years a large literature has developed that investigates the role of insurance in labor market contracting. Papers in this literature typically assume that workers are completely restricted from borrowing. We argue, and to some extent demonstrate, that in many environments capital market imperfections do not lead to a noborrowing result but rather to a capital market assumption that is intermediate between the no-borrowing assumption and the perfect capital market assumption. We then consider some of the ramifications that this intermediate capital market assumption has on the type of insurance the firms provide through the labor market contract.

Financial Innovation and the Distinction Between Financial and Industrial Capital

Abstract: Financial innovations and concomitant changes in the focus of activity of nonfinancial corporations are blurring the distinctions between financial and nonfinancial capital. Karl Marx, Thorstein Veblen, and John Maynard Keynes all considered the distinction between financial and industrial capital analytically significant, and the distinction was centrally incorporated in their mature works. Marx distinguished between "money capital" and "industrial capital" throughout Capital; Veblen spoke of the different interests and roles of "captains of finance" and "captains of industry" in The Engineers and the Price System; and Keynes differentiated between both "speculation" and "enterprise" and "rentiers" and "entrepreneurs" in The General Theory. ' For Marx and economists in the Marxist tradition the distinction is important for two reasons. First, from the perspective of the labor theory of value, only workers employed productively in producing goods and services under the control of industrial capitalists produce surplus value; profit and interest are seen as competing claims on this surplus value. To the extent that the share of the total social capital in the cir

Implications of the U.S. Net Capital Inflow

Abstract: The rapidly growing net inflow of capital from abroad, mirroring the extraordinary deterioration of the U.S. export-import balance, has played a major role in equilibrating overall saving and investment in the United States in the face of unprecedentedly large and persistent federal goverriment budget deficits during the 1980s. As a result of this capital inflow, the share of U.S. financial assets held by foreign investors is also growing rapidly. If the inflow continues, the increasing relative importance of foreign investors will in general change the equilibrium price and yield relationships determined in U.S. markets. In particular, because foreign investors, on average, hold far less of their portfolios in long-term debt instruments than do American investors, the increasing share of foreign ownership of U.S. financial assets is likely to raise the expected return premium on long-term debt, and hence to shift the composition of U.S. financial activity away from capital formation. Nevertheless, the foreign capital inflow -- and with it the U.S.export-import balance -- may change in response to a variety of possible influences, including U.S. fiscal and monetary policies. Empirical estimates based on reduced-form equations indicate that a tightening of U.S. fiscal policy would significantly stimulate U.S. capital formation, and would shrink the U.S. capital inflow (that is, improve the U.S. export-import balance) by even more. Analogous estimates indicate that an easing of U.S. money policy would also significantly stimulate capital formation and shrink the capital inflow, but with the relative magnitudes of the two effects approximately reversed.

Immigration, international capital flows, and long run income distribution in Canada.

Abstract: This study derives long-run income distributional impacts of immigration and capital flows in a general equilibrium model of Canada. While each factor is its own enemy, results indicate that capital and skilled professional labor are enemies as well. Both of these productive inputs are friends of other labor groups, which are common enemies. Factor friendship patterns are useful in evaluating income distributional impacts of a variety of policies designed to influence the international flow of productive labor and capital.

Return on capital employed

Abstract: Return on capital employed (ROCE) is regarded by most businesses (excepting very small ones) as their key measure of total performance. It puts together profit and capital. More capital should give a capability to earn more profit. The ROCE ratio shows profitability: how profit produced stands up to the capital being used to generate it.

Measurement issues and behavior of productivity variables

Abstract: 1 Measuring Technical Efficiency: A Comparison of Alternative Methodologies with Census Data.- 2 changes in the U.K. Male Labor Force in the Postwar Period.- 3 The Theory and Measurement of the Rental Price of Capital in Industry-Specific Productivity Analysis: A Vintage Rental Price of Capital Model.- 4 The Role of Capital in U.S. Economic Growth, 1948-1979.- 5 The Systematic Behavior of Service Prices and Productivity in Different Countries.- Indexes.

Trade in investment-related technological services

Abstract: The paper examines the growing phenomenon of developing country exports of investment-related technological (IRT) services. Our analysis indicates that developing countries have become important players on the world market for specific IRT services. However, their success is accounted for almost entirely by a handful of countries which have been able to accumulate human capital, technological capability and physical capital. Our investigating also shows that developing country exports of IRT services are directed almost exclusively towards other developing countries, especially oil-exporting ones.