Showing papers on "Physical capital published in 1988"
TL;DR: In this article, the authors consider the prospects for constructing a neoclassical theory of growth and international trade that is consistent with some of the main features of economic development, and compare three models and compared to evidence.
16,965 citations
TL;DR: In this paper, the role of bank capital regulation in risk control is investigated using the mean-variance model, and it is shown that the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks.
Abstract: This paper investigates the role of bank capital regulation in risk control. It is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance. Bank capital regulation is a way to redress this bias toward risk. Utilizing the mean-variance model, the following results are shown: (a) the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks; (b) as a solution to problems of the capital ratio regulation, the "theoretically correct" risk weights under the risk-based capital plan are explicitly derived; and (c) the "theoretically correct" risk weights are restrictions on asset composition, which alters the optimal portfolio choice of banking firms. THE RECENT INCREASE in bank failures, especially after the 1980 and 1982 Deregulatory Acts, has again ignited a controversy over the risk portfolio of the banking industry. Given the importance of this sector, there has been increased scrutiny of the industry's motives for risk taking and possible regulatory changes to improve its stability. These investigations have centered around two rather complementary areas. The first of these is the role of deposit insurance and how its current pricing procedure encourages risk taking and justifies current bank regulations. The works of Buser, Chen, and Kane [4], Kane [9], and Benston et al. [2] have made substantive contributions. The authors demonstrates the way in which our current fixed-rate insurance system rewards risk taking by the firm and insulates it through deposit insurance from the market discipline that needs to exist to ensure proper risk evaluation. This realization has led these authors to propose a series of regulatory changes to encourage proper portfolio choice within the industry. These include a shift to, market value accounting, risk-based deposit insurance premiums, and additional capital regulation. The last of these serves as a method of coinsurance whereby higher capital levels require the bank to absorb greater losses in the event of failure and encourage additional prudence in management. In essense it is one method of risk reduction that may offset the risk preference imposed on the industry due to the inappropriate insurance pricing. Because the amount of capital influences the probability of bank insolvency and thus the soundness of the entire banking system, the regulators, ceteris paribus, prefer more capital to
1,087 citations
TL;DR: The use of foreign workers in the United States is a neglected variable as mentioned in this paper, and foreign investment is a major variable in the U.S.'s economic growth, and the globalization of production: implications for labor migration.
Abstract: List of tables Acknowledgements Introduction 1. Foreign investment: a neglected variable 2. The use of foreign workers 3. The new immigration 4. The globalization of production: implications for labor migration 5. The rise of global cities and the new labor demand 6. The reconcentration of capital in the United States: a new investment zone? Conclusion Notes References Index.
1,048 citations
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TL;DR: In this paper, the productivity and factor bias effects of inter-industry R&D spillovers for five high-tech industries were investigated and a spillover network between the industries was estimated.
Abstract: This paper presents estimates of the productivity and factor bias effects of interindustry R&D spillovers for five high-tech industries. Each industry is distinguished as a separate spillover source. The industries are each affected by R&D spillovers and are themselves spillover sources. Thus a spillover network between the industries is estimated. Private and social rates of return to R&D capital are calculated. The private rates of return are generally greater than the returns to physical capital. In addition, the social rates of return are greater than the private rates. The results show that there are significant differences between industries as to their importance as sources of R&D spillovers.
374 citations
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TL;DR: In this paper, the productivity and factor bias effects of inter-industry R&D spillovers for five high-tech industries were investigated and a spillover network between the industries was estimated.
Abstract: This paper presents estimates of the productivity and factor bias effects of interindustry R&D spillovers for five high-tech industries. Each industry is distinguished as a separate spillover source. The industries are each affected by R&D spillovers and are themselves spillover sources. Thus a spillover network between the industries is estimated. Private and social rates of return to R&D capital are calculated. The private rates of return are generally greater than the returns to physical capital. In addition, the social rates of return are greater than the private rates. The results show that there are significant differences between industries as to their importance as sources of R&D spillovers.
269 citations
TL;DR: This paper found that the amount of coinvesting by a firm depends on the degree of uncertainty it faces, and that the greater the uncertainty, the higher the level of coin-vesting.
258 citations
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TL;DR: In this article, the authors discuss exchange rate issues in advanced and in developing countries, focusing on the relation between real exchange rates and the profitability of capital, and highlight the sharp discrepancy between the mobility of capital (even physical capital) and the immobility of labor.
Abstract: This paper discusses exchange rate issues in advanced and in developing countries. For the determination of exchange rates among industrialized countries the key question is the following: What is the right framework -- the monetary approach, the equilibrium approach, the new classical approach or the macroeconomic model in the tradition of Mundell-Fleming. To shed light on that question two empirical problems are considered: What is known about the behavior of real exchange rates and how well do alternative models explain the relation among interest rates, expected depreciation and actual depreciation. The second half of the paper discusses real exchange rates in developing countries. This strand of literature has become important in the context of adjustment programs. We focus on the relation between real exchange rates and the profitability of capital. The model highlights the sharp discrepancy between the mobility of capital (even physical capital, in the long run) and the immobility of labor.
91 citations
01 Sep 1988
TL;DR: In this paper, the social costs of a temporary liberalization policy in the context of an economy with infinitely lived individuals and no intertemporal consumption substitution are studied, and the results suggest that an optimal trade liberalization without full credibility could call for controls on international capital mobility.
Abstract: The social costs of a temporary liberalization policy in the context of an economy with infinitely lived individuals and no intertemporal consumption substitution are studied. Importable goods, however, can be stored, and storability is the central source of distortions. Possible welfare costs of the induced inventory accumulation are shown to be significant. It is also argued that temporariness is formally equivalent to "lack of credibility." Because international capital mobility is the vehicle that magnifies these distortions, the results suggest that an optimal trade liberalization without full credibility could call for controls on international capital mobility.
76 citations
TL;DR: In this article, an improved time series of fixed capital stock for independent accounting units within Chinese state industry is derived, which adhere as closely as possible to the standard national accounting concepts of gross domestic fixed capital formation and gross reproducible fixed assets.
Abstract: Measures of society's stock of fixed assets are necessary for describing production technology, evaluating capital-output ratios and analysing multi-factor productivity. Even in advanced industrial economies, existing series of fixed capital incorporate many weaknesses and arbitrary assumptions; in low-income nations, these problems are often severe. China is no exception. While recognizing the inherent difficulty of compiling capital stock estimates for an economy in which prices have long deviated from scarcity values, this article uses currently available materials to derive an improved time series of fixed capital stock for independent accounting units within Chinese state industry. Our objective is to produce new series that adhere as closely as possible to the standard national accounting concepts of gross domestic fixed capital formation and gross reproducible fixed assets. Despite the difficulties mentioned below, we believe that our new series are distinctly superior to existing figures for the analysis of capital deepening, multi-factor productivity and other aspects of Chinese state industry requiring estimates of fixed capital stock.
70 citations
TL;DR: The authors used financial statement data for large samples of U.S. and Japanese non-financial corporations to estimate the return to capital in each country for the period 1967-1983, and they found that the before-tax cost of corporate capital was higher for US firms than for their Japanese counterparts, with the average gap potentially as high as 5.8 percentage points.
Abstract: This paper uses financial statement data for large samples of U.S. and Japanese nonfinancial corporations to estimate the return to capital in each country for the period 1967—1983. Interpreting these as measures of the cost of capital, we find that the before-tax cost of corporate capital was higher for U.S. firms than for their Japanese counterparts, with the average gap potentially as high as 5.8 percentage points. The use of alternative measurement techniques alters the gap slightly but does not alter the basic finding. However, market returns in the two countries were much closer during the same period. Certain potential explanations for the gap in returns are rejected by empirical evidence, including differences in corporate taxation, differences in borrowing, and differences in asset mix. This leaves three potential explanations: differences in risk, differences in the tax treatment of individual capital income, and imperfections in the international flow of capital.
57 citations
TL;DR: This article showed that investment decisions are highly sensitive to uncertainty over future market conditions, and in theory changes in risk levels should strongly affect investment spending, but explicit measures of risk are usually missing from empirical investment models.
Abstract: Most investment expenditures are at least partly irreversible - although capital in place can be sold from one firm to another, its scrap value is often small because it has no alternative use other than that originally intended for it. An emerging literature has shown that this makes investment decisions highly sensitive to uncertainty over future market conditions, and in theory changes in risk levels should strongly affect investment spending. However, explicit measures of risk are usually missing from empirical investment models.
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TL;DR: In this article, the authors hypothesize that some conditions must obtain before educational expansion can have an affect on economic growth, and they compare the French findings to the U.S. findings and find them consistent.
Abstract: Human capital theory postulates that school expansion should foster economic growth, but credentialing theory questions such a relationship. We hypothesize that some conditions must obtain before educational expansion can have an affect on economic growth. First, the curriculum must be standardized and a large proportion of the age cohort beyond grade six must be enrolled for a sufficient period of time. Second, education and the economy must be linked. Third, the state must ensure that the quality of educational offerings is maintained. We use France to test these hypotheses because, starting in the late 19th century, the state played an important role in linking education and the economy. The state also followed a number of specific policies to ensure quality. The analysis from 1825-1975 supports our hypotheses. We compare the French findings to the U.S. findings and find them consistent.
TL;DR: In this paper, the authors show that fully experience-rated UI increases investment in human capital when future employment opportunities are not known with certainty, and that the optimal level of UI trades off full insurance and the impact, through human capital, of UI on the wage tax base.
Abstract: Previous studies of optimal unemployment insurance (UI) design ignore the impact of UI on human capital investment decisions. We show that fully experience-rated UI increases investment in human capital when future employment opportunities are not known with certainty. In the presence of wage taxation, the optimal level of UI trades off full insurance and the impact, through human capital, of UI on the wage tax base. This trade-off, in turn, depends on the extent to which human capital accumulation reallocates labor between market and untaxed nonmarket activities. Taxation of UI benefits increases the optimal level of UI provision.
TL;DR: The contribution of recent research to the explanation of a variety of behavioral findings is examined, with particular attention to tax clientele effects, cross-section studies dependent on capital asset pricing model assumptions, and dividend signaling models as mentioned in this paper.
Abstract: The contribution of recent research to the explanation of a variety of behavioral findings is examined, with particular attention to tax clientele effects, cross-section studies dependent on capital asset pricing model assumptions, and dividend signaling models. Further relaxation of standard capital market assumptions appears necessary to reconcile behavior with investor and firm rationality: for example, investors in capital-constrained firms may regard capital gains resulting from earnings retention as more risky than current dividends or stockholders may see dividend payment as imposing constraints on management that reduce agency costs. Copyright 1988 by MIT Press.
TL;DR: Empirical evidence on three assertions commonly made by population policy advocates about the relationships among population growth, human capital formation, and economic development is discussed and evaluated in the light of economic-biological models of household behavior and of its relevance to population policy.
TL;DR: In this paper, the authors assesses recent studies that have tested these hypotheses empirically for industrialised countries, presents new evidence and expands data analysis to include the group of developing countries, concluding that domestic investment and savings are now much less closely linked than in the 1960s.
Abstract: How mobile is capital across countries? Does the expansion of world financial markets in the 1970s and 1980s reflect a tendency towards one integrated world capital market, accessible for both industrialised and developing countries? Or, alternatively, are savings and investment rates for each economy closely tied because of international capital market imperfections? This article critically assesses recent studies that have tested these hypotheses empirically for industrialised countries, presents new evidence and expands data analysis to include the group of developing countries. Contrary to recent studies it is concluded that across industrialised countries domestic investment and savings are now much less closely linked than in the 1960s. But the larger capital market integration does not extend to the group of developing countries despite their increased use of funds from international financial markets to finance domestic investment. The exploratory nature of the data analysis only permits to draw s...
TL;DR: In this paper, an attempt to explain changes in the industrial pattern of relative international competitiveness and specialization in the Swedish manufacturing industry during the period 1969-84 was made. But no indication was found of increased international specialization on R&D-intensive products in Swedish industry.
Abstract: The paper reports an attempt to explain changes in the industrial pattern of relative international competitiveness and specialization in the Swedish manufacturing industry during the period 1969-84. In particular, we evaluate the role of RD this was true for industries intensive in human as well as physical capital. The analysis confirmed the "technology gap" hypothesis in that a high level of RD on the other hand, no indication was found of increased international specialization on R&D-intensive products in Swedish industry.
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TL;DR: In this paper, a microeconomic model is proposed to estimate the impact of investment in public infrastructure on private industrial profitability, and the authors conclude that new capital investment in the public sector should be undertaken only to rectify any identified constraints imposed by the inadequacy of infrastructure in the private employment of private factors.
Abstract: This paper specifies a microeconomic model to estimate the impact of investment in public infrastructure on private industrial profitability. Empirical results based on time series data for 34 industries characterize the Mexican industrial structure as having involuntary unemployment, deficient product demand, declining productivity growth, increasing returns to scale, and short run excess capital capacity. Aggregate technological change over the period studied has been capital using and labor saving.Both labor and capital are underused in the short run. This disequilibrium has high efficiency costs that may be undermining Mexico's international competitiveness. Therefore, new capital investment in the public sector is not recommended at this time and should be undertaken only to rectify any identified constraints imposed by the inadequacy of infrastructure in the private employment of private factors.
TL;DR: In the celebrated model of Malthus, fertility of a household was not an endogenous-decision variable but depended in a mechanical way on its consumption relative to its subsistence needs as discussed by the authors.
Abstract: Publisher Summary This chapter presents an introduction to the handbook on development economics, Part 3. In most societies, a family or a household is the basic decision-making unit, although in some of the developed countries and even some developing countries in Latin America, the cohesion of the family seems to be weakening. Decisions made by the households in a society significantly influence the course of its economic and social development. For example, the fertility decisions of households determine the growth (or lack thereof) of a nation's population. Household consumption provides the demand for goods and services and household savings and investment influence the accumulation of physical capital and its allocation across sectors and areas. In the celebrated model of Malthus, fertility of a household was not an endogenous-decision variable but depended in a mechanical way on its consumption relative to its subsistence needs. In contrast, contemporary analyses of household behavior under the rubric of the “new home economics” start from the presumption that a household, which is concerned with the welfare of its members. In addition to the productivity-based view of schooling, there are two other common perspectives. One is the so-called “signaling” hypothesis in which the role of schooling is simply to signal to potential employers the innate ability of the individual who has acquired school credentials. The other perspective attributes to education a socializing role rather than productivity per se, the socializing essentially implying that educated individuals adhere to certain norms of conduct that might have positive implications for their productivity in work.
TL;DR: In this article, the authors combine the results of three financial studies that examine capital issues affecting minority business development and present the results so as to explain or refute conventional wisdom regarding capital availability, cost of capital, credit market discrimination, sources of capital and differences in firm capital composition.
Abstract: This article combines the results of three financial studies that examine capital issues affecting minority business development. The results are presented so as to explain or refute conventional wisdom regarding capital availability, cost of capital, credit market discrimination, sources of capital and differences in firm capital composition. Generally, Asian and Hispanic businesses more approximate nonminority businesses in the sources of capital, the cost of capital, total capital investment, and access to capital. Black firms, on the other hand, face credit discrimination from all sources of capital, which limits their access to capital, increases its cost, and affects firm profitability. Consequently, black firms have a smaller capital composition at startup and during operations. The only deviation from this pattern occurs where minority and nonminority financial institutions vie for black business patronage by reducing the cost of borrowing and increasing the availability of funds.
TL;DR: In this paper, the authors show that the aggregate value of these tax-timing options for the securityholders of a firm will be enhanced when the firm has multiple classes of tradeable securities outstanding.
Abstract: Among the elements of value reflected in the prices of corporate securities are the taxtiming options associated with the opportunities for investors to tax manage their portfolios by deferring gains and taking losses. We show that the aggregate value of these taxtiming options for the securityholders of a firm will be enhanced when the firm has multiple classes of tradeable securities outstanding. For that reason, the inclusion of debt as well as equity in a firm's capital structure should raise the total market value of the firm. We further show that, under most likely circumstances, there will be an interior optimal degree of leverage that will maximize tax-timing option values.
TL;DR: In this article, the separability of capital and six labor skill groups in U.S. manufacturing was investigated and it was found that no pair of inputs is even weakly separable.
TL;DR: In this paper, the productivity and factor bias effects of inter-industry R&D spillovers for five high-tech industries were investigated and a spillover network between the industries was estimated.
Abstract: This paper presents estimates of the productivity and factor bias effects of interindustry R&D spillovers for five high-tech industries. Each industry is distinguished as a separate spillover source. The industries are each affected by R&D spillovers and are themselves spillover sources. Thus a spillover network between the industries is estimated. Private and social rates of return to R&D capital are calculated. The private rates of return are generally greater than the returns to physical capital. In addition, the social rates of return are greater than the private rates. The results show that there are significant differences between industries as to their importance as sources of R&D spillovers.
TL;DR: The increasing importance of financial capital in the U.S. economy was discussed in this article, where the authors argue that financial capital is essential to the economic health of the United States.
Abstract: (1988). The Increasing Importance of Financial Capital in the U.S. Economy. Journal of Economic Issues: Vol. 22, No. 2, pp. 581-588.
TL;DR: The authors analyzes labor contracts as a device for rearranging factor incomes over time under conditions of extreme adverse selection; in particular, the lack of verifiable public information about future compensation prevents finitely-lived workers from borrowing against their earnings.
Abstract: This essay analyzes labor contracts as a device for rearranging factor incomes over time under conditions of extreme adverse selection; in particular, the lack of verifiable public information about future compensation prevents finitely-lived workers from borrowing against their earnings. Specific human capital is used as an incentive to implement intertemporal self-enforcing contracts between workers and firms. After proposing a necessary and sufficient condition for the existence of such contracts, the resulting equilibrium earnings profiles are explored along with the effects of imperfections in the credit market on the way workers choose jobs and allocate time between current production and training. Copyright 1988 by The editors of the Scandinavian Journal of Economics.
TL;DR: In this paper, the authors explore the theory of cost in search of a stronger, though not necessarily general, theory of merger, and present evidence that these cost-related issues are an empirically important motive for merger.
Abstract: THE theoretical foundations of merger are weak and ad hoc; however, recent advances in the theory of the firm pave the way for a construct that may help alleviate this problem. The purpose of this article is to explore the theory of cost in search of a stronger, though not necessarily general, theory of merger. Firms sometimes face demand insufficient to support production at the cost-minimizing rate. They respond by producing more slowly and periodically idling their facilities.2 This implies that intermittent excess capacity might prompt a firm to expand its product line through merger to reduce idle capacity and minimize production costs. In this article we present evidence that these cost-related issues are an empirically important motive for merger. Differentiating between so-called cost-based and monopoly mergers presents a problem of considerable magnitude for antitrust law enforcement authorities.3 Potentially a means of acquiring market power, merger