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Showing papers on "Physical capital published in 2002"


Journal ArticleDOI
TL;DR: This paper examined the relationship between disaster risk and long-run economic growth in a macroeconomic framework and found that a higher probability of capital destruction due to natural disasters reduces physical capital investment and therefore curtails long-term economic growth.
Abstract: I. INTRODUCTION Risks to life and property exist, in varying degrees, in every country of the world. Numerous studies on the relationship between risk and expected losses and economic decisions are available and generally widely known, (1) but to our knowledge there are no empirical studies that evaluate the effects of natural hazards on long-run economic growth in a macroeconomic framework. (2) Despite the vast empirical literature that examines the linkages between long-run average growth rates, economic policies, and political and institutional factors, the relationship between disaster risk and long-run growth has not been empirically examined. There is, however, a body of research that has examined the effects of natural disasters on economic variables in the short run. Tol and Leek (1999) provide a summary of the recent studies that assess the immediate repercussions of natural disasters on economic activity. The empirical findings in this literature (Albala-Bertrand, 1993; Dacy and Kunreuther, 1969; Otero and Marti, 1995) report that gross domestic product (GDP) is generally found to increase in the periods immediately following a natural disaster. This result is due to the fact that most of the damage caused by disasters is reflected in the loss of capital and durable goods. Because stocks of capital are not measured in GDP and replacing them is, GDP increases in periods immediately following a natural disaster. Our article extends the short-run analysis by examining the possible linkages among disasters, investment decisions, total factor productivity, and long-run economic growth. Because disaster risks differ substantially from country to country, it is reasonable to question whether there exists some relationship between disasters and long-run macroeconomic activity. On cursory examination, one might conclude that a higher probability of capital destruction due to natural disasters reduces physical capital investment and therefore curtails long-mn growth. However, such analysis is only partial and may be misleading. Disaster risk may reduce physical capital investment, but disasters also provide an opportunity to update the capital stock, thus encouraging the adoption of new technologies. Furthermore, an endogenous growth framework also suggests that disaster risk could potentially lead to higher rates of growth. In this type of model individuals invest in physical and human capital, but there is a positive externality associated with human capital accumulation. If disasters reduce the expected return to physical capital, then there is a correspondingly higher relative return to human capital. The higher relative return to human capital may lead to an increased emphasis on human capital investment, which may have a positive effect on growth. We present some initial evidence regarding the relationship between disasters and economic growth in Figures 1 through 4. These figures show the simple relationship between the number of natural disasters and long-run economic growth using a sample of 89 countries. The vertical axis represents the average annual growth rate of per capita GDP over the 1960-90 period. Data on per capita GDP are taken from Summers and Heston (1994). Along the horizontal axes are four different measures of the propensity for natural disasters. The disaster data in Figures 1 and 3 are historical information from Davis (1992) covering 190 years of the world's worst recorded natural disasters. Figures 2 and 4 represent more current and detailed information on natural disasters events for the period 1960 through 1990 from the Center for Research on the Epidemiology of Disasters (CRED) (EMDAT, 2000). Figures 1 and 2 show the natural log of one plus the total number of disaster events from Davis and CRED, respectively. (3) However, bec ause larger countries may be subject to more disasters, we present the natural log of one plus the number of disasters normalized by land area from Davis and CRED in Figures 3 and 4. …

900 citations


ReportDOI
TL;DR: In this paper, the authors find evidence for neither the market-based nor the bank-based hypothesis, and they conclude that having a bank-or marketbased system per se does not seem to matter much.

772 citations


Journal ArticleDOI
TL;DR: In this article, a survey of 440 manufacturing firms of diverse industries in a region in the southwest of Montreal found that 68.5% of the firms have developed product or process innovations during the 3 years preceding the survey.

627 citations


BookDOI
TL;DR: The Social Capital Assessment Tool as discussed by the authors is a measuring instrument that combines quantitative and qualitative approaches to measure social capital in Malian and Indian communities, and can be downloaded from a CDROM which is included with the book.
Abstract: Understanding and Measuring Social Capital details various methods of gauging social capital and provides illustrative case studies from Mali and India. It also offers a measuring instrument, the Social Capital Assessment Tool, that combines quantitative and qualitative approaches. This tool can be downloaded from a CDROM which is included with the book.

458 citations


Journal ArticleDOI
TL;DR: In this paper, a strictly positive probability of migration to a richer country, by raising both the level of human capital formed by optimizing individuals in the home country and the average level of non-migrants in the country, can enhance welfare and nudge the economy toward the social optimum.

275 citations


Journal ArticleDOI
TL;DR: In this article, the authors examine a Canadian tax-driven vehicle known as the Labour Sponsored Venture Capital Corporation (LSVCC) and suggest that the LSVCCs can be expected to have higher agency costs and lower profitability than private venture capital funds.
Abstract: In this paper, we examine a Canadian tax-driven vehicle known as the Labour Sponsored Venture Capital Corporation (LSVCC). As a theoretical matter, we suggest that the LSVCCs can be expected to have higher agency costs and lower profitability than private venture capital funds. We present data that are consistent with this view. The central question that we analyze, however, is whether the tax advantages conferred on LSVCCs have resulted in LSVCCs crowding out, or displacing other types of venture capital funds. Empirical analysis of our data (which covers the 1977-2001 period) is highly consistent with crowding out. The data suggest that crowding out has been sufficiently energetic as to lead to a reduction in the aggregate pool of venture capital in Canada, frusterating one of the key governmental goals underlying the LSVCC programs; namely, the expansion of the aggregate pool of capital. In the course of our analysis, we confirm the importance of macroeconomic factors (the performance of the stock market, real interest rates, and changes in real gross domestic product) in affecting the supply of and demand for venture capital. We also generate evidence that is consistent with the proposition that entrepreneurs in the market for venture capital prefer to incorporate their business federally, rather than provincially.

261 citations


ReportDOI
TL;DR: The empirical relationship between capital controls and the financial development of credit and equity markets is examined in this paper, and the results suggest that the rate of financial development, as measured by private credit creation and stock market activity, is linked to the existence of capital controls, but the strength of this relationship varies with the empirical measure used, and the level of development.
Abstract: The empirical relationship between capital controls and the financial development of credit and equity markets is examined. We extend the literature on this subject along a number of dimensions. Specifically, we (1) investigate a substantially broader set of proxy measures of financial development; (2) create and utilize a new index based on the IMF measures of exchange restrictions that incorporates a measure of the intensity of capital controls; and (3) extend the previous literature by systematically examining the implications of institutional (legal) factors. The results suggest that the rate of financial development, as measured by private credit creation and stock market activity, is linked to the existence of capital controls. However, the strength of this relationship varies with the empirical measure used, and the level of development. These results also suggest that only in an environment ch aracterized by a combination of a higher level of legal and institutional development will the link between financial openness and financial development be readily detectable. A disaggregated analysis indicates that in emerging markets the most important components of these legal factors are the levels of shareholder protection and of accounting standards.

234 citations


Journal ArticleDOI
TL;DR: In this article, the authors show that the success probability, financial contract, pre-money valuation, and value created in a start-up firm depend strongly on the characteristics of the capital market in which the startup raises finance, such as the level of capital supply and degree of capital market competition.
Abstract: We show that the success probability, financial contract, pre-money valuation, and value created in a start-up firm depend strongly on the characteristics of the capital market in which the start-up raises finance, such as the level of capital supply and degree of capital market competition, entry costs, and capital market transparency. We characterize the levels of capital supply and capital market competition for which the created surplus falls short of the second-best benchmark, implying that public policy measures affecting the supply of venture capital (e.g., changes in the capital gains tax) can increase welfare. We also investigate the effect of capital supply on the incentives of venture capitalists to screen projects. We show that screening is more intense if the level of capital supply is low, and less intense if it is high. The model is consistent with available empirical evidence and provides many new, testable implications.

227 citations


Journal ArticleDOI
TL;DR: In this article, a case study of the Indian Corporate sector is presented, where a model that accounts for the possibility of restructuring costs in attaining an optimal capital structure and addresses the measurement problem that arises due to the unobservable nature of the attributes influencing the optimal structure.
Abstract: Existing empirical research on capital structure has been largely confined to the United States and a few other advanced countries. This paper attempts to study the capital structure choice of Less Developed Countries (LDCs) through a case study of the Indian Corporate sector. The objective is to develop a model that accounts for the possibility of restructuring costs in attaining an optimal capital structure and addresses the measurement problem that arises due to the unobservable nature of the attributes influencing the optimal capital structure. The evidence presented here suggests that the optimal capital structure choice can be influenced by factors such as growth, cash flow, size, and product and industry characteristics. The results also confirm the existence of restructuring costs in attaining an optimal capital structure.

201 citations


Journal ArticleDOI
TL;DR: This paper found that for countries below 40% of the US output per worker, less than half of the output gap relative to the US is attributed to human and physical capital in the US.
Abstract: This paper offers new evidence on the sources of cross-country income differences. It exploits the idea that observing immigrant workers from different countries in the same labor market provides an opportunity to estimate their human-capital endowments. These estimates suggest that human and physical capital account for only a fraction of cross-country income differences. For countries below 40% of the US output per worker, less than half of the output gap relative to the US is attributed to human and physical capital.

197 citations


Journal ArticleDOI
Robert Tamura1
TL;DR: In this paper, a human capital externality in the total factor productivity of agriculture and industry is introduced to explain the transition from agriculture to industry, leading to a slow growth in population and income before a switch to a balanced growth path of higher population growth and rapid income growth.

Journal ArticleDOI
TL;DR: In this paper, a measure of the ability to participate in international trade (Geography) and a preferential policy index (Policy) was used to compare the influence of geography and policy on coastal growth.

Journal ArticleDOI
TL;DR: The authors formalizes the idea of generality of technology in two ways, one related to human capital (skill transferability) and one to physical capital (vintage compatibility) and studies the impact of an increase in these two dimensions of technological generality on equilibrium wage inequality.
Abstract: The recent changes in the US wage structure are often linked to the new wave of capital-embodied information technologies. The existing literature has emphasized either the accelerated pace or the skill-bias of embodied technical progress as the driving force behind the rise in wage inequality. A key, neglected, aspect is the “general purpose” nature of the new information technologies. This paper formalizes the idea of generality of technology in two ways, one related to human capital (skill transferability) and one to physical capital (vintage compatibility) and studies the impact of an increase in these two dimensions of technological generality on equilibrium wage inequality.

01 Jan 2002
TL;DR: In this article, a restricted equilibrium framework is utilized to estimate the contribution of public investment in infrastructure to private sector profitability, and the divergence of private and public capital stocks from their static equilibrium levels is determined.
Abstract: A restricted equilibrium framework is utilized to estimate the contribution of public investment in infrastructure to private sector profitability. A restricted cost function in translog form which treats labor and materials as variable inputs and private capital/public sector capital stock in transport, communications, and electricity as quasi-fixed inputs is specified. A system of non-linear equations comprising variable cost function and derived input demand equations is estimated using data from 1970-87 for 26 Mexican 3-digit manufacturing industries. The divergence of private and public capital stocks from their static equilibrium levels is determined. The net rate of return to fixed factors is also calculated. Estimates of allocative efficiency are derived. The study also gives estimates of short- and long-run scale economies, output elasticity of factors, measures of productivity growth, and technical change. Economically significant and policy implications of the findings are given.

Journal ArticleDOI
TL;DR: In this article, the authors reviewed the literature on human capital, institutions and social capital, extracting three sub-categories of human capital (human skills capital, stock-of-knowledge and entrepreneurship) and two of social capital (low- and high rationalisation).
Abstract: Human capital, institutions and social capital are now all recognised as significant factors of growth. They have largely been studied separately, and although they present sufficient common characteristics to be conceptualised as one main category distinct from physical capital, it may still be more important to focus on the links between their specific sub-categories. Direct links with income may be spurious, as there appears to be a 'web of associations' between the sub-categories, which would benefit from further empirical investigation. This paper reviews the literature on human capital, institutions and social capital, extracting three sub-categories of human capital (human skills capital, stock-of-knowledge and entrepreneurship) and two of social capital (low- and high-rationalisation). Specific areas are then suggested for further empirical study.

Journal ArticleDOI
TL;DR: In this article, the effect of monetary policy from 1990 to 1999 on investment through the cost of capital and the cash-flow channels is investigated, and several specifications of the neo-classical demand for capital, taking into account transitory dynamics are compared.
Abstract: Using a large panel of about 6,946 French manufacturing firms, this paper investigates the effect of monetary policy from 1990 to 1999 on investment through the cost of capital and the cash-flow channels. We compare several specifications of the neo-classical demand for capital, taking into account transitory dynamics. The user cost of capital has a significant negative elasticity with respect to capital using the traditional within estimates, or as long as cash-flow are not added in the regression when using Generalized Method of Moments estimates. Asymmetries of effect of monetary policy are evaluated on different groups of firms which differ with respect to informational asymmetries.

Journal ArticleDOI
TL;DR: In contrast to previous empirical work on capital structure, which is mainly confined to the United States and a few other advanced countries, the authors tried to study the capital structure choice of developing countries through a case study of the Indian corporate sector.
Abstract: In contrast to previous empirical work on capital structure, which is mainly confined to the United States and a few other advanced countries, this paper attempts to study the capital structure choice of developing countries through a case study of the Indian corporate sector. The paper shows that the optimal capital structure choice is influenced by factors such as growth, cash flow, size, and product and industry characteristics.

Journal ArticleDOI
TL;DR: In this article, the authors developed a unified theory for the dynamic implications of income inequality on the process of development, and argued that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth has changed the qualitative impact of inequality.
Abstract: This paper develops a unified theory for the dynamic implications of income inequality on the process of development. The proposed theory argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth has changed the qualitative impact of inequality on the process of development. In early stages of industrialization as physical capital accumulation is a prime source of economic growth, inequality enhances the process of development by channeling resources towards individuals whose marginal propensity to save is higher. In later stages of development, however, as the return to human capital increases due to capital-skill complementarity, human capital becomes the prime engine of growth and equality, in the presence of credit constraints, stimulates investment in human capital and promotes economic growth. As wages increase, however, credit constraints become less binding, differences in the marginal propensity to save decline and the aggregate effect of income distribution on the growth process becomes therefore less significant.

Journal ArticleDOI
TL;DR: In this article, multi-line pricing and capital allocation by insurance companies when solvency matters to consumers, capital is costly to hold, and the average loss is uncertain is studied.

01 Jan 2002
TL;DR: In this article, the role of public sector investment in the growth of aggregate output and productivity in United Kingdom manufacturing is examined and its role in production can be explicitly modeled and its contribution to productivity growth estimated.
Abstract: This paper examines the role public sector investment plays in growth of aggregate output and productivity in United Kingdom manufacturing. By treating the services of the government-owned capital stock as an input contributing to total factor productivity, its role in production can be explicitly modeled and its contribution to productivity growth estimated. The basic economic model is described, and the way in which intermediate goods prices are treated in a value-added framework is explained.

Journal ArticleDOI
TL;DR: In this paper, the authors evaluate the contribution of human capital and financial development to economic growth in a panel of 82 countries covering 21 years and find significant evidence of such interactions, suggesting that studies which ignore such interactions are likely to be misleading.
Abstract: In this paper we evaluate the contributions of human capital and financial development to economic growth in a panel of 82 countries covering 21 years. The main innovations in the paper stem from the fact that we use a translog production function as a framework for estimating the relationships among economic growth and factor inputs. The factor inputs considered are: labour, physical capital, human capital (deriving from endogenous growth theory), and a monetary factor (money or credit, deriving from the theory of money in the production function). The translog production function enables a richer specification of the relationships among growth and factor inputs, than the more commonly used Cobb–Douglas approach, as it allows for interactions among factor inputs. We find significant evidence of such interactions, suggesting that studies which ignore such interactions are likely to be misleading. Overall, our results suggest that financial development is at least as important as human capital in the growth process. Copyright © 2002 John Wiley & Sons, Ltd.

Posted Content
TL;DR: This paper examined the determinants of changes in the US wage structure over the period 1976-2000, with the objective of evaluating whether these changes are best described as the result of ongoing skill-biased technological change, or alternatively, as the outcome of an adjustment process associated with a major discrete change in technological opportunities.
Abstract: This paper examines the determinants of changes in the US wage structure over the period 1976-2000, with the objective of evaluating whether these changes are best described as the result of ongoing skill-biased technological change, or alternatively, as the outcome of an adjustment process associated with a major discrete change in technological opportunities. The main empirical observation we uncover is that change in both the level of wages and the returns to skill over this period appear to be primarily driven by changes in the ratio of human capital (as measured by effective units of skilled workers) to physical capital. Although at first pass this pattern may appear difficult to interpret, we show that it conforms extremely well to a simple model of technological adoption following a major change in technological opportunities. In contrast, we do not find much empirical support for the view that ongoing (factor-augmenting) skill-biased technological progress has been an important driving force over this period, nor do we find support for the view that physical capital accumulation has contributed to the increased differential between more and less educated workers (in fact, we find the opposite).

Posted Content
TL;DR: McMahon et al. as mentioned in this paper studied the effects of education on economic growth and non-market delayed feedback effects on health, poverty, political stability, and other key measures of economic development in Africa.
Abstract: This paper estimates the net education effects on economic growth as well as non-market delayed effects on health, poverty, political stability, and other key measures of economic development in Africa. It seeks to do this more comprehensively than this has been done before, as well as to estimate the delayed feedback effects from the non-market outcomes on economic growth and the externalities. It does this by means of a simulation model based on panel and cross country data. However, the effects of education considered here are shown to be consistent with those found in the mainstream of the research on each outcome based on microeconomic data. After developing the micro analytic conceptual framework, the regression estimates are presented in full together with a discussion of the net direct and indirect effects of education on each outcome. These are shown on average to improve nationwide infant mortality, increase longevity, strengthen civic institutions and democratization, increase political stability, and increase investment in physical capital. The later have positive delayed feedback effects on the economic growth process. The effects also lower fertility rates and population growth rates but the latter occurs only after long delays because of the short term positive effects of education on health. There are significant net education effects (after controlling for other things) that reduce poverty, inequality, and crime, the latter after netting out negative externalities from growth and white collar crime. Net education effects reducing poverty and substituting skills for extractive exports also contribute to environmental sustainability. Simulations solve the complete model endogenously and iteratively over time for all of the direct and indirect (largely externality) effects in a process referred to here as endogenous development. They reveal that indirect feedback effects on growth and also on non-market outcomes are larger than the direct effects! Some effects are immediate, but many of the lags are 25 years +. So policy options for a continent in crisis that consider these long lags are considered. A full explanation of the basis for the estimates and of the undirect effects and feedbacks is available in W. McMahon, Education and Development: Measuring the Social Benefits, Oxford University Press, paperback out in Jan. 2002.

Journal ArticleDOI
TL;DR: In this article, the authors show that a firm's management can exploit the capital market's information in deciding either whether to proceed with a contemplated strategy change or whether to continue with a previously initiated strategy change.
Abstract: Capital market participants collectively may possess information about the valuation implications of a firm's change in strategy not known by the management of the firm proposing the change. We ask whether a firm's management can exploit the capital market's information in deciding either whether to proceed with a contemplated strategy change or whether to continue with a previously initiated strategy change. In the case of a proposed strategy change, we show that managers can extract the capital market's information by announcing a potential new strategy, and then conditioning the decision to implement the new strategy on the size of the market's price reaction to the announcement. Under this arrangement, we show that a necessary condition to implement all and only positive net present value strategy changes is that managers proceed to implement some strategies that gamer negative price reactions upon their announcement. In the case of deciding whether to continue with a previously implemented strategy change, we show that it may be optimal for the firm to predicate its abandonment/continuation decision on the magnitude of the costs it has already incurred. Thus, what looks like "sunk-cost" behavior may in fact be optimal. Both demonstrations show that, in addition to performing their usual role of anticipating future cash flows generated by a manager's actions, capital market prices can also be used to direct a manager's actions. It follows that, in contrast to the usual depiction of the information flows between capital markets and firms as being one way — from firms to the capital markets — information also flows fi^om capital markets to firms.

Journal ArticleDOI
TL;DR: In this paper, the authors analyzed the effects of exogenous shocks on farmers' off-farm labor supply and farm capital investment, and showed that farm capital investments during the 1970s, which were enhanced by heavily subsidized credit, prevented farmers from seeking offfarm employment opportunities.

Journal ArticleDOI
TL;DR: In this paper, the authors argue that an exclusive focus on colonialism as the driver of India's economic history misses those continuities that arise from economic structure or local conditions, and that to restore the link between economic history and modern India, a different narrative of Indian economic history is needed.
Abstract: This paper argues that to restore the link between economic history and modern India, a different narrative of Indian economic history is needed. An exclusive focus on colonialism as the driver of India's economic history misses those continuities that arise from economic structure or local conditions. In fact, market-oriented British imperial policies did initiate a process of economic growth based on the production of goods intensive in labor and natural resources. However, productive capacity per worker was constrained by low rates of private and public investment in infrastructure, excessively low rates of schooling, social inequalities based on caste and gender and a delayed demographic transition to lower birthrates and the resultant heavy demographic burden placed on physical capital and natural resources.

Posted Content
TL;DR: In this paper, the authors proposed an approach that yields positive average human capital externalities if and only if the marginal social product of workers with above-average human capital exceeds their wage.
Abstract: Identification of the strength of human capital externalities at the aggregate level is still not fully understood. The existing method may yield positive or negative externalities even if wages reflect marginal social products. We propose an approach that yields positive average human capital externalities if and only if the marginal social product of workers with aboveaverage human capital exceeds their wage. As an application, we estimate the strength of average-schooling externalities in US cities between 1970 and 1990.

Journal ArticleDOI
TL;DR: In this paper, the authors show that nonconvexities in technology, assumed in the capital market imperfection literature on the relationship between income distribution and economic development, can be replaced by an assumption that the bequest function is convex with respect to income.

Posted Content
TL;DR: In this paper, the authors provide an analysis on the magnitude of remittances, their volatility, and their relationship to other capital flows, including FDI, portfolio investment, and foreign bank lending.
Abstract: The debate on the risks and benefits of the globalisation of international capital markets has focused on the volume and the volatility of the main capital flows – foreign direct investment (FDI), portfolio investment, and foreign bank lending. Financial transfers in the form of worker remittances have received less attention in this context. This paper provides an analysis on the magnitude of remittances, their volatility, and their relationship to other capital flows. Moreover, we provide empirical evidence on the determinants of remittances and private capital flows.

Report SeriesDOI
TL;DR: The idea of positive educational externalities is that the benefits of individually acquired education may not be restricted to the individual but might spill over to others as well, accruing at higher aggregation levels, in particular at the macroeconomic level as discussed by the authors.
Abstract: The idea of positive educational externalities is that the benefits of individually acquired education may not be restricted to the individual but might spill over to others as well, accruing at higher aggregation levels, in particular at the macro-economic one. We offer an extensive summary and a critical discussion of the empirical literature on the impact of human capital on macro-economic performance, with a particular focus on UK policy. Key findings include: (1) Taking the studies as a whole, there is compelling evidence that human capital increases productivity. Although there is an important theoretical distinction between the augmented neo-classical approach and the new growth theories, the empirical literature is still largely divided on whether the stock of education affects the long-run level or growth rate of the economy. A one-year increase in average education is found to raise the level of output per capita by between 3 and 6 percent according to augmented neo-classical specifications, while it would lead to an over 1 percentage point faster growth according to estimates from the new-growth theories. (2) Over the short-run planning horizon (4 years) the empirical estimates of the change in GDP for a given increase in the human capital stock are of similar orders of magnitude in the two approaches. (3) The impact of increases at different levels of education appear to depend on the level of a country’s development, with tertiary/higher education being the most important for growth in OECD countries. (4) Education is found to yield additional indirect benefits to growth (in particular, by stimulating physical capital investments and technological development and adoption). More preliminary evidence seems to indicate that type, quality and efficiency of education all matter for growth. The most pressing methodological problems are the measurement of human capital; systematic differences in the coefficient of education across countries (in particular between developing and developed countries) and reverse causality. We also make recommendations for future research priorities.