Capital Deepening Research Articles

Does directed technological change favor energy? Firm-level evidence from Portugal

Economic performance is closely related with energy consumption, the major part of which still comes from non-renewable sources. While endeavoring to promote renewable energy, policy makers are interested in technological change that also increases energy efficiency. However, both growth models of directed technological change and microeconomic theories regarding innovation suggest that technological change is not necessarily biased towards energy. In order to investigate directed technological change at the micro level, this paper applies stochastic frontier analysis to firm data for 32 economic subsectors, with respect to output produced with four inputs: capital, labor, electricity and fuel. Subsectors demonstrate different levels of technical inefficiency, which could be induced by capital deepening and higher share of financial income in total revenue. Output elasticity of labor is generally high among the subsectors, emphasizing labor as the main driver for economic growth. Output elasticity of capital is low overall, although a few subsectors enjoy better marginal returns. In most subsectors, technological change is biased the most towards labor; between electricity and fuel, technological change has favored fuel in more cases. We infer that the market size effect is likely to overwhelm others in deciding the direction of technological change. Thus, policy should include tools in addition to the energy price in order to induce technological change.

Steps in industrial development through human capital deepening

This paper presents a model in which human capital is deepened, education time increases, and labor shifts away from agriculture. These notable trends in industrial development accompany incremental steps upward in the level of education productivity. As education grows, human capital becomes relatively abundant and industries react by deepening their investment in human capital. Industries that use human capital relatively more intensively experience relatively lower prices and higher output. New industries are assumed to emerge in step with education productivity. Each new industry is assumed to have a relatively higher human capital factor share. As human capital deepening occurs, labor shifts toward the new industry and away from traditional industry. I delineate these features by extending a well-known model of endogenous economic growth through human capital investment. The extension disaggregates output into separate industries with different shares of the human capital factor. This enables trademark features of industrial development. The model explains rising education levels, growth, and labor reallocation using a minimally complex approach that jointly explains stylized facts through human capital deepening within each industry.

The Return on Information Technology: Who Benefits Most?

Information and communication technology (ICT) has continuously reshaped the way in which businesses operate. Yet opinions among economists about the returns to ICT, especially at the aggregate level, are divided. We exploit business-to-business transaction panel data from ICT producers to construct ICT capital stocks for a large sample of Belgian firms. This allows us to estimate the returns to ICT at the firm level and to investigate how firm-level ICT investments affected aggregate gross domestic product and productivity. We find large returns to ICT—more precisely, a firm investing an additional euro in ICT—increases value added by 1 euro and 35 cents on average. This marginal product of ICT investment increases with firm size and varies across sectors. Although we find substantial returns to ICT at the firm level, returns are much lower at the aggregate level. This is due to underinvestment in ICT (ICT capital deepening is low) and because firms with especially high returns are underinvesting.

The contribution of robots to productivity growth in 30 OECD countries over 1975–2019

Using a new and original database, our paper contributes to the growth accounting literature by singling out the contribution of robots through two channels: capital deepening and TFP. The contribution of robots to productivity growth through capital deepening and TFP appears to have been significant in Germany and Japan in the sub-period 1975–1995 and in several Eastern European countries in 2005–2019. However, robotization does not appear to be the source of a significant revival in productivity.

Gendered patterns of industrialization in MENA

ABSTRACT This paper analyzes different trajectories followed by Middle East and North Africa (MENA) countries with regard to feminization of the labor force. It uses accounting decomposition analysis for the manufacturing sector employment in eight MENA countries from 1983 to 2013. Overall feminization has been weak in the region, even for the best-performing countries. The trends in feminization are driven by labor-intensive industries, particularly textile and clothing, with Jordan being an exception with feminization in capital-intensive industries. As traditionally ‘female’ jobs lose their significance with structural transformation and capital deepening, manufacturing employment opportunities for women disappear, confirming the defeminization literature.

Economic productivity and competitiveness of Ukrainian exports due to the global challenges

Productivity and economic growth are key factors to maintain and improve the competitiveness of nations in the global market. The paper analyzes the prospects for the competitiveness of Ukrainian exports in the terms of pandemic circumstances and post-pandemic recovery of the global economy. The prospects for strengthening the competitiveness of Ukraine’s economy evaluating based on the modified approach for assessing the revealed comparative advantage. The dynamics and structure of major industries exports were estimating. The research result proved that the growth of innovative products in the iron and steel industry increases its competitiveness in the world market. The established reduction of the identified comparative advantages index for the main exports positions reflects the presence of structural and technological lags in the modern structure of the national economy and requires economic policy measures aimed at long-term action. Respectively, the main goals of contemporary national economic policy aimed at promoting the export competitiveness of Ukrainian products (goods & services) have to be the stimulating of R&D, infrastructure modernization and capital deepening.

Firm Characteristics and Potential Output: A Growth Accounting Approach

We apply a growth accounting approach to estimate the contribution to potential output growth in Italy by firms with different characteristics. We do so by exploiting time series obtained by aggregating individual firm data. Results show that during the double-dip recession smaller firms provided the strongest negative contribution to potential output growth, while the recovery was driven by big ones. Young firms always give a positive contribution. Growth within sectors is the main driver of the dynamic of both aggregate trend total factor productivity and the capital labor ratio. Looking at sectoral composition effects, between 2014 and 2018 sectors with lower capital deepening have increased their share in the economy, holding back the aggregate figures.

ACCOUNTING FOR GROWTH: SPAIN, 1850–2019

AbstractThe current productivity slowdown has stimulated research on the causes of growth. We investigate here the proximate determinants of long‐term growth in Spain. Over the last 170 years, output per hour worked raised nearly 24‐fold dominating gross domestic product (GDP) growth, while hours worked per person shrank by one‐fourth and population trebled. Half of labour productivity growth resulted from capital deepening, one‐third from total factor productivity (TFP) and labour quality contributed the rest. In phases of acceleration (the 1920s and 1954–1985), TFP was labour productivity's main driver complemented by capital deepening. Since Spain's accession to the European Union (1985), labour productivity has sharply decelerated as capital deepening slowed down and TFP stagnated. Up to the Global Financial Crisis (2008) GDP growth mainly resulted from an increase in hours worked per person and, to a less extent, from sluggish labour productivity coming mostly from weak capital deepening. Institutional constraints help explain the labour productivity slowdown.

Linkage of Factor Markets: Minimum Wage and Corporate Leverage

With the gradual progress of China’s economic transformation, the government has gradually strengthened labor market regulation and labor protection. As an important labor protection policy, the minimum wage standard has been rising. Considering the linkage of factor markets, the change of minimum wage standard will have an impact on corporate financing decisions. Since factor markets are playing an important role in the economic transformation, we examine the impact of the adjustment of minimum wage standard on corporate leverage and explore the mechanism. It is of great practical significance to clarify the linkage between factor markets and formulate relevant development policies scientifically.This paper employs the panel data of Chinese A-share listed companies and the minimum wage of prefecture-level cities from 2000 to 2015 to investigate the impact of minimum wage changes on corporate leverage. The main results show that: First, the minimum wage has a significant positive effect on corporate leverage; moreover, this effect is more significant in the subsamples after the year 2004, in the central and eastern regions and of the long-term leverage. Second, the minimum wage has a more significant impact on corporate leverage in labor-intensive cities; additively, it has a significantly positive impact on the capital deepening of enterprises, which corroborates that promoting the deepening of corporate capital is the main mechanism. Third, the positive impact of minimum wage on corporate leverage is more pronounced in the subsamples of non-state-owned enterprises, large asset scale and low financing constraints.The conclusions of this paper have direct policy implications: First, when formulating and adjusting the minimum wage standard, it needs to consider the impact on the financing of local enterprises, and provide supporting financing policies to achieve the capital deepening of enterprises. Second, when analyzing the logic behind changes in corporate leverage, it is necessary to pay attention to labor factors outside the capital market. Third, considering the obvious heterogeneity of the impact of minimum wage on corporate leverage, the minimum wage change might further affect the size distribution of enterprises, which also requires attention when adjusting the minimum wage standard.This paper mainly extends the existing literature in two aspects: First, from the perspective of minimum wage, it investigates the impact of labor protection policies on the leverage and the mechanism, and expands the research perspective on corporate leverage and minimum wage. Second, based on the data of cities and enterprises in China, a developing country, it analyzes the impact of labor protection policies on corporate leverage, and enriches the research on the emerging field of “labor and finance” in the context of China’s economic transformation.

The devil is in the details: Capital stock estimation and aggregate productivity growth—An application to the Spanish economy

The variables that contribute to explaining the major puzzles and paradoxes in macroeconomics and economic growth literature always appear related, directly or indirectly, to capital stock and depreciation. Depreciation defined in a narrow sense refers only to physical wear and tear, but in a broader sense, it also includes economic deterioration and obsolescence. In this study, we explore the link between the two depreciation concepts of capital deepening and total factor productivity (TFP) growth. We propose a double growth accounting framework that allows us to establish a relationship between variables in statistical terms and variables in economic terms. Then, with Spanish data for 1964–2015, we first analyze the role played by capital intensity and TFP in explaining the evolution of labor productivity. The results are substantially different depending on whether we use statistical or economic measures of capital and depreciation. Second, we focus on the paradox of productivity, concluding that the apparent absence of a positive correlation between investment in information and communication technology and the TFP growth rate may be due to the delay effect associated with such investment combined with the statistical under-estimation of true economic depreciation.

Empirical Study of Industrial Classification, Structure, and Factor Intensity: An Enquiry into Dwindling Labor Intensity in a Labor-Surplus Economy

In the process of economic growth, industrial structure exhibits changes in terms of factor intensity, output, and employment. This study presents the dynamics of industrial structure by empirically investigating the factor intensity and employment at distinct derived categories of registered Indian manufacturing industries. To probe the industrial structures, the study proposes empirical approaches for classification of industries based on use-based classification and factor intensity. The results reveal the dwindling trend of labor intensity across categories of industries implying technological progress, on the one hand, and employment concerns, on the other. An investigation of employment scenario reveals a heartening finding for the current industrial structure: both labor-intensive and capital-intensive (CI) industries exhibit increasing employment trends. In contrast with the conventional perception, capital goods industries are found to absorb an increasing amount of labor relative to capital. Accordingly, in the recent years, CI industries drove employment generation while adopting technological progress resulting from capital deepening and thereby maintained a high labor productivity.

Biased technical change and its influencing factors of iron and steel industry: Evidence from provincial panel data in China

The impact of technical change on economic growth is closely related to the structure of input factors, and guiding technical change towards energy-saving can achieve the dual goals of economic growth and energy conservation. Based on the provincial panel data of 2006–2016, this paper first uses the slacks-based measure model and the bootstrap data envelopment analysis (bootstrap-DEA) to calculate the biased technical change (BTC) index and its factor bias of China’s iron and steel industry (ISI). Next, the influencing factors of BTC are examined using panel regression analysis. The results corrected by bootstrap-DEA show that the level of ISI’s BTC in China is 1.0110, with a contribution rate of 20.75% to green total factor productivity. Moreover, China’s ISI experienced a labor-saving, energy-saving, and capital-using technical change during 2006–2016. In two-factor comparisons, technical change biased towards saving labor in labor-capital and labor-energy, and towards saving energy in energy-capital. The results of regression analysis show that improving energy efficiency, promoting urbanization, expanding production scale and optimizing industrial structure effectively promote BTC and improving energy efficiency is the primary pathway; however, excessive capital deepening has a significant negative correlation with BTC. Based on these results, this paper proposes policy recommendations for ISI’s green development.

Growth Factors in Developed Countries: A 1960-2019 Growth Accounting Decomposition

Using a new and original database, our paper contributes to the growth accounting literature with three original aspects: first, it covers a long period from the early 60’s to 2019, just before the COVID-19 crisis; second, it analyses at the country level a large set of economies (30); finally, it singles out the growth contribution of ICTs but also of robots. The original database used in our analysis covers 30 developed countries and the Euro Area over a long period allowing to develop a growth accounting approach from 1960 to 2019. This database is built at the country level. Our growth accounting approach shows that the main drivers of labor productivity growth over the whole 1960-2019 period appear to be TFP, non-ICT and non-robot capital deepening, and education. The overall contribution of ICT capital is found to be small, although we do not estimate its effect on TFP. The contribution of robots to productivity growth through the two channels (capital deepening and TFP) appears to be significant in Germany and Japan in the sub-period 1975-1995, in France and Italy in 1995-2005, and in several Eastern European countries in 2005-2019. Our findings confirm also the slowdown in TFP in most countries from at least 1995 onwards. This slowdown is mainly explained by a decrease of the contributions of the components ‘others’ in the capital deepening and the TFP productivity channels.

Identify association of appropriate technological application with per capita income of small scale fishing household - a case of Jaffna small scale fishing community, Srilanka

Fishing is vital not only for nutrition supplementary but also livelihood of millions of people. Uninterrupted supply of sufficient and quality fish stocks without affecting marine eco system is ideal for sustainability fishing. However, balancing between sustainability of marine ecosystem, market equilibrium and livelihood of fishing and fishing dependent community is a challenge. Technological application is one of approach to overcome the sustainability of fishing activities. Technological applications are diversified as 1) technology in fishing vessels, fishing gears, equipment and so on. 2) Technology application in information sharing and digital applications such as Global Positioning System (GPS), mobile phone application under Global System of Mobile Communication and 3) Technological application in fishing infrastructure such as cold room, transport equipment and so on. Small scale fishing community depends on labour intensive whereas large scale commercial fishing industries attribute on capital deepening. Adaptation of technology depends on several factors such as financial capability and technology know how. The study examined which technological application is appropriate to small scale fishing activities in Sri Lanka since 90 percent of fishing were carried out by small scale fishers (Fisheries Year Book 2018/19). Primary sample data were collected by structured interview from household level fishing community in Jaffna, North of Sri Lanka. Data were analyzed using descriptive and correlation statistical techniques. The study revealed that information technology especially application of GPS, Internet and mobile coverage in order to obtain fish catch and market information followed by digital sensor application in fishing gear had positive impact on maintain sustainable fishing catches of small-scale fishing activities. In addition, strict law enforcement and monitoring of poaching vessels such as Indian trawlers using radar technology with coordination of fisheries cooperative societies was an essential requirement of small-scale fishing community as external support with regard to sustain fishing stock of the region and their livelihood.

Transformation of pollution control and green development: Evidence from China's chemical industry

The Air Pollution Prevention and Control Action Plan (APCP) is an important pollution control policy formulated by the Chinese government to promote green development. However, there are few studies of its impact. Based on a province-level panel dataset from 2007 to 2017, we use a three-hierarchy meta-frontier slack-based data envelopment analysis (SBM-DEA) model and the global Malmquist (GM) index to estimate the green total factor productivity (GTFP) of China's chemical sub-industries. Next, we use the difference-in-differences (DID) method to explore the effect of the implementation of the APCP in 2013 on the GTFP of China's chemical industry. We find an increasing trend in the GTFP of China's chemical industry between 2007 and 2017. A decomposition of the change in GTFP shows that technical progress was the main driving factor and management inefficiency was the main inhibitory factor. The APCP had a significant positive effect on GTFP. Overall, in the post-implementation period, the increase in the GTFP of the treatment group was approximately 7.9% greater than in the control group. The APCP also significantly improved the technical efficiency change index. A dynamic effect analysis shows that the positive effect of the APCP on GTFP had an inverted U-shaped trend. A series of robustness tests, including counterfactual, re-grouping, and quasi-DID tests, suggest that our findings are reliable. In addition, changes in exports, capital deepening, and energy prices all significantly improved the GTFP of China's chemical industry.

What remains of the Cambridge critique of capital theory, if reswitching and reverse capital deepening are empirically rare and theoretically unlikely?

The paper summarises the main results of the Cambridge controversy on capital theory and discusses its actual relevance. The paradoxes that had first been regarded as most relevant (reswitching and reverse capital deepening) have turned out to be empirically rare, and this can be explained theoretically, but both neoclassical and anti-neoclassical Wicksell effects are ubiquitous. The number of efficient techniques that turn up on the envelope of the wage curves of a spectrum of techniques can be shown to be quite small both empirically and theoretically, which constitutes a new critique. It has implications for employment policies.

The Dynamic Correlation Between Capital Deepening and Total Factor Productivity in China

The impact of capital deepening on total factor productivity (TFP) is a significant and controversial issue. Based on the calculation of relevant indicators, this study adopts a Bayesian time-varying parameter model, Bayesian quantile regression, and adaptive Bayesian quantile models for in-depth statistical analysis. TFP was found to have a complex non-linear structure, and physical and human capital deepening indicators show a significant upward trend. The deepening of physical capital has a negative impact on TFP, while the deepening of human capital has a positive impact. In the capital deepening structure, the level of TFP has been improved and its structure optimized. Primary human and non-production physical capital deepening has no significant effect on TFP, while secondary human capital deepening has some significant effects on TFP. Tertiary and productive human capital deepening of TFP present two different forms of significant effect: the influence coefficient of the former declines in the increasing quantile and the change is larger, while the latter has a stable negative impact. The results of this study provide insights in terms of the improvement of China’s productivity.

Financial Capital Deepening, Technological Progress and Industrial Structure Upgrading

A necessary condition for realizing macroeconomics is to rationally upgrade the industrial structure. In this process of upgrading, financial capital deepening and technological progress are important ways to promote the upgrading of industrial structure. From an endogenous perspective, this essay explores the internal links between financial capital deepening, technological progress, and industrial structure upgrading. The analysis shows that factors of technological progress have not make a tremendous impact on the upgrading of Chinese industrial structure, nor are they a positive reason for promoting the development of the industry to a higher level. The deepening of financial capital obviously promotes the optimization and upgrading of industrial institutions, which is its main factor.

Measurement and convergence of carbon productivity across Shanghai’s manufacturing sectors

Purpose Increasing carbon productivity is an effective way to reduce carbon emissions, while boosting economic prosperity. For appropriate formulating and enforcement of energy saving and carbon emissions reduction policies in various sectors, it is of great significance to investigate the evolution characteristics and convergence modes of carbon productivity across the manufacturing sectors. Design/methodology/approach Using slack-based measure directional distance function (SBM-DDF) and global Malmquist–Luenberger (GML) productivity index, this paper measures the carbon productivities of 29 manufacturing subsectors in Shanghai, China, from 2001 to 2016 under the total factor framework. Furthermore, based on the convergence theories, it empirically examines the convergence of carbon productivity across these manufacturing sectors. Findings The measurement results suggest that the carbon productivities of the manufacturing sectors in Shanghai show an increasing tendency on the whole, and technical efficiency instead of technological change makes a main contribution to the increase. It is found that there is no obvious σ convergence across the manufacturing sectors in Shanghai, but there exist both absolute ß convergence and conditional ß convergence. Moreover, there is heterogeneity in convergence characteristics between the clean sectors and polluting sectors. The findings also show that firm size and industry structure have significant positive impacts on the growth of carbon productivities of the manufacturing sectors, whereas the impacts of capital deepening and energy consumption structure are significantly negative. Originality/value This paper measures the carbon productivities of the manufacturing subsectors by applying SBM-DDF and GML index, so as to improve the accuracy. It provides an insight into the convergence of carbon productivity across the manufacturing sectors.

The impacts of capital deepening on urban housing prices: Empirical evidence from 285 prefecture-level or above cities in China

Aiming at the social phenomenon of the coexistence of high housing prices and capital deepening, this paper explores the mechanism of transmission of capital deepening to urban housing prices. The relationship between urban housing prices and capital deepening based on the empirical evidence of 285 prefecture-level or above cities during 2005–2013 is studied to provide a new perspective explaining the rise of housing prices and direction for regulating urban housing prices. The main conclusions drawn are as follows: capital deepening has enhanced urban housing prices significantly. For every 1% increase in capital deepening, the urban housing prices increase by 0.3286%. In addition, the driving effect is characterized by some regional differentiations. The Chinese government's “four trillion yuan” economic stimulus plan has increased urban housing prices significantly. Under the two-wheel driving mechanism of “market-government”, capital deepening promotes urban housing prices through the extrusion effect of investment and the structure effect of housing demand. Hence, allocating capital elements rationally and realizing the integration innovation of institutions are important directions for guiding a rational return of urban housing prices.