Capital Intensity Of Production Research Articles

Factors of long-term economic growth: Ratio of capital and labor in the increase in the gross income of the economy, number of employed individuals, and labor productivity

This article is a continuation of “Long-Term Growth Factors: Scientific and Technological Progress and Capital Intensity of Production,” published in journal no. 5-2015. It analyzes the ratio of factors of productivity and employment growth in the gross income of the economy. It has also been shown that 63% of GDP growth in current prices in 2001–2011 was due to wages. We have also discussed a number of issues related to economic policy and the situation in the domestic economy and in global markets that affect the growth of the national economy.

The Banks that Said No: Banking Relationships, Credit Supply and Productivity in the United Kingdom

This paper uses a large firm-level data set of UK companies and information on their pre-crisis lending relationships to identify the causal links from changes in credit supply to the real economy following the 2008 financial crisis. Controlling for demand in the product market, we find that the contraction in credit supply reduced labour productivity, wages and the capital intensity of production at the firm level. Firms experiencing adverse credit shocks were also more likely to fail, other things equal. We find that these effects are robust, statistically significant and economically large, but only when instruments based on pre-crisis banking relationships are used. We show that banking relationships were conditionally randomly assigned and were strong predictors of credit supply, such that any bias in our estimates is likely to be small.

Trade Costs and Current Accounts

AbstractAre trade cost reductions a plausible explanation for growing global current account imbalances? I advocate that changes in trade costs affect trade and production structures, which is likely to affect national savings and investment. Explicitly adding trade costs à la Markusen and Venables into Jin's framework, this augmented model predicts that trade cost reductions affect the current account through changes in the industrial structure. Empirical evidence confirms that the interaction of trade costs and capital intensity drives current account balances. I also provide evidence that the response of current accounts to changes in trade costs depends on the capital intensity of production and on the depth of regional agreements on trade and factor mobility. Aside from the direct effect generally emphasised in standard macro‐level analysis, changes in production patterns could therefore be an additional channel of impact of regional integration on current accounts.

Factors of long-term economic growth: Scientific and technical progress and capital intensity of production

The article discusses the impact of scientific and technological progress and capital intensity of production on economic growth in Russia in the late 20th and early 21st centuries. Based on the actual data, it has been shown that the Russian economy in the period under review was characterized by little influence of technological progress on economic growth; the capital intensity of production grew; in the period of active development of the economy after the 1998 crisis, the share of scientific and technical progress in the growth of production was about two-thirds and capital intensity of production in this period dropped substantially. In continuation of this article in the next issue (no. 6–2015), we will address the relationship between capital and labor factors in the growth of the gross income of the Russian economy.

Do Japanese MNCs use expatriates to contain risk in Asian host countries?

We investigate the impact of host-country risk on the expatriation strategies of multinational firms, using data on Japanese subsidiary firms in manufacturing industries in 13 host countries in Asia. We find that country risk is negatively correlated with the degree of expatriation and that, rather than host-country risk, firm-specific factors (particularly capital intensity, ownership share of parent firms in subsidiaries and the age of the venture) explain most of the variation in the degree to which subsidiaries rely on Japanese expatriates. Contrary to previous studies, the capital intensity of production is a key explanatory firm-specific variable that correlates positively with the degree of expatriation. Japanese multinational companies do not rely on expatria127=tes to off-set host-country risk, but to mitigate risk to parent investment in subsidiaries.

Do Japanese MNCs Use Expatriates to Contain Risk in Asian Host Countries?

We investigate the impact of host country risk on the expatriation strategies of multinational firms, using data on Japanese subsidiary firms in manufacturing industry in 13 host countries in Asia. We find that country risk is negatively correlated with the degree of expatriation and that, rather than host country risk, firm-specific factors (particularly capital intensity, ownership share of parent firms in subsidiaries and the age of the venture) explain most of the variation in the degree to which subsidiaries rely on Japanese expatriates. Contrary to previous studies, the capital intensity of production is a key explanatory firm-specific variable that correlates positively with the degree of expatriation. Japanese MNCs do not rely on expatriates to off-set host country risk, but to mitigate risk to parent investment in subsidiaries.

Abstracts

Abstracts

Corporate tax effects on the quality and quantity of FDI

This paper measures the relative importance of quality and quantity effects of corporate taxation on foreign direct investment. Quantity is affected if corporate taxes reduce the equilibrium stock of foreign capital in a given country. Quality effects arise if taxes decrease the extent to which investment contributes to the corporate tax base and the capital intensity of production. Depending on the sign of the quality effects, the detrimental welfare effects of corporate taxation are either mitigated or aggravated. We derive a number of hypotheses about how corporate tax changes may affect the quality of investment. Our hypotheses are then tested using data from a large sample of European multinationals. With regard to corporate tax effects on the corporate tax base, we find that quality effects account for up to 40% of the total effect. With regard to corporate tax effects on labour income, our results suggest that quality effects mitigate the negative quantity effect by nearly 60% (as corporate taxes strongly increase the labour intensity of production). An important implication is that governments should not exclusively care about the size of inbound FDI flows but also about their specific characteristics, i.e. their quality.

Testing for Keynesian Labor Demand

According to the textbook Keynesian model, short-run demand for labor is sensitive to the demand for goods. In this view, sellers deviate from setting the marginal product of labor proportional to the real wage, instead enduring or choosing lower price markups when demand for goods is high. We test this prediction across U.S. industries in the two decades up through the Great Recession. To identify movements in goods demand, we exploit how durability varies across 70 categories of consumption and investment. We also take into account the flexibility of prices and capital-intensity of production across goods. We find evidence in support of Keynesian Labor Demand.

ICT and the Returns to Schooling and Job-Specific Experience

We use the United Kingdom Labour Force Survey to estimate the returns to schooling and job-specific experience in sixteen different industry sectors over the period 1994-2001. Next, assuming skill levels are fixed, we assess the marginal effect on these returns of the capital intensity of production and the ICT intensity of capital. Our results indicate that in the UK, over the period 1994-2001, the rising ICT intensity of capital was associated with a rise in the return to schooling, and a reduction in the return to job-specific experience.

How Efficiently is Capital Allocated? Evidence from the Knitted Garment Industry in Tirupur

This paper studies the effect of community identity on investment behaviour in the knitted garment industry in the South Indian town of Tirupur. We document very large and systematic differences in both levels of capital stock and the capital intensity of production in firms owned by people from two different community groups. We argue that the differences in investment cannot be explained by productivity differences alone. We suggest that the most likely explanation is that the two communities differ in their access to capital.

Modeling Aggregate Investment: A Fundamentalist Approach

This paper applies some lessons from recent estimation of investment models with firm-level data to the aggregate data with an eye to rehabilitating convex costs of adjusting the capital stock. In recent firm-level work, the response of investment to output and other fundamental variables is interpreted in terms of the traditional convex-adjustment-cost model, implying annual capital-stock adjustment speeds on the order of 15 to 35 percent. In aggregate data, I find that this fundamentalist model can account for the reduced-form effect of output on investment and the estimated capital-stock adjustment speed is similar to those from firm-level studies B--around 25 percent per year. To account for the slower adjustment to changes in the cost of capital, I consider a model in which the capital-intensity of production is also costly to adjust. I find that this model can account for the reduced-form effects of both output and the cost of capital on investment.

Modeling Aggregate Investment: A Fundamentalist Approach

This paper applies some lessons from recent estimation of investment models with firm-level data to the aggregate data with an eye to rehabilitating convex costs of adjusting the capital stock. In recent firm-level work, the response of investment to output and other "fundamental" variables is interpreted in terms of the traditional convex-adjustment-cost model, implying annual capital-stock adjustment speeds on the order of 15 to 35 percent. In aggregate data, I find that this "fundamentalist" model can account for the reduced-form effect of output on investment and the estimated capital-stock adjustment speed is similar to those from firm-level studies B--around 25 percent per year. To account for the slower adjustment to changes in the cost of capital, I consider a model in which the capital-intensity of production is also costly to adjust. I find that this model can account for the reduced-form effects of both output and the cost of capital on investment.

The Role of Technology in Determining Skilled Employment: An Economywide Approach

This paper compares the role of technological change with that of trade in explaining the increased demand for skilled workers. The paper shows technology has played the dominant role in changing employment patterns in Australia. The finding is consistent across industries, including those having experienced increased import competition. Rising capital intensity of production has also promoted the employment of more highly skilled workers.

Liberalization and labour: the effect on formal sector employment

This paper explores the impact of liberalization in India on formal sector employment in the cotton textile industry. It draws upon the results of field-work carried out primarily in Ahmedabad but also in Bombay, Delhi and Coimbatore between September and November 1996. This field-work included a survey of 101 employed mill workers in 16 mills in Ahmedabad, covering issues such as wages, job security and health and safety. The findings indicate that restructuring has led to a decline in employment levels in composite mills in the cotton textile industry in India through closure, downsizing and the shift towards more capital-intensive technologies. As wages are determined within an institutional setting, it was found that there was no significant variation across mills nor over time. Additionally, since many of the conditions of employment are determined by legislation, they apply uniformly across companies and have not altered in the post-liberalization context. However, the increased capital-intensity of production has resulted in an improvement in health and safety conditions within the mills, at least with respect to occupational hazards which have typified this industry in the past. © 1998 John Wiley & Sons, Ltd.

Austrian Capital Theory: Help or Hindrance?

Modern Austrian economists employ the Austrian Theory of Capital as an analytical construct with which to interpret policy-induced business cycles and suggest an appropriate remedy. The argument is that the structure of production, particularly the degree of capital intensity or “length of the production period” among different sectors of a non-collectivized economy, depends on the level of interest rates. Low interest rates encourage greater capital intensity in production while high interest rates reduce the degree of capital intensity or roundaboutness. Thus a greater capital intensity encouraged by an artificially low rate of interest created by a central bank's credit inflation must be followed by increased unemployment of labor when interest rates rise again to reflect the ensuing price inflation and the credit inflation stops. Restraint on central bank credit creation is thus prescribed as the remedy for fluctuations in output and employment in the business cycle.

The Crisis of the World Finance System

Unemployment has become a structural feature in all industrialized countries because a worldwide decline in the profit rate has reduced the speed of economic growth. This decline has been due mainly to the decreasing productivity of capital in the course of ever increasing capital intensity of production. The crisis is perpetuated by two additional factors: (1) the decay of the order-maintaining capability of the United States; and (2) the expansion of uncontrolled international credit, as funds were diverted from relatively unprofitable real investment to profitable financial investment. The need to service the debt, which was thus accumulated, keeps up the demand for fresh credits and prevents interest rates from becoming low enough not to discourage real investment. To overcome the crisis, debt would have to be written off, which in turn requires some form of consensus on how to distribute the resulting losses.

Taxation, inflation, and asset accumulation in a small open economy

This paper develops a long-run model of a small open economy to demonstrate how inflation may interact with the nominal, discriminatory income tax system to produce some unexpected results. Conventional theory predicts that a higher long-run rate of monetary growth and inflation will raise the steady-state capital intensity of production, and it also leads one to expect that an inflating country will experience a fall in its real net stock of foreign assets. According to the present model, however, these results may well be reversed under the actual income tax rules prevailing in many countries.

Inflation, taxes and housing: A theoretical analysis

This paper examines the real effects of inflation under a distortionary tax system. The presence of a tax subsidy to housing substantially alters the effects of inflation on the capital intensity of production and on the market interest rate. The analysis suggests that not taxing the flow of services from housing has caused inflation to reduce capital intensity, thereby decreasing U.S. productivity. Furthermore, this tax subsidy has caused inflation to raise the real interest rate while reducing the after-tax real returns to assets.

Energy expenditure in sectors of manufacturing

Factory data for the mid-1960s, collected in six countries, are used to compute the energy intensiveness in 24 different industries. It is shown that the energy intensity is correlated with the capital intensity of production. A second empirical aspect considers the impact of both capital stock and its level of utilization on energy expenditure. For many sectors of manufacturing there is evidence of scale economies in energy use; that is, a given increase in plant size requires a less than proportionate increase in the energy input.