Physical Capital Investment Research Articles

Long-term trends in the socio-economic development of Arab countries

Abstract: The article analyzes a number of the most important trends, proportions and factors of the economic and social development of the Arab countries over the past four decades, associated with the modern stage of globalization, against the background of other countries and a deeper retrospective view. It reveals the extent of Arab countries’ convergence, as well as divergence in the levels of technological, economic and social development with/from leading regions and countries of the developing world and economically advanced states. With all the considerable differentiation that exists between Arab countries in the 1980-2010s, in contrast to a number of other countries and regions of the East and South, the Arab world on the whole has suffered from a significant slowdown in the dynamics of per capita GDP, total factor productivity, human development index and augmented development index.These trends, according to the author’s calculations, are determined not only and not so much by high population growth rates, but by the limited nature of economic and institutional reforms that affect the degree of diversification of production and export structures, share of investments in physical and human capital in GDP, and the quality of labor. Moreover, according to new data and author’s calculations, the level of inequality in income distributionin the Arab world is one of the highest in the world. This and other factors, including geopolitical ones, as well as the increasing number of so-called “failing states” in the region have brought about an increase in socio-political tensions, which is comparable, and even exceeding the level that existed a decade ago, when the Arab Spring phenomenon arose.Under pandemic and global crisis, the economic and social situation in a number of Arab countries is markedly getting worse. In order to ease tensions in the region it is high time to implement a number of reforms aimed at mitigating inequality and simultaneously increasing the purchasing power of the population and expanding domestic markets as well as creating much more favorable investment climate.

The Impact of Broadband Networks on Growth and Development in South America

Broadband networks can play a special role as "general purpose technologies" that enable or facilitate the use of other Information and Communication Technologies (ICTs), including a plethora of internet-based services, such as e-commerce, e-government, e-learning or social media. Due to the better quality and availability of statistical data, most empirical studies on the economic effects of broadband have focused on their impact on growth, employment and productivity in developed countries. In this study, we set out the reasons why these economic effects should also be relevant for developing countries and examine the potential advantages of increasing broadband take-up. To analyze the significance of broadband for economic development, we specify and estimate an econometric model for nine South American countries, for which relatively high quality data was available. According to our results, increased broadband penetration is associated with significant "spillover" effects, excess societal returns over and above the expected returns of other investments in physical capital.

The Impact of Non-banking Credit Organization Credits on Economic Growth in Azerbaijan

Financial institutions plays remarkable role in Azerbaijan economy. The general structure of financial institutions in the country includes banks, local branches of foreign banks and non-bank financial institutions, while among these organizations banks have a leading position. Most of the lending activity in Azerbaijan is carried out through banks. This situation shows their special importance in the country's economy. However, NBCOs (Non-Banking Credit Organizations) also have an important position in lending to the individuals in the economy. This article investigates the impact of the NBCOs credits on non-oil GDP in Azerbaijan. For this purpose, the quarterly data covering 2005-2018 were used. For the evaluation, the cointegration methods as CCR (Canonical Cointegrating Regression), DOLS (Dynamic Ordinary Least Squares) and FMOLS (Fully Modified Ordinary Least Squares) methods were employed. The results of cointegration tests conclude that there is cointegration relationship between the variables in long-term. The results of the estimation show that a 1% rise in credits and physical capital investments increases non-oil GDP by 0.26% and 0.92, respectively. Findings of study are in line with both the theory and the results of other researches, and may be considered adequate for Azerbaijan economy. The management and other decision-makers of relevant organizations may adopt effective decisions for more efficient operation of credit organizations by taking into account the results of the research.

Health Expenditures and Health Outcomes in Kenya

Health inputs are critical in attaining a healthy nation and improving health outcomes. Kenya, like other developing countries, grapples with limited health expenditures and poor population health indicators. Specifically, Kenya is yet to achieve the allocation of least 15% of the government’s annual budget to improve the health sector as enshrined in the Abuja Declaration. Though there is an improvement with regards to infant mortality rate decreasing from 96.6 per 1, 000 live birth in 1970 to 30.6 per 1, 000 live birth in 2018. This indicator of population health outcome is currently far below the Sustainable Development Goals (SDGs) target of reducing the under five mortality rate to as low as 12 deaths per 1,000 live births by 2030. The literature suggests that increase in government’s budgetary allocation to the health sector can improve country’s health outcomes. Evidence on the impact of health expenditures on health outcomes is mixed and limited in developing countries. This study aims to analyze the impact of public health expenditures on health outcomes, among other control variables in Kenya. The study uses time series data from 1970 to 2018. The variables are found to be integrated of different orders suggesting the choice of Autoregressive Distributed Lag (ARDL) model. ARDL provides a useful link between long run equilibrium relationships and short run disequilibrium dynamics is estimated. The ARDL bounds test suggests presence of cointegration thus leading to the estimation of Error Correction Model (ECM). The findings suggest that improvements in public health expenditures enhance health outcomes in Kenya. The control variablesthat are found to be important determinants of infant mortality rate in Kenya include the national income and number of hospital beds per 100, 000. The study recommends that Kenyan government should increase annual budgetary allocation to health sector. Such increase is likely to lead to investments in physical and human capital in the health sector thus translating to improved health outcomes in Kenya.

How and to what extent has the demographic dividend affected China’s economic growth?

This paper aims to clarify how and to what extent the demographic dividend has affected China’s economic growth. China has experienced rapid demographic transition since the 1970s, as the working-age population has increased, and the dependent population ratio has decreased. Such demographic transition provides favorable conditions for economic growth, thereby producing economic fruits referred to as the "demographic dividend", which are considered to include two economic effects: the “labor effect” and the “capital effect”. The results of previous studies and a simple analysis of macro data confirm that China’s demographic dividend long exerted more of a "capital effect" on economic growth than a "labor effect". In other words, the decreasing dependent population ratio elevated the savings rate, and the increasing working-age population increased total savings, which were used for investment in physical capital. The growth of physical capital was the main engine for China’s economic growth. However, in the 2010s, the decreasing working-age population and the increasing dependency ratio reduced the savings rate and lowered the capital formation rate. The "capital effect" of the demographic dividend is no longer a strong driving force of the Chinese economy.

Survival of Formula One Drivers

ObjectivesTo examine the determinants of the duration time of drivers in the Formula One (F1) competition, which is an industry with high physical capital investment and requires labor with very high human capital.MethodsSince estimates may be biased when the whole F1 history, starting with the 1950 season, is considered, unlike prior studies in the literature, this article limits its data set to racing seasons from 1981 to 2017. In addition, since the failure times are correlated within the drivers with multiple spells, single‐spell methods used in prior studies underestimate true standard errors and produce inflated test statistics. Hence, the most appropriate approach for the duration analysis of F1 drivers would be the survival analysis for recurrent events, which is employed in this study.ResultsOnce a driver exits F1, he survives for a shorter period of time if he returns. In order to survive longer, a driver has to perform better than his teammate. Each year of age decreases the probability of exit while drivers can increase their duration time in F1 by switching teams. Completing a race does not make any difference to survival but finishing a race on the podium lowers the probability of exit.ConclusionTeam owners and managers should be cautious when they consider hiring a driver who exited F1 before. A driver should be at least better than his teammate in order to survive in F1. Drivers can also increase their chances of survival substantially by changing teams.

Financial and Real Effects of Government Monitoring: Evidence From Commercial Bank Loans

I use a 2009 redesign of the Ecuadorian government's corporate tax auditing to document that tax enforcement affects firms' cost of capital and real decisions in settings where agency frictions constrain lending. Firms included in a group that was disproportionately monitored, i.e., audited annually by the Ecuadorian tax authority, accessed significantly cheaper new bank debt despite paying more taxes. Additionally, monitored firms increased their investments in human and physical capital. I use a regression discontinuity design to control for selection bias in their decision about which firms to monitor. Finally, I provide evidence that tax enforcement reduces agency frictions between the firm and its lenders, which is reflected in the lower interest rate on new debt. The implications are that (1) credible tax enforcement by the government can play a corporate governance role, and, (2) tax enforcement is an effective and fiscally positive way to stimulate firm investment where agency frictions constrain lending.

Growth impact of transition from non-renewable to renewable energy in the EU: The role of research and development expenditure

Abstract In recent times, physical-capital investment has been outweighed by research and development expenditure in terms of their growth impact. However, how such expenditure affect economic expansion in the presence of energy consumption is yet to be given thorough attention in the literature. Consequently, this study used data from 1997 to 2015 for 16 EU countries to demonstrate how expenditure on research and development drives growth in the presence of renewable and nonrenewable energy consumption. Empirical results from the Pool Mean Group Autoregressive distributive lag model (PMG-ARDL) revealed that in the short run, investment in research and development adversely affect growth prospect in the EU. However, in the long run, research-led growth is evident alongside energy consumption, although the latter outweighs the former. Additionally, result from Dumitrescu and Hurlin Panel Causality tests showed a feedback causality between energy consumption, research and expenditure and economic growth. The findings of this study make it essential for EU countries to boost spending on renewable energy sources. Additionally, EU countries should pay closer attention to investment in research and development in order to sustain the plan for long term advancement in sustainable power sources for feasible energy and economic development.

Fire risk perpetuates poverty and fire use among Amazonian smallholders

Forest fires exacerbate carbon emissions, threaten biodiversity and cause welfare losses to local populations. Most fires accidentally ignite from mismanaged swidden and pasture fires. We provide evidence that fire risk in the Brazilian Amazon, the world's largest remaining tropical forest, perpetuates low yield and environmentally degrading agricultural activities. Using a combination of household interviews and remotely sensed data on fire occurrence in Eastern Amazon municipalities of Paragominas and Santarém, we show that smallholders in consolidated farm-forest frontier regions are locked into a vicious cycle that inhibits their adoption of fire-free practices. Households that invest in more capital-intensive fire-free agricultural technologies experience greater revenue losses from escaped fires than non-fire users. Changes in revenues are as sensitive to these fire impacts as they are to changes in physical capital investments. To overcome this fire-poverty trap, a “big push” of coordinated local incentives is needed. Policies mitigating fire risk may achieve a triple-win that reduces greenhouse gas emissions, forest degradation, and fosters inclusive economic development.

Intragenerational Economic Mobility in Indonesia: A Transition from Poverty to the Middle Class in 1993–2014

Economic mobility, especially through expansion of the middle class, will dominate the future of Indonesia’s development agenda. Based on data from five waves of the Indonesia Family Life Survey (IFLS), we found that (1) poverty decreased significantly between 1993 and 2014, from 86.1% to 20.2%, while the middle class grew by almost nine times; (2) 34.4% of the poor moved into the middle class, but 11.9% were still categorised as chronically poor; (3) 42.3% of the middle class did not move into the upper class; (4) the middle and upper classes are vulnerable and easily fall into the lower classes. Our econometric estimations confirm that the drivers of economic mobility are educational attainment, formal employment, water and electricity supply, land ownership, and health investment. These findings suggest that investment in human and physical capital are the two main strategies to expand the middle class.

“The Righteous and Reasonable Ambition to Become a Landholder”: Land and Racial Inequality in the Postbellum South

This paper identifies an exogenous variation in post–Civil War policy to examine the effect of land reform on racial inequality. The Cherokee Nation, located in what is now Oklahoma, permitted slavery and joined the Confederacy in 1861. During postwar negotiations, the Cherokee Nation agreed to provide free land for its former slaves. Using linked data that follow former slaves in the Cherokee Nation from 1880 to 1900, I find that racial inequality was lower in the Cherokee Nation in both 1880 and 1900. Land and the associated increase in incomes may have facilitated investment in both physical and human capital.

Social Investment Policy, Economic Growth, and Welfare States: Channels of Pro-Growth Effects of Policy

AbstractSocial investment (SI) policies have been popular among industrial countries in the past two decades. Governments hope that SI policies will promote productivity and economic growth by creating high-skill labor forces that can adapt to the imperatives of the new knowledge economy and technological advances, or that can create new technologies themselves. They also hope that SI policies will mitigate new social risks, such as single-parent families and workers in precarious employment by better preparing workers for jobs and promoting social inclusion. However, little research exists that empirically investigates whether or not SI policies really produce these positive outcomes. Of all economic outcomes, this paper focuses on economic growth and the channels of economic growth—multifactor productivity (MFP), physical capital investment, and labor input—and investigates whether SI policies promote growth in GDP and its channels. Data from 17 industrial countries are analyzed. The analysis finds that family support, education, and ALMP spending (all measured as spending per child, student, and an unemployed person, respectively) is positively associated with MFP and GDP growth, and that MFP growth is the main channel through which SI policies enhance GDP growth. Education spending boosts the growth of all of MFP, physical capital stock, labor input, and GDP growth via those channels. While family support does not promote the growth of labor input, the results suggest that larger family support spending leads to higher levels of labor input. Overall, these types of SI spending have generally positive effects on economic growth.

Where do Remittances Go in Household Consumption? Empirical Evidence from Sri Lanka‐Wide Micro‐data

AbstractPrivate internal and international remittances are a major source of household money in Sri Lanka, yet their impact on household welfare has long been a research gap. Based on the Migration and Development Theory, this article examines how private remittances affect household expenditure behaviour, using nationally representative microdata and applying quasi‐experimental methods. Private remittances have significantly increased household per‐capita expenditure and initiated positive behavioural changes via increased allocations for basic needs, human and physical capital investment. Compared with internal remittances, the impact of international remittance shows a strong potential for reducing poverty incidence and improving people's well‐being: households in richer/richest expenditure quartiles and urban households invest in education, which supports the country's long‐standing record of education. Rural households demonstrate favourable changes in spending behaviour with receiving private remittances. From a public policy standpoint, government favours migration so that remittances are more likely to flow. A proper remittance‐transfer mechanism to encourage smooth remittance is thus required.

Macroeconomic and distributional effects of demographic change in an open economy—the case of Belgium

AbstractWe construct and parameterize an overlapping generations model for an open economy with individuals who differ in innate ability. Key endogenous variables are hours worked, investment in human and physical capital, and per capita growth. The model replicates important data in Belgium since 1960 remarkably well. Simulating it, we observe that behavioral adjustments by households and firms contribute to reverse the negative arithmetical effect of future demographic change on per capita growth. Individuals work and study more. However, with unchanged policies, there remains a net negative effect on annual per capita growth of almost 0.3%-points on average in the next 25 years. This is mainly due to adverse consequences of reduced fertility and a declining working-age population on (the return to) physical capital investment. Model projections also point to rising income inequality induced by demographic change. Differences in the capacity of individuals to respond to increasing life expectancy by investing in education, and by saving, are key.

Evaluating the Impact of Export Finance Support on Firm-Level Export Performance: Evidence from Pakistan

This paper evaluates the impact of two export finance support schemes: The Export Finance Scheme (EFS) and the Long-Term Finance Facility for Plant & Machinery (LTFF) on firm-level export performance. These policies offer loans to exporters at concessionary interest rates to finance short-term working capital and long-term investment in machinery and equipment respectively. To do so, we combine customs data with information about which firms participate in each scheme and the value of the loans they obtain between 2015 and 2017. We find that EFS and LTFF increased the growth rate of exports sales by 7 and 8-11 percentage points respectively. Neither policy exerts a significant impact on the number of products that a firm exports or the number of foreign countries it sells to. Our analysis indicates that facilitating long-term investment in physical capital is more cost effective to raise exports than subsidizing exporters’ working capital needs.

Effect of Strategic Determinants of Training on the Job Performance, Effectiveness and Efficiency: An Empirical Study

Investments in the development of human capital, which are concerned with the development of knowledge, competencies and qualifications of employees, are considered more important today for the performance of an organization and for the economic growth of a country than investments in physical capital. Keeping this in perspective, this research examined the effect of the determinants of training such as training and development, strategic objective, culture and value, knowledge and skills, rewards and promotion, readiness and flexibility on job performance, effectiveness, and efficiency of employees in a large service conglomerate. The results indicated significant positive relationship of training and development, strategic objectives, culture and values, knowledge and skills, rewards and promotion with job performance, effectiveness, and efficiency of employees. The study also reported the importance of training, strategic objective, culture and value, knowledge and skills, rewards and promotion to augment job performance, effectiveness and efficiency but undermined the significance of readiness and flexibility. The employees underpin motivational factors that are responsible for better job performance. The findings suggest that harnessing all these determinants may render service organizations with the potential to foster job performance, effectiveness, and efficiency of employees.

Capital and Labour Productivity: A Comparative Study of Nigeria and South Africa

The emerging consensus in literature is that growth is dependent on the size and components of capital and labour force productivity. Using a comparative study between Nigeria and South Africa, this study aims to determine how human and physical capital affect labour productivity. The augmented Solow growth model was adapted and the resulting model was estimated using Johansen cointegration to establish the link between capital (labour) productivity and its determinants. This study found that both human and physical capital significantly affected labour productivity in both countries, though South African productivity was more responsive to changes in physical capital. Unemployment showed a positive link, but labour force showed an inverse relationship with labour productivity in South Africa. In Nigeria, school enrolment, capital stock and labour force had negative relationships with labour productivity, while unemployment had a positive relationship. Hence, this study recommends an increase in human and physical capital investment and entrepreneurial activities.

The Macroeconomics of Automation: Data, Theory, and Policy Analysis

During the last four decades, the U.S. has experienced a fall in the employment in middle-wage, routine-task-intensive, occupations. We analyze the characteristics of those who used to be employed in such occupations and show that this type of individual is nowadays more likely to be out of the labor force or working in low-paying occupations. Based on these findings, we develop a quantitative, general equilibrium model, with heterogeneous agents, labor force participation, occupational choice, and investment in physical and automation capital. We first use the model to evaluate the distributional consequences of automation. We find heterogeneity in its impact across different occupations, leading to a significant polarization in welfare. We then use this framework as a laboratory to evaluate various public policies such as retraining, and explicitly redistributive policies that transfer resources from those who benefit from automation to those who bear the brunt of its costs. We assess the tradeoffs between the aggregate impact and welfare distributional consequences of such policies. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Why Working From Home Will Stick

COVID-19 drove a mass social experiment in working from home (WFH). We survey more than 30,000 Americans over multiple waves to investigate whether WFH will stick, and why. Our data say that 20 percent of full workdays will be supplied from home after the pandemic ends, compared with just 5 percent before. We develop evidence on five reasons for this large shift: better-than-expected WFH experiences, new investments in physical and human capital that enable WFH, greatly diminished stigma associated with WFH, lingering concerns about crowds and contagion risks, and a pandemic-driven surge in technological innovations that support WFH. We also use our survey data to project three consequences: First, employees will enjoy large benefits from greater remote work, especially those with higher earnings. Second, the shift to WFH will directly reduce spending in major city centers by at least 5-10 percent relative to the pre-pandemic situation. Third, our data on employer plans and the relative productivity of WFH imply a 5 percent productivity boost in the post-pandemic economy due to re-optimized working arrangements. Only one-fifth of this productivity gain will show up in conventional productivity measures, because they do not capture the time savings from less commuting.

Pre-Colonial Warfare and Long-Run Development in India

Does pre-colonial history – and in particular the role of interstate warfare – help explain long-run development patterns across India? To address this question, we construct a new geocoded database of historical conflicts on the Indian subcontinent. We document a robust positive relationship between pre-colonial conflict exposure and local economic development today. Drawing on archival and secondary data, we show that districts that were more exposed to precolonial conflict experienced greater early state-making, followed by lower political violence and higher investments in physical and human capital in the long term.