Physical Capital Investment Research Articles

Cohesion Policy and Inequality Dynamics: Insights from a Heterogeneous Agents Macroeconomic Model

Regions within the European Union differ substantially not only with respect to per capita GDP, but also with respect to income inequality within the regions. This paper studies the effects of different types of technology-oriented cohesion policies, aiming at the reduction of regional differences, on the convergence of regions and the dynamics of income inequality within regions. In particular, policies are analyzed using a two-region agent-based macroeconomic model – the Eurace@Unibi model – where firms in the lagging region receive subsidies for investment in physical capital. It is demonstrated that the short-, medium- and long-term effects of the policies on per-capita output and between as well as within regional inequality differ substantially depending on how successful the policy is in incentivizing firms to choose best available capital vintages and on how flexible labor markets are in the targeted region.

Hire Purchase Strategy of Physical Capital Investment and Financial Performance of Construction Companies: Illustrating from the Nigerian Stock Exchange

The purpose of this paper is to identify the influence of hire purchase strategy of physical capital investment on financial performance of construction companies quoted on the Nigerian Stock Exchange. Data were obtained through questionnaire. Analyses were performed using descriptive statistics and Pearson’s product moment coefficient of correlation. Empirical results indicate that there exist a statistically significant negative association between hire purchase strategy of investing in physical capital and financial performance of construction companies. It was concluded that considering the complexities in service delivery, application of hire purchase as a physical capital investment option, may not provide the quantum of capital assets needed to satisfy expectations of customers.

Optimal Wealth Taxes with Risky Human Capital

We study the structure of optimal wealth and labor income taxes in a Mirrlees economy in which the productivity of labor (i.e., skill) is private, stochastic, and endogenous. Individual agents' skills are determined by their level of human capital. Human capital is not publicly observable and the returns to human capital investment are subject to idiosyncratic shocks. Preferences are not assumed to be additively separable in consumption and human capital investment and, thus, the intertemporal marginal rates of substitution of consumption are private information. We characterize the optimal allocation and a tax system that implements this allocation in equilibrium. The optimal allocation does not satisfy the reciprocal Euler equation of Rogerson (Econometrica, 1985), which holds in Mirrlees economies with exogenous skills. The tax system we use in our decentralization of the optimum consists of a wealth tax that is linear in wealth and a labor income tax that depends solely on labor income. The result of Kocherlakota (Econometrica, 2005), establishing the optimality of zero expected marginal wealth tax rate, holds in our model. We show that endogenous skill determination affects the volatility of marginal wealth taxes rather than their expectation. Relative to economies with exogenous skills, the optimal marginal wealth tax rate is more volatile in our endogenous skill economy. Also, we demonstrate the optimality of a wedge in the returns on the two assets present in our economy: At the optimum, the marginal return on human capital investment is strictly larger than the marginal return on physical capital investment.

Os efeitos dos investimentos público e privado em capitais físico e humano sobre o produto per capita dos municípios da região sul: uma análise em painéis de dados dinâmicos

O objetivo do trabalho é mensurar, de forma dinâmica a contribuição dos capitais, físico e humano, sobre o produto per capita dos municípios da região Sul do Brasil, para o período de 1999/2004. O trabalho inova em dois pontos em relação à literatura revisada. O primeiro consiste na construção das variáveis: capital humano e variação no estoque de capital físico. Para o capital humano, utilizou-se metodologia de Koman e Marin (1999). Para o capital físico, adotou-se como proxies o nível de investimento privado - através de empréstimos para investimentos do setor bancário - em conjunto com os investimentos públicos, por meio do investimento em capital nos municípios. A segunda inovação se refere ao emprego da metodologia econométrica em dados de painéis dinâmicos, proposta por Blundell e Bond (1998a). Os resultados demonstraram maior influência do capital humano no produto per capita dos municípios do Sul do Brasil no período.

Chinese perCapitaIncomeDistribution, 1992–2007: ARegionalPerspective

This paper explores the regional per capita income distribution inChina between 1992 and 2007. The spatial dependence present in the raw data is removed using a filtering technique. A non‐parametric approach is applied to the filtered data to show that regional inequalities have been roughly stable, the distribution shape has changed very little and mobility within the distribution has been relatively low. Finally, the paper investigates the impact of various economic and social factors on the evolution of regional income distribution. Primary sector employment, physical capital, trade openness and foreign direct investment are all found to be key determinants of regional income distribution.

Three Worlds of Productivity Growth: Human Capital Policy Profiles and Productivity Growth Outcomes

Labor productivity is an important determinant of the wealth of national economies and their standards of living, as its growth explains half of per capita GDP growth. We show that there are three worlds of productivity growth among industrialized countries, by decomposing labor productivity growth into multifactor productivity (MFP) growth and capital deepening. The three worlds that emerge from the analysis are: 1) human capital investment and MFP growth dominant Nordic social market economies (SMEs); 2) physical capital investment and labor productivity growth-dominant liberal market economies (LMEs); and 3) continental SMEs whose moderately high human capital investments create decently high MFP growth, but whose low physical capital investments push down their labor productivity. The three worlds are broadly a result of the countries’ human capital formation policies and economic growth strategies — different policies add differently to the components of labor productivity (and ultimately to economic growth). We also identify two dominant paths to high labor productivity growth — the Nordic-type human capital investment path driven by high MFP growth, and the LME-type market-centered path powered by fixed capital investment growth. Overall, we tie the welfare production regimes (WPRs) literature to economic outcomes by showing that different human capital formation policies produce different economic outcomes.

Health investment, physical capital accumulation, and economic growth

This paper analyzes the effect of health investment, and hence of health capital, on physical capital accumulation and long-run economic growth in an extended Ramsey model with an Arrow–Romer production function and a Grossman (1972) utility function. The paper concludes that economic growth is related to both the health growth rate and the health level. While growth in health capital always facilitates economic growth, the gross effect of health level on the rate of economic growth depends on how it affects physical capital accumulation. If the negative effect of health on economic growth through its influence on physical capital accumulation is not taken into consideration, then health level has a positive effect on the rate of economic growth by improving the efficiency of labor production. However, since health investment may crowd out physical capital investment and thus influence physical capital accumulation, excessive investment in health may have a negative effect on economic growth. Empirical tests of these theoretical hypotheses using panel data from individual provinces of China produce results that are consistent with our theoretical conclusions.

Returns to scale of Chinese cities, 2002–2009

In this article 242 cities are analyzed and their returns to scale are measured. Many cities in Guangdong province have a long history of introducing foreign capital and are full of small companies owned by foreign and domestic investors. Decreasing returns to scale are shown in these congested urban areas. The cities under high decreasing returns to scale are located in the Pearl River Delta area in Guangdong province. Physical capital investment seems to have little positive effect on improving the situation of the cities under decreasing returns to scale. As an urban economy shows capital deepening, it moves nearer to or deeper into decreasing returns to scale zone. Even though it is not possible to know when an urban economy falls under a decreasing returns to scale condition, it is clear that an urban economy comes close to decreasing returns to scale zone when physical capital deepens.

Agricultural‐risk management through community‐based wildlife conservation in Zimbabwe

PurposeThe purpose of this paper is to investigate whether community‐based wildlife conservation can potentially be added in rural farmers’ investment portfolio to diversify and consequently reduce agricultural risk.Design/methodology/approachThe correlation coefficient is computed from national data on the rates of return on agricultural production and wildlife conservation, to find out whether wildlife conservation is a feasible hedge asset.FindingsThe correlation coefficient between the returns to agricultural production and wildlife conservation for the period 1989‐1999, for which data exist for both activities, is inferior to unity indicating that rural farmers could use wildlife conservation to reduce the risk they face by engaging in agricultural production only.Research limitations/implicationsData on communal agricultural production and community‐based wildlife conservation potentially suffer from at least three limitations. First, wildlife is a unique resource that does not require the usual cash investment to acquire and as such the rates of return on wildlife conservation will likely be overstated. Second, some benefits from wildlife are public and non‐monetised; this results in depressed rates of return on wildlife conservation. Lastly, both the data on agricultural production and wildlife conservation are likely to understate physical and human capital investments; this potentially results in abnormally high rates of return.Practical implicationsEven though the paper makes a case for community‐based wildlife conservation at a national level, the benefits of diversification into wildlife conservation are likely to be high only in those rural areas that can sustain wildlife populations sufficient to generate adequate returns from wildlife activities such as tourism, trophy hunting, live animal sales and meat cropping.Originality/valueThis paper empirically investigates whether the risk that rural farmers face could potentially be managed through diversification into community‐based wildlife conservation and provides paramount evidence that wildlife conservation is a hedge asset in rural Zimbabwe. More investment in community‐based wildlife conservation would also help efforts to conserve wildlife.

Do re-election probabilities influence public investment?

An insight from dynamic political economy is that elected officials may use state variables to affect the choices of their successors. We exploit the staggered timing of local and national elections in Norway to investigate how politicians’ re-election probabilities affect their investments in physical capital. Because popularity is endogenous to politics, we use an instrumental variable approach based on regional movements in ideological sentiment. We find that higher re-election probabilities stimulate investments, particularly in programs preferred more strongly by the incumbent parties. This aligns with theory where capital and current expenditures are considered complementary inputs to government production.

The Impact Of Economic Reforms On Growth: A Case Study Of Bangladesh

This study makes a brief assessment of the consequences of economic reforms that included a series of liberalization measures on Bangladesh's growth process by analyzing the 1974-2007 data with the help of cointegration, error correction, and Granger causality tests. The results suggest that long-run economic growth in Bangladesh is largely explained by investments in both physical and human capital, trade openness, and financial as well as capital account liberalization. While the causality runs in both ways between capital account liberalization and economic growth, it runs only in one direction from physical capital and financial liberalization to economic growth in the short-run. Interestingly, growth is not affected by trade openness in the short-run. While trade liberalization and capital account liberalization have had significant positive impacts on economic growth in the long-run, the effects of financial liberalization were found to be significantly negative. This emphasizes the need for ensuring real sector development as a prerequisite for the success of financial liberalization.

How 'Animal Spirits' React to the Government Credibility Problem - a Real Option Analysis of Emission Permits Policy Risk

This paper demonstrates how to use the real option approach to make a physical capital investment decision under the presence of the government credibility problem. Specifically, I study a rational firm’s optimal decision to build an electric power plant when the firm believes that there is a CO2 policy risk. Least-square Monte-Carlo simulations make the following predictions. First, with the current high energy commodities volatilities and physical capital costs, a rational firm invests in power plants early and the government credibility problem does not substantially increase such short investment timing. Second, the time-inconsistency problem does increase the investment into less-green plants and the expected profit of a rational firm. The methodology in this paper is general and applicable to other areas in finance.

REMITTANCES AND GROWTH IN SUB‐SAHARAN AFRICAN COUNTRIES: EVIDENCE FROM A PANEL CAUSALITY TEST

AbstractThis paper examines the causality between remittances and economic growth in Sub‐Saharan African (SSA) countries. We employ the panel Granger causality testing approach that is based on seemingly unrelated regressions systems and Wald tests with country‐specific bootstrap critical values. Using annual data over the period 1980–2007 for 20 SSA countries, we find that in any SSA country, there is no causality between remittances and growth. An explanation of why remittances do not increase growth in SSA countries is given by the causality test that shows that remittances do not increase physical capital investment. Copyright © 2012 John Wiley & Sons, Ltd.

Exploration for Human Capital: Theory and Evidence from the MBA Labor Market

We empirically investigate the effect of uncertainty on corporate hiring. Using novel data from the labor market for MBA graduates, we show that uncertainty regarding how well job candidates fit with a firm’s industry hinders hiring, and that firms value probationary work arrangements that provide the option to learn more about potential full-time employees. The detrimental effect of uncertainty on hiring is more pronounced when firms face greater firing and replacement costs, and when they face less direct competition from other similar firms. These results suggest that firms faced with uncertainty use similar considerations when making hiring decisions as when making decisions regarding investment in physical capital.

Longevity, Capital Formation and Economic Development

Abstract Many researchers have concluded that longer life expectancies prompt increased investment in education, as a prolonged labor supply raises the rate of return on education. Besides explaining the empirical evidence behind this conclusion (at an absolute level), there is another issue to be discussed: does time spent studying and working increase proportionally with higher longevity? Building on an extended life-cycle model, this paper shows that prolonged life expectancy will cause individuals to increase their time in education but may not warrant rises in labor input. Later we show that higher improvement rate of longevity rather than initial life expectancy will promote economic growth, even we exclude the mechanism of human capital formation, and only consider growth effects of higher improvement rate of life expectancy from physical capital investment.

Brand Capital and Firm Value

We study the role of brand capital--a primary form of intangible capital--for firm valuation and risk in the cross section of publicly traded firms. Using a novel empirical measure of brand capital stock constructed from advertising expenditures accounting data, we show that: (i) firms with low brand capital investment rates have higher average stock returns than firms with high brand capital investment rates, a difference of 5.2% per annum; (ii) more brand capital intensive firms have higher average stock returns than less brand capital intensive firms, a difference of 5.1% per annum; and (iii) investment in both brand capital and physical capital is volatile and procyclical. A neoclassical investment-based model in which brand capital is a factor of production subject to adjustment costs matches the data well. The model also provides a novel explanation for the empirical links between advertising expenditures and stock returns around seasoned equity offerings (SEO) documented in previous studies.

Brand Capital and Firm Value

We study the role of brand capital – a primary form of intangible capital – for firm valuation and risk in the cross section of publicly traded firms. Using a novel empirical measure of brand capital stock constructed from advertising expenditures accounting data, we show that: (i) firms with low brand capital investment rates have higher average stock returns than firms with high brand capital investment rates, a difference of 5.2% per annum; (ii) more brand capital intensive firms have higher average stock returns than less brand capital intensive firms, a difference of 5.1% per annum; and (iii) investment in both brand capital and physical capital is volatile and procyclical. A neoclassical investment-based model in which brand capital is a factor of production subject to adjustment costs matches the data well. The model also provides a novel explanation for the empirical links between advertising expenditures and stock returns around seasoned equity offerings (SEO) documented in previous studies.

Human Capital, Economic Growth, and Inequality in China

China's rapid growth was fueled by substantial physical capital investments applied to a large stock of medium skilled labor acquired before economic reforms began. As development proceeded, the demand for high skilled labor has grown, and, in the past decade, China has made substantial investments in producing it. The egalitarian access to medium skilled education characteristic of the pre-reform era has given rise to substantial inequality in access to higher levels of education. China's growth will be fostered by expanding access to all levels of education, reducing impediments to labor mobility, and expanding the private sector.

Aid and economic growth: Sensitivity analysis

AbstractThis paper uses panel data from 77 developing countries, two measures of aid, and a dynamic panel data (DPD) estimator to investigate the effects of aid on economic growth. We find that the relationship between income growth and aid is quadratic in nature. We find a negative partial growth effect of aid at low levels of aid but a positive effect when the ratio of aid to gross national income (GNI) reaches a threshold of between 6.6 and 14.4per cent. We find a positive and significant relationship between aid and physical capital investment. Accounting for indirect effects through investment, we find a positive growth effect at all levels of aid. These results are robust to the measurement of aid, the policy environment, income levels and region. Our results differ from much of the earlier research but are consistent with research that calls for increased aid to developing countries. Copyright © 2010 John Wiley & Sons, Ltd.

Research Note: Tourism and Economic Growth in Latin American Countries – Further Empirical Evidence

Using panel data that span from 1990 to 2005, the authors investigate the impact of tourism on the economic growth of 18 heterogeneous Latin American countries within the framework of the conventional neoclassical growth model. Results from the empirical models show that revenues from the tourism industry contribute positively to both the current level and the growth rate of the per capita GDP of the countries in the region, as do investments in physical and human capital. The findings imply that Latin American economies may enhance their economic growth in the short run by strengthening their tourism industries strategically, while not neglecting the traditional sources of economic growth.