Level Of Capital Stock Research Articles

MACRO AND MICRO: TRADE FRICTION AND WEALTH INEQUALITY IN TWO-COUNTRY HANK

This paper develops the Two-Country HANK model to analyze the impact of tariffs on economic variables and wealth distribution from both macro and micro perspectives. In Macro analysis, trade wars are likely to only exist in situations of asymmetry between the two countries. In Micro analysis, differences in consumption, investment, and labor decisions between the poor and the rich, resulting from different capital stocks, reshape the wealth structure. In a symmetric economy, on the investment side, the rigid constraint imposed by the level of capital stock leads to inconsistent investment behavior in illiquid assets between the poor and the rich. On the consumption side, tariff increases primarily suppress the consumption of imported goods by the poor, while their impact on the consumption of the rich is limited. In an asymmetric economy, the widening gaps in consumption and labor resulting from differential tariff sensitivity between the rich and the poor exacerbate wealth distribution. This paper suggests the implementation of differentiated policies to navigate the economy out of recession.

CONSTRAINED POTENTIAL: A CHARACTERIZATION OF MEXICAN MICROENTERPRISES

Firm-level data spanning from 1994 to 2012 is used to investigate the apparent stagnation of Mexican microenterprises. The existence and nature of constraints are studied by estimating the empirical probability of a business’s success. A performance index is defined based on firm levels of capital stock and monthly profits. The predicted values are used to classify all microenterprises into one of three categories: upper, middle, or lower segment. Overall, the study identifies evidence of constrained productivity and capital misallocation, as well as the plausibility of cost-effective interventions. Specifically, microenterprises from the middle segment face substantial external constraints and their total share increased from 16 to 22 percent over time. The monthly marginal returns average 30 percent across lower-segment firms and 1 percent across those in the upper segment. Finally, the differences in monthly profits among segments are explored using the Oaxaca-Blinder decomposition method.

International financial integration in the presence of an international duopoly

We revisit the debate on the benefits of international financial integration. We build a partial equilibrium imperfectly competitive model with two countries, where each country has one firm. Firms are Cournot competitors. Within this framework, we examine how the liberalization of international capital flows affects the welfare of each country and their joint welfare. Our results show that international capital flows' liberalization cannot guarantee the improvement in each country's welfare and their joint welfare. Overall, we find that international financial integration has very heterogeneous effects, depending on the market size, the initial level of capital stock and the degree of product competition.

Estimating Firm‐Level Capital Stock: The Evidence From Turkey

In this study, we mainly discuss the validity of estimating the capital stock at the firm level. Unlike the macro‐level estimates, the micro‐level estimates require a different treatment on the capital accumulation equation, especially on the estimate of the initial level of capital stock, controlling for firms' entry and exit, and changing composition of firm‐level investments. We also consider the ownership of capital assets acquired by different types of finance other than direct purchases—by leasing or by rent. Considering these situations, we elaborate on the controversial issues of existing methods. We then, to some extent, refine alternative methods for estimating the capital stock in Turkey for the period 2005–15 using extensive firm‐level data. Using these estimates, we focus on the behavioral trends of firms (i.e., capital‐related variables) in manufacturing, services, and information and communication sectors in Turkey.

The Labor Market Experience and Impact of Undocumented Workers

Working Paper 2008-7 February 2008 Abstract: Using administrative data from the state of Georgia, the authors find that a greater share of undocumented workers in an industry has a statistically significant negative impact on the wages of documented workers. The practical impact, however, is small, given the size of the undocumented workforce. In addition, undocumented workers have significantly lower labor supply elasticity, likely as a result of their limited employment and grievance opportunities. Furthermore, the inflow of undocumented workers does more to displace earlier hired undocumented workers than it does to displace documented workers. JEL classification: J61, J31, J42, F22 Key words: illegal immigration, wage impact, worker displacement The Labor Market Experience and Impact of Undocumented Workers I. Introduction and Background The United States has a long history of immigration debate. Through the last century and into this one, immigration policy has been subjected to changing economic needs, fears, and political whims. Positive contributions of immigration have been identified by Neal and Uselding (1972) who estimate that the flow of immigrants into the United States between 1790 and 1912 resulted in a 13 to 42 percent higher level of capital stock than would have prevailed in the absence of immigration during these years (also see Barro and Sala-i-Martin 1995 and Chiswick et al. 1997). (1) Immigration has also been more recently explored in various countries as a mechanism for replacing retiring baby-boom workers (e.g., Hamada and Kato 2007, Hotchkiss 2005, Denton and Spencer 1997). The concerns surrounding immigration are rooted in an expectation that the arrival of new workers into a labor market would displace native workers and/or put downward pressure on wages. The literature presents a wide range of estimates of the effects of immigration on wages and employment of native workers. The consensus settles on a one to four percent decrease in native wages resulting from a 10 percent increase in the population share of immigrants (for example, see Friedberg and Hunt 1995 and Borjas et al. 2006). The measured impact of immigration on the displacement of workers is less clear. Card (1990), Wright et al. (1997), Butcher and Card (1991), and Card and DiNardo (2000) find no evidence of immigrant inflows affecting native migration patterns or employment outcomes. Whereas, Frey (1996) and Borjas (2005) identify a significant relationship between immigrant inflows and either native outflows or lower net native in-migration, and Card (2001) finds lower rates of employment within cities with high immigrant arrivals. While firmly rooted in the empirical literature measuring the impact of legal immigration on the labor market experiences of natives, this paper deviates slightly by exploring the impact of undocumented workers (assumed to be immigrants) on wages of documented workers, some of which are likely immigrants themselves. The analysis makes use of administrative data from the state of Georgia to investigate how the proportion of undocumented workers affects the wages of documented workers, the displacement of documented workers, and what role different labor supply elasticities might play in the observed wage gap between the two groups of workers. The results presented in this paper are of particular relevance as the immigration debate has recently narrowed its focus on undocumented immigrants. A. The Impact of Immigration The impact of immigration on native worker wages essentially comes down to how complementary or how substitutable the immigrants are with native workers, and how responsive native migration patterns are to the influx of additional workers. Goldin (1994) documents significant wage effects of the large European migration to the United States in the early 20th century. Measured effects of more recent waves of immigrants have been more modest. …

Políticas Fiscais para Estabilização da Dívida Pública: uma abordagem de equilíbrio geral aplicada ao Brasil

Resumo Usamos um modelo de equilíbrio geral aplicado dinâmico e determinístico com um agente representativo para avaliar alternativas de política fiscal para o Brasil. As alterações do mix fiscal que mais aumentam o produto per capita de longo prazo (em cerca de 2%) são: a redução do consumo do governo acompanhada pela redução da alíquota do imposto de renda sobre o capital e o aumento do investimento do governo financiado pela redução das transferências. A primeira delas também é a que produz o maior aumento do bem-estar. As estratégias de consolidação da dívida pública consideradas usaram apenas um instrumento fiscal e visaram reduzir a dívida pública em 10% em dez anos e sua estabilização subsequente. Sob o ponto de vista do nível de consumo e do nível do estoque de capital no longo prazo, e do fluxo descontado de bem-estar, o melhor instrumento foi na alíquota do imposto de renda sobre o capital. Sob a ótica do produto no longo prazo, o melhor instrumento foi o investimento do governo, seguido pela alíquota do imposto sobre a renda do capital.

Does multilateral lending aid capital accumulation? Role of intellectual capital and institutional quality

This paper investigates whether multilateral lending is more effective in accumulating capital in countries with a higher level of innovation. Specifically, we examine the role of the World Bank or IMF financing on capital stock using data from 175 countries over the period 1970–2017, while considering different types of long-term external flows namely FDI and debt. We find that FDI as a long-term inflow influences domestic capital stock positively, but non-G7 countries, even with a higher level of innovation, are unable to benefit from greater FDI flows in boosting their capital stock, which we explain considering institutional quality differences across countries. With regard to foreign debt flows, the multilateral lending only benefits a borrowing country if it has greater level of intellectual capital or if those funds are used in financing innovative activities. Unlike short-term IMF loans, as World Bank lending tends to be directed more towards long-term development goals, they help boost productive capital. Exploiting a policy intervention with TRIPs agreement, the paper further uncovers that countries with better institutional quality and greater innovation benefit from multilateral lending in generating higher level of capital stock following TRIPs implementation.

International Financial Integration in the Presence of an International Duopoly

We revisit the debate on the benefits of international financial integration. We build a two-country model with an international duopoly to examine how the liberalization of international capital flows, affects the welfare of each country and their joint welfare. Our results show that international capital flows' liberalization cannot guarantee the improvement in each country's welfare and their joint welfare. Overall, we find that international financial integration has very heterogeneous effects, depending on the market size, the initial level of capital stock and the degree of product competition.

Decisions on pricing, capacity investment, and introduction timing of new product generations in a durable-good monopoly

The aim of the present paper is to analyze how firms that sell durable goods should optimally combine continuous-time operational level planning with discrete decision making. In particular, a firm has to continuously adapt its capacity investments and sales strategy, but only at certain times it will introduce a new version of the durable good to the market. The launch of a new generation of the product attracts new customers. However, in order to be able to produce the new version, production facilities need to be adapted leading to a decrease of available production capacities. We find that the price of a given generation of a product decreases over time. A firm should increase its production capacity most upon introduction of a new product. The stock of potential consumers is largest then so that the market is most profitable. The extent to which existing capacity can still be used in the production process for the next generation has a non-monotonic effect on the time when a new version of the product is introduced as well as on the capital stock level at that time.

Constrained Potential: A Characterisation of Mexican Microenterprises

This paper investigates the existence and nature of constraints prevailing among Mexican microenterprises. It provides inter-temporal insights by relying on firm-level data spanning from 1994 to 2012. A performance index is defined based on firm levels of capital stock and monthly profits, and is used to estimate the empirical probability of a business’s success. The predicted values are used to classify every microenterprise into one of three categories: upper, middle, or lower segment. Overall, the study provides evidence of constrained productivity and capital misallocation. Specifically, middle-segment firms exhibit entrepreneurial features and their average marginal returns are 15 percent. Because this segment faces mainly external constraints, cost-effective interventions are plausible. Regarding the lower-segment firms, it is estimated that their average monthly marginal returns are 30 per cent, compared to 1 per cent for the upper segment. It is also shown that, over time, the share that middle-segment firms represent relative to all microenterprises increased from 16 to 22 percent. Lastly, the sources of variation in monthly profits among segments are explored using the Oaxaca-Blinder decomposition method.

Tourism development, environmental pollution and economic growth: A theoretical analysis

ABSTRACTWe develop a two-sector dynamic model of a less-developed economy with an imported traded good sector and with a non-traded tourism service sector serving international tourists. Revenue earned from tourism finances imports. The model takes care of the negative effect of tourism development on environmental pollution. Environmental quality and capital stock accumulates over time. We analyse comparative steady-state effects and show that tourism development raises the level of capital stock as well as national income but lowers the quality of environment in the new steady-state equilibrium leading to a relative expansion (contraction) of the capital (labour) intensive non-tourism (tourism) sector. Pollution abatement policy produces a completely opposite effect; and so tourism development policies are to be accompanied by pollution abatement policies in order to ensure green growth.

Optimal Recycling Under Heterogeneous Waste Sources and the Environmental Kuznets Curve

We investigate how the relationship between economic growth and pollution is affected by the source of pollution: production or consumption. We are interested in polluting waste that cannot be naturally absorbed, but for which recycling efforts aim to avoid massive pollution accumulation with harmful consequences in the long run. We distinguish the cases where recycling efforts are capital-improving or capital-neutral. Based on both environmental and social welfare perspectives, we determine how the interaction between growth and polluting waste accumulation is affected by the source of pollution, i.e., either consumption or production, and by the fact that recycling may or may not act as an income generator, i.e., either capital-improving or capital-neutral recycling efforts. Several new results are extracted regarding optimal recycling policy and the Environmental Kuznets Curve. Beside the latter concern, we show both analytically and numerically that the optimal control of waste through recycling allows to reaching larger (resp., lower) consumption and capital stock levels under consumption-based waste compared to production-based waste while the latter permits to reach lower stocks of waste through lower recycling efforts.

The economic growth enigma revisited: The EU-15 since the 1970s

Current macro-econometric models mostly incorporate just two factors of production, labour and capital (with a time-dependent multiplier representing technological change or total factor productivity). These models assume that energy is an intermediate product of some combination of human labour and capital. These models also assume that the supply of energy is driven by economic demand. We assume the contrary, i.e. that useful energy is a primary input, derived (mostly) from natural capital. This failure to capture the impact of primary resources (as useful energy) on economic growth leads to inappropriate formulation of economic growth theories. To understand that impact better we need explicit evidence of marginal products of capital, labour and useful energy or useful work. As applied to the explanation of the past half century of economic growth of the EU-15 countries, the new results demonstrate the use of non-parametric relationships between capital, labour and useful energy to explain economic growth. They also indicate that marginal products of capital, labour and useful energy are variable – the marginal product depends on the levels of capital stock, labour input and useful energy flows. The proposed semi-parametric production function suggests country-specific policy implications for the EU (and other countries).

Optimal firm growth under the threat of entry

The paper studies the incumbent-entrant problem in a fully dynamic setting. We find that under an open-loop information structure the incumbent anticipates entry by overinvesting, whereas in the Markov perfect equilibrium the incumbent slightly underinvests in the period before the entry. The entry cost level where entry accommodation passes into entry deterrence is lower in the Markov perfect equilibrium. Further we find that the incumbent’s capital stock level needed to deter entry is hump shaped as a function of the entry time, whereas the corresponding entry cost, where the entrant is indifferent between entry and non-entry, is U-shaped.

Monetary policy in a two-sector dependent economy

In this paper we examine the effects of monetary policy in a two sector dependent economy. The households consume both tradable and non-tradable goods with inelastic labor supply. The economy produces both goods with labor and capital as inputs. Factors of production are mobile across sectors. The effects of monetary policy very much depend on the role of money in the economy as well as relative capital intensities. For example, when the nontraded sector is more capital intensive and households need cash for purchasing tradable goods, higher inflation will generate more investment in the economy leading to a higher level of capital stock and a lower level of net foreign assets in the long run. However, the long run effects are completely opposite if households need real balances for purchasing nontradable goods instead. All other possible cases are examined. We also calibrate the model with standard parameter values for quantitative analysis.

Does Real Exchange Rate Depreciation Boost Capital Accumulation? An Intertemporal Analysis

This paper examines the investment‐enhancing effect of real exchange rate (RER) depreciation in a two‐sector small open economy model where a representative firm in the tradable sector maximises its discounted profit over an infinite planning period. In this framework, a one‐time, permanent, unanticipated depreciation in the RER leads to a higher steady‐state level of capital stock and investment. This consequently increases the optimal investment rate associated with an arbitrary level of capital stock as the saddle path shifts upwards. In the benchmark calibration, the investment‐enhancing effect of RER depreciation is sizeable. One per cent depreciation in the RER leads to an increase of 0.4444 per cent in the rate of capital accumulation.

The Capital Stock's Analysis of Industry Transfer in the Western Regions in China

The development of China’s eastern regions shows the characteristic that the industry transfers to inland in recent years. As the developing areas, the western regions of China must resolve an important question which is effectively undertake the various industries from the eastern regions and continue expands the economic cooperation with the central regions. The capital stock’s estimation is the key indicator of analyzing economic growth, and is the premise that can help to undertake the industries for western regions. By introducing the different capital stock estimation’s models, the author recalculates the capital stock level of Guizhou Province with different methods, compares and analyses the varied results by different approaches. Therefore, this comparison study can help us to understand the capital stock’s level of different regions, and provides some solid basis to undertake the industries transfer from east regions for the west regions of China.

The Choice of Technology and Equilibrium Wage Rigidity

In this general equilibrium model, firms engage in oligopolistic competition and choose increasing returns technologies to maximize profits. Capital and labor are the two factors of production. The existence of efficiency wages leads to unemployment. The model can explain some interesting observations of the labor market. First, even though there is neither long-term labor contract nor costs of wage adjustment, wage rigidity is an equilibrium phenomenon: an increase in the exogenous job separation rate, the size of the population, the cost of exerting effort, and the probability that shirking is detected will not change the equilibrium wage rate. Second, the equilibrium wage rate increases with the level of capital stock. Third, a higher level of capital stock does not necessarily reduce the unemployment rate. That is, there is no monotonic relationship between capital accumulation and the unemployment rate.

A panel data test for poverty traps

This article develops a threshold panel data nonlinearity test for poverty traps. The new testing strategy extends the work on nonlinearity tests for panel data by considering threshold nonlinearities in the fixed-effects components. Monte Carlo simulations are conducted to evaluate the finite-sample performance of these tests. The tests are applied to the relationship between Gross Domestic Product (GDP) per capita and capital stock per capita. Our application to a panel of countries for the period 1973 to 2007 uncovers the presence of two regimes determined by the level of capital stock per capita. The conclusions from our test also support the existence of a poverty trap determined by a capital stock per capita level at the 11% quantile of its pooled worldwide distribution.

Modeling institutional evolution

This paper proposes a formal framework to analyze the process of institutional evolution in relation with economic progress. Institutions have both formal (F) and informal (N) aspects that may exhibit varying processes of change. N is hypothesized to evolve with the level of capital stock, as in learning by doing, whereas F is chosen optimally by a government that maximizes output subject to social and political costs. F and N together define the production technology and affect the income level. Consistent with evidence, simulations of the model's solution reveal that optimum F exhibits a punctuated pattern.