Physical Capital Accumulation Research Articles

Religion and Growth

We use the elements of a macroeconomic production function—physical capital, human capital, labor, and technology—together with standard growth models to frame the role of religion in economic growth. Unifying a growing literature, we argue that religion can enhance or impinge upon economic growth through all four elements because it shapes individual preferences, societal norms, and institutions. Religion affects physical capital accumulation by influencing thrift and financial development. It affects human capital through both religious and secular education. It affects population and labor by influencing work effort, fertility, and the demographic transition. And it affects total factor productivity by constraining or unleashing technological change and through rituals, legal institutions, political economy, and conflict. Synthesizing a disjoint literature in this way opens many interesting directions for future research. (JEL E22, I25, J10, N30, O33, O43, Z12)

Relationship between Financial Development and Economic Growth: Evidence from 12 SADC Countries

Purpose: The purpose of this study was to examine the causal relationship between financial development and economic growth in 12 SADC countries for the period 2008-2020. Materials and Methods: The study utilized panel data from 12 SADC member states for the period 2008-2020. This dataset was compiled from the World Bank database, Penn tables, and National Bureau of Statistics websites for the member states. The study employed the Autoregressive Distributed Lag Model (ARDL) to estimate the causal relationship between financial development and economic growth. Findings: The empirical results show that there is bi-directional causality between financial development and economic growth in the SADC region. The findings also suggest that while financial development positively correlates with economic growth in the long run, the short-run effects may vary, with factors such as physical capital accumulation and government expenditure playing significant roles. Trade openness, life expectancy and population growth were also found to have implications for economic growth in the SADC region, highlighting the complex nature of development dynamics. Implications to Theory, Practice and Policy: The presence of bidirectional causality between financial development and economic growth calls for coordinated economic and financial policies as both variables mutually influence each other's dynamics.

Public education and the environment

This paper investigated, in an overlapping generations model highlighting two-period lived households, the influence of education and environmental awareness on physical capital and environmental terms by sketching, at the stable steady-state equilibrium, the comparative static examination. According to this approach, the study has shown that public education policy can neither boost environmental quality standards nor the capital stock. The study also found that larger environmental awareness as young results in upper capital accumulation and upper environmental quality. Regarding individuals' environmental awareness in old age, it was revealed that it leads on the one hand to less physical capital accumulation and on the other hand to a better environmental quality, only in the case where the value of environmental awareness at a young age is 10 and the value of environmental awareness at old age is greater than or equal to 40. Keywords: Capital accumulation; environmental awareness; environmental quality; public education

The Euro Area 12: A Comparative Assessment of Its Member States in the Period 1998–2022

The primary objectives of this research are to compare the economic performance of the Member States (MS) in the Euro Area 12 (EA-12) of the European Union (EU) that served as net contributors and net recipients of its budget during the period 1998–2022. The comparison focuses on aspects related to economic growth and the business cycle, exploring the presence of hysteresis. To achieve these objectives, a novel approach is employed, which integrates the analysis of both growth and cycles. This approach involves using the Seemingly Unrelated Regression Equations (SURE) model to estimate a translog production frontier and assess the impact of lagging output gaps on the potential output or capacity for each of the MS considered. The data used to estimate each frontier and analyze growth decomposition consist of quarterly data filtered using the Kalman filter. The results reveal that lagging output gaps, occurring one or two quarters prior, significantly affect the potential output or capacity of the EA-12 MS, thereby supporting the existence of hysteresis. However, the impacts appear to be minimal. Furthermore, the research concludes that changes in total factor productivity (TFP), mainly due to technical change, play a more crucial role in the growth of MS that are net contributors to the EU budget. Conversely, total factor accumulation (TFA), mainly physical capital accumulation, has a more pronounced impact on the growth of MS net recipients from the EU budget. Interestingly, the heterogeneity observed among the EA-12 MS extends beyond the simple division between net contributors and net recipients of the EU budget. This heterogeneity raises questions about the European Central Bank’s (ECB) ability to stabilize the economies of these various MS solely through conventional monetary policy.

Provincial income convergence in Vietnam: spatio-temporal dynamics and conditioning factors

In this article, we use a three-step procedure that combines the log t convergence test, Explanatory Spatial Data Analysis, and ordered logit regression to determine the spatio-temporal dynamics and determinants of provincial income clustering in Vietnam during the 2010–2020 period. Our findings are three-fold. First, provincial income clustering in Vietnam follows patterns of club convergence towards multiple equilibria. Seven convergence clubs encompassing 61 provinces are identified. Second, spatial autocorrelation encourages neighboring provinces to converge toward shared income equilibria. High-income clusters are observed in the Northern and Southern Key Economic Regions, while low-income clusters are concentrated in the mountainous areas of Northern Vietnam. Finally, both internal and external factors significantly affect the formation of convergence clubs. Vital internal factors include localities’ initial conditions of physical capital and structural change. Meanwhile, external factors refer to spatial externalities among neighboring provinces. We highlight spatial complementarity in physical capital accumulation and spatial competition in industrial intensification among neighboring provinces.

Carbon pricing and aggregate macroeconomic performance in the Eurozone: a contribution to the climate policy debate using the EU ETS and Macroeconomic Performance Index

This article contributes to the carbon pricing debate by providing new evidence on the aggregate macroeconomic effect of the European Union Emissions Trading Scheme (EU ETS) in the Eurozone. To this end, a novel macroeconomic performance index is created to capture the overall economic performance of the Eurozone countries. The index is a weighted aggregation of key macroeconomic variables—GDP growth rate, inflation rate, employment rate, exchange rate, and long-term inflation rate—for the 19 member countries of the group. The effect of the EU ETS on this macroeconomic performance index is then empirically examined while controlling for the effects of physical capital accumulation, human capital accumulation and regulatory quality. A panel framework covering the period 2005–2022 is set up to achieve this objective and the relationship is examined using panel method of moments quantile regression with fixed effects, as well as fixed and random effects regressions of Driscoll and Kraay. A number of important revelations are made. Firstly, the behavior of the macroeconomic performance index constructed clearly reflects the economic reality of the Eurozone, with downward spikes visible in periods corresponding with the economic crisis of 2007–2009, the Eurozone debt crisis of 2010/2011, the aftermath of the financial crisis of 2016, and periods around the outbreak of the Coronavirus (COVID-19) pandemic. Hence, a case is made for the use of the macroeconomic performance index as a superior aggregate measure of the overall economic performance in empirical research. Secondly, a statistically significant negative effect of the EU ETS on aggregate macroeconomic performance in the Eurozone is confirmed. This shows that there are significant economic costs associated with the use of carbon pricing as a means of lowering pollution. Thirdly, the findings further show that the negative impact gradually decreases (in absolute values) from lower to higher quantiles. Overall, higher carbon prices cause greater economic disruption when macroeconomic performance is relatively poor but have less damaging effect when aggregate economic performance is relatively strong. Policy recommendations based on the study findings are also provided.

Untimely destruction: pestilence, war, and accumulation in the long run

Abstract This paper analyses the effects of disease and war on the accumulation of human and physical capital. We employ an overlapping generation framework in which young adults, motivated by old-age provision and possibly altruism, make decisions about investments in schooling and capital. A poverty trap exists for a wide range of constant war losses and premature adult mortality. If parents are altruistic and the sub-utility function for own consumption is more concave than that for their evaluation of their children’s full income in adulthood, the only possible steady-state growth path involves full education. Otherwise, steady-state paths with incompletely educated children may exist. When mortality and destruction rates are stochastic, the initial boundary conditions and agents’ beliefs have a strong influence on the paths generated by a sequence of shocks. Calibrating the model to Kenya, simulations for stochastic settings yield the finding that a trap exists and is always avoided, but the chances of a slow recovery are substantial.

Social overhead public infrastructure in a Lewis development framework

AbstractThis study explores the interaction between private and public physical capital accumulation within a Lewis development framework, in which public infrastructure is subject to congestion. The model shows that when both levels of capital are relatively low, a crowding‐out of private investment creates the necessary conditions for the emergence of a development trap, from which a surplus labor economy, if left to the free play of its structural forces, may never escape. Once caught in such a trap, the economy can potentially be released through a big push of public or private capital or a sufficiently balanced combination of both.

The macroeconomic burden of noncommunicable diseases and mental health conditions in South America.

Noncommunicable diseases and mental health conditions (referred to collectively as NMHs) are the greatest cause of preventable death, illness, and disability in South America and negatively affect countries' economic performance through their detrimental impacts on labor supply and capital investments. Sound, evidence-based policy-making requires a deep understanding of the macroeconomic costs of NMHs and of their distribution across countries and diseases. The paper estimates and projects the macroeconomic burden of NMHs over the period 2020-2050 in 10 South American countries. We estimate the impact of NMHs on gross domestic product (GDP) through a human capital-augmented production function approach, accounting for mortality and morbidity effects of NMHs on labor supply, for the impact of treatment costs on physical capital accumulation, and for variations in human capital by age. Our central estimates suggest that the overall burden of NMHs in these countries amounts to $7.3 trillion (2022 international $, 3% discount rate, 95% confidence interval: $6.8-$7.8 trillion). Overall, the macroeconomic burden of NMHs is around 4% of total GDP over 2020-2050, with little variation across countries (from 3.2% in Peru to 4.5% in Brazil). In other words, without NMHs, annual GDP over 2020-2050 would be about 4% larger. In most countries, the largest macroeconomic burden is associated with cancers. Results from the paper point to a significant macroeconomic burden of NMHs in South America and provide a strong justification for investment in NMH prevention, early detection, treatment, and formal and informal care.

Endogenous growth and monetary policy: How do interest-rate feedback rules shape nominal and real transitional dynamics?

Monetary authorities have followed interest-rate feedback rules in apparently different ways over time and across countries, with the literature distinguishing, in particular, between active and passive monetary policies. We address the transitional-dynamics implications of these different types of monetary policy, in the context of a monetary growth model of R&D and physical capital accumulation. In this setup, well-behaved saddle-path transitional dynamics occurs under both active and (sufficiently) passive monetary policies – a relevant result little emphasised in the literature. We carry out our study from the perspective of a one-off shift in the structural stance of monetary policy (i.e., a change in the long-run inflation target) and a one-off shift in real industrial policy (i.e., an R&D or a manufacturing subsidy). We uncover a new channel through which institutional factors (the characteristics of the monetary-policy rule) influence the economies' convergence behaviour and through which monetary authorities may leverage (transitional) growth triggered by structural shifts.

The global economic burden of chronic obstructive pulmonary disease for 204 countries and territories in 2020–50: a health-augmented macroeconomic modelling study

Chronic obstructive pulmonary disease (COPD) is the third leading cause of death worldwide and imposes a substantial economic burden. Gaining a thorough understanding of the economic implications of COPD is an important prerequisite for sound, evidence-based policy making. We aimed to estimate the macroeconomic burden of COPD for each country and establish its distribution across world regions. In this health-augmented macroeconomic modelling study we estimated the macroeconomic burden of COPD for 204 countries and territories over the period 2020-50. The model accounted for (1) the effect of COPD mortality and morbidity on labour supply, (2) age and sex specific differences in education and work experience among those affected by COPD, and (3) the impact of COPD treatment costs on physical capital accumulation. We obtained data from various public sources including the Global Burden of Disease Study 2019, the World Bank database, and the literature. The macroeconomic burden of COPD was assessed by comparing gross domestic product (GDP) between a scenario projecting disease prevalence based on current estimates and a counterfactual scenario with zero COPD prevalence from 2020 to 2050. Our findings suggest that COPD will cost the world economy INT$4·326 trillion (uncertainty interval 3·327-5·516; at constant 2017 prices) in 2020-50. This economic effect is equivalent to a yearly tax of 0·111% (0·085-0·141) on global GDP. China and the USA face the largest economic burdens from COPD, accounting for INT$1·363 trillion (uncertainty interval 1·034-1·801) and INT$1·037 trillion (0·868-1·175), respectively. The macroeconomic burden of COPD is large and unequally distributed across countries, world regions, and income levels. Our study stresses the urgent need to invest in global efforts to curb the health and economic burdens of COPD. Investments in effective interventions against COPD do not represent a burden but could instead provide substantial economic returns in the foreseeable future. Alexander von Humboldt Foundation, National Natural Science Foundation of China, CAMS Innovation Fund for Medical Science, Chinese Academy of Engineering project, Chinese Academy of Medical Sciences and Peking Union Medical College project, and Horizon Europe. For the Chinese and German translations of the abstract see Supplementary Materials section.

Transportation infrastructure development and subjective socio-economic status: A quasi-experiment in establishing rural bus stations in China

Infrastructure construction has significant economic benefits for rural residents, but little literature discusses the impact on their psychological benefits. Setting the establishment of bus stations in rural China as a quasi-natural experiment and based on the 2014–2016 China Labor-Force Dynamic Survey, this study uses the difference-in-differences model to examine the effect of bus stations on the subjective socio-economic status (SES) of rural residents. The results show that the SES of rural residents has significantly improved after establishing bus stations. In addition, the establishment of bus stations has raised the wages and operating income of rural residents, as well as medical and educational expenses. Thus, rural bus stations contribute to the accumulation of physical and human capital, thereby increasing SES. In terms of reducing information asymmetry, the construction of the bus station has a stronger promotion effect for groups with low education status and income levels. In terms of promoting factor mobility, construction is more helpful in promoting physical health and residents living in rugged areas. These findings contribute to the literature on social class in rural areas by clarifying the psychological mechanism of infrastructure construction's effect on SES.

The effect of foreign direct investment on capital accumulation in developing countries

ABSTRACT The purpose of this study is to examine whether foreign direct investments are a blessing or a curse for capital accumulation in developing countries. Data were collected for 16 developing countries over the period 2005–2018. An Arellano-Bover/Blundell-Bond dynamic panel estimation method was adopted to analyze the physical capital accumulation effect of foreign direct investments. Our analysis indicates that for every percentage increase in foreign direct investment inflows to developing countries, physical capital increases by 2.31 percent. In addition, a random-effect panel estimation was implemented to analyze the effect of foreign direct investments on human capital. For a one-percent increase in foreign direct investments, human capital increases by 2.38 percent. The results of our regressions show that not only the volume but also the type of foreign direct investment matters for capital formation in developing countries. Specifically, foreign direct investments in the secondary sector have a statistically significant positive effect on both physical and human capital. By contrast, foreign direct investments in the primary and tertiary sectors have a negligible effect. Our analysis suggests that developing countries would benefit from investing more resources in education and opening up their economies to attract foreign direct investments, particularly in the manufacturing sector.

Drivers of growth accelerations: What role for capital accumulation?

Economic growth is often episodic but the ultimate drivers of such growth accelerations are not understood very well. We therefore take a different perspective and investigate what happens to production factors and productivity before, during, and after 156 growth accelerations that we identify for 148 countries between 1950 and 2019. We are particularly interested in the role that physical capital accumulation can play in this context, given recent interest in investment surges and several investment-led growth models.Our results show that physical capital accumulation accounts on average for 9% of the increase in the growth rate during an acceleration, with heterogeneity across regions, time periods, and the economies’ capital-output ratio. While growth accelerations are mainly driven by improvements in total factor productivity, we find that physical capital accumulation is an important factor for the sustainability of accelerations. Those findings are robust to various techniques for identifying growth accelerations and growth decompositions. They suggest that large “investment-led” growth accelerations are unlikely but also confirm that growth episodes that are not accompanied by solid investment patterns are likely to run out of steam.

THE IMPACT OF PHYSICAL CAPITAL AND HUMAN CAPITAL (LEVEL OF EDUCATION) ON GROWTH IN INDONESIA

The purpose of this study is to investigate, by use of relevant robust econometric modelling, physical capital and human capital, and their impact on growth in Indonesia for policy analysis. The Auto Regressive Distributed Lag (ARDL) by Pesaran and Pesaran (1997) were chosen for supporting the relationship analysis. The important finding for policy analysis is that human capital appears to be a continuing factor shaping Indonesia’s growth, along with physical capital accumulation, with particularly strong effects for human capital arising from tertiary education. Physical capital has shown a strong and significant impact on the growth in the long run and indicates that Indonesia needs long term investment to generate growth. Such investment has distinction which related to sustainable operation such as infrastructure, sophisticated services, and venture capital. Consequently, it requires high skill labour supplied by tertiary education institutions. A further development of tertiary education next to enhancement of investment environment in manufacture and service sector should be set as priority programs in inducing growth.

Regional convergence and catching up process in Africa: A tale of three clubs

AbstractThe aims of this article were twofold. First, to tackle the issue of convergence from an analytical point of view by presenting the mathematical developments of the main economic growth models, which emphasized that the convergence of African economies is conditional to the investment level in the early stages of physical capital accumulation. As the latter increases, the convergence of African economies is determined by other factors (investment in research and development (R&D) and human capital, etc.). Second, to verify the empirical validity of these models by confronting them with data from 33 African economies stratified by development level over the period 2004–2019. Empirical results using both spatial and nonspatial panel estimation methodology and the ‘beta‐convergence’ approach pointed to three ‘convergence clubs,’ as well as a conditional convergence for all these clubs. However, the determinants of convergence among African economies differ by development level. In low‐income economies, convergence is conditional to financial development and inflation level. For lower‐middle‐income economies, institutional quality and inflation level contribute to the convergence of this club. The convergence of upper‐middle‐income economies is conditioned by public spending and human capital. In terms of policy implications, countries should develop measures that strengthen institutional reforms to improve the functioning of financial systems, democratic accountability, control of corruption, business climate, economic growth, strengthening the legal environment, and improving competition by reducing public expenditures. This paper is original insofar as it advances the field from the current state of knowledge in several ways. First, to stand out from the existing literature, we conducted a comparative analysis of the institutional quality levels across 33 African countries by developing an institutional quality index through the use of a principal component analysis (PCA) method. Second, we tested the empirical validity of the convergence hypothesis beneath economic growth theories and in the African context; moreover, it has verified the possible existence of ‘convergence clubs,’ then, it brought to light the main determinants of the convergence of these clubs.

The Role of Manufacturing and Service Exports in Ethiopia’s Economic Growth Performance

The purpose of this study is to investigate the role of manufacturing and service exports in Ethiopia’s economic growth performance from 1995 until 2018. To accomplish the objective, the study developed two versions of an augmented Solow’s (1956) model. Both versions include manufacturing and service exports as potential determinants of total factor productivity (TFF). However, the first version proxies physical capital accumulation with the investment rate, and the second version uses capital per worker. The autoregressive distributed lag (ARDL) bounds testing results of the first version suggest that there is no long-run relationship among the variables. Moreover, the investment ratio and labour force growth rate variables are statistically insignificant, which contradicts the theoretical predictions of the Solow model. On the other hand, the second version of the Solow model with capital per worker shows evidence of a long-run cointegrating relationship among the variables which support the manufacturing export-led growth hypothesis in Ethiopia, in which manufacturing exports are statistically significant, while service exports are statistically insignificant in the long run. Conversely, the results of the first version show that capital per worker has a positive and significant effect on Ethiopia’s economic growth performance. Overall, the main findings suggest that the Ethiopian government should strengthen current policies that emphasize manufacturing exports and maintain high investment rates in physical capital.

Modeling economic growth factors in Egypt: A quantile regression approach

This paper investigates the sources of Egypt's economic growth over the course of four generations of reforms from 1991 to 2019. To examine the contribution of input factors to economic growth, we used the augmented Solow model, which includes both human and physical capital accumulation. Variables employed in the analysis are Gross Domestic Product, capital, productivity, human capital, and employment. The study uses quantile regression econometric modeling to examine the sources of growth in the Egyptian economy at various stages of reform and the convergence of income segmentations. Quantile Regression (QR) estimates for quantiles 0.1 through 0.9 showed varied results. Productivity's coefficient increased from 0.27 in Q1 to 0.60 in Q8 which means that productivity has clearly had a large impact on the higher stages of economic growth. In addition, the higher income segmentations we go, the higher impact of productivity it gets. However, Capital and Human Capital go in the opposite direction where coefficients of capital deteriorated gradually from 0.3 in Q1 to 0.1 in Q9, and coefficients of human capital decreased from 0.15 for Q1 to reach 0.04 for Q9. Therefore, the main culprit behind this phenomenon is the deficiency in the savings rate and the increase in the population growth rate. For labor, its coefficient is negative all the time. It declined from −1.03 for Q1 to −1.46 for Q9. It indicates that the Egyptian economy is filled with disguised unemployment and exhausts all its potential for job creation. Moreover, this evidence indicates that productivity and human capital accumulation have become the most important sources of growth. The weak growth performance is attributed to the deficiency of investment in both physical and human capitals. Furthermore, the findings show that economic growth is closely linked to trends in human capital, productivity, and capital, all of which are heavily influenced by savings volatility and population growth rates. Therefore, the Egyptian economy's economic growth cycle is determined by savings and population growth rates. When these rates become in the trends enabling human capital, productivity, and capital to boom, strong capital accumulation appears and boosts economic growth and vice versa.

ДРАЙВЕРИ ЕКОНОМІЧНОГО ЗРОСТАННЯ: КЕЙСИ ПОВОЄННОГО ВІДНОВЛЕННЯ

Background. The relevance of the study of the experience of successful post-war recovery of the countries in the context of identification and analysis of the economic growth drivers for Ukraine is undoubted at the moment, taking into account the need to develop effective economic policies and strategies to promote the reconstruction of the economy and embark on the trajectory of long-term economic growth. The purpose of the study is to empirically determine the drivers of economic growth in countries that are examples of successful post-war recovery. Among such countries are Japan, the Republic of Korea, and Israel. They are unique examples of a combination of global, economic, political, and cultural factors of economic growth, which is the object of this study. Methods. The method of decomposition of the growth rate of GDP in relation to the growth rates of its factors is used to identify the contribution of production factors in ensuring economic growth. Results. The study is the calculation of the contributions of production factors to the growth of GDP in Japan, the Republic of Korea, and Israel during 1951–2019. Based on these calculations the analysis of the key drivers of economic growth was carried out. Conclusions. Analysis of the drivers of economic growth in the post-war period of countries that are patterns of successful economic recovery showed that the main factor of post-war recovery is total factor productivity, which includes new technologies, investments in scientific research, promotion of innovative activities, as well as a favorable business environment, political stability, and institutions. The second most influential factor in the period of post-war recovery is the accumulation of physical capital. As for the main measures of economic policy, first of all, it should be emphasized the liberalization of economies, the availability of a sufficient amount of external financing, and the export orientation of the countries. In addition, the experience of post-war recovery has shown that the availability of natural resources does not play a decisive role in promoting economic growth.

Information and Communication Technology (ICT) and youth unemployment in Africa.

Africa is lagging in infrastructural development including Information and Communication Technology (ICT). As there are rising employment opportunities in the ICT-intensive industries globally including Africa, enhanced knowledge and use of ICT may tend to reduce youth unemployment in Africa. Thus, this study investigates the effect of ICT on youth unemployment in Africa using a sample of 41 African countries between 2003 and 2018. The study employs a dynamic Generalized Method of Moment (GMM) approach and constructs a composite ICT index to combine key indicators of ICT, using the principal component approach. We also account for the interactive role of education in the ICT-youth unemployment nexus. Relying on the Phillip curve theoretical model, the effect of inflation, physical capital accumulation, level of corruption, and economic growth are also examined. The results show that youth unemployment in Africa can be reduced by higher ICT deployment and usage, which confirms our hypothesis in this study. There is also evidence that education enhances the potential of ICT usage to reduce youth unemployment. Furthermore, we find that the Phillip curve hypothesis holds, as the inflation rate has a negative effect on youth unemployment. More so, there is evidence that youth unemployment in Africa can be reduced by higher physical capital accumulation, lower level of corruption, and higher economic growth. With falling economic growth and looming economic recession in many African countries, governments would need to revise educational curricula to include ICT-based training to reduce the level of youth unemployment in the medium to long term period.