Physical Capital Accumulation Research Articles

Financial Development and Economic Growth: The Case of Pakistan

The pioneering contributions of Goldsmith (1969), Mckinnon (1973) and Shaw (1973) regarding the relationship between financial development and economic growth has remained an important issue of debate in developing economies. The theoretical argument for linking financial development to growth is that a well-developed financial system performs several critical functions to enhance the efficiency of intermediation by reducing information, transaction, and monitoring costs. A modern financial system promotes investment by identifying and funding good business opportunities, mobilises savings, monitors the performance of managers, enables the trading, hedging, and diversification of risk, and facilitates the exchange of goods and services. These functions result in a more efficient allocation of resources, in a more rapid accumulation of physical and human capital, and in faster technological progress, which in turn feed economic growth [Creane, et al. (2004)].

The impact of budget deficit on economic growth and its channels in South Africa

PurposeThis paper analyses the direct relationship between budget deficits and economic growth, the channels through which budget deficits inhibit growth and finally, the Granger causality between budget deficit and economic growth in South Africa over the period 1975 to 2020.Design/methodology/approachIn a bid to control for endogeneity that is common in economic growth regressions, the author employed the dynamic ordinary least squares (DOLS) approach.FindingsTowards analysing the direct relationship between budget deficit and economic growth, results show that a 10-percentage rise in the budget deficit slows economic growth by 0.2 percentage points. Results show that the growth inhibiting consequences of the budget deficit in South Africa are principally driven by negatively affecting private and public physical capital accumulation growth, as well as a drop in gross national savings. However, results show no evidence of a deficit reduction effect through long term-real interest rate. The findings reveal a one-way Granger causality running from budget deficits to economic growth.Practical implicationsBased on the findings in this article, expanding the fiscal deficit to support growth is not a viable policy option for the South African economy.Originality/valueThe originality of this paper lies in establishing the Granger causality between budget deficit and economic growth, thus adding to the scant literature, as well as establishing the channels through which budget deficit retards economic growth for the South African economy.

Housing property tax, economic growth, and intergenerational welfare: The case of China

In an endogenous growth model of overlapping generations, this paper shows that an introduction of a housing property tax in China increases physical and human capital accumulation and growth rate of output in the long run no matter the revenue from housing property tax is used for reducing government debt, personal income tax, or capital income tax, or for increasing government education expenditure. The tax reform has a strong inter-generations redistribution effect, i.e., it increases the welfare of future generations but reduces the welfare of current generations.

Can fossil fuel endowments steer economic development? Evidence from the linkages approach

The economic and political literature is not conclusive about whether large natural resource endowments diminish growth and development prospects, about the diverse political, economic, and institutional causal mechanisms that lead to Resource Curse and Dutch Disease phenomena, and about the most suitable and effective counteracting measures against these problems. This article adds further evidence to the debate through the linkages approach, primarily associated with Albert Hirschman. By calculating Rasmussen-Hirschman linkages for 42 countries from the WIOD database for 2000–2014, which are subdivided into two groups of countries - one with above and another with below OECD average fuel exports, it suggests that there is a larger likelihood that countries that export fewer fossil fuels to experience higher growth in their manufacturing sector linkages. However, because these two groups are not homogeneous in their relationship between GDP per Capita growth, the size of their linkages, and the growth of the size of their manufacturing value-added in their GDPs, a panel data econometric exercise further subdivides the two country groups in above and below-average GDP per capita. It regresses the manufacturing sector’s backward and linkages with selected variables. The econometric exercise presents evidence that countries with higher GDP per capita and that export more fuels than the OECD average have a larger probability of success than countries with above-average fossil fuels exports and below OECD average GDP per capita. This shows that natural resource exploitation and fuel exports are more likely to be a curse in countries that have not reached a certain threshold of institutional quality, physical and intangible capital accumulation, making it more difficult for them to reap the fruits of natural resource exploitation fully.

The Effect of Dependency Burden on Household Entrepreneurial Exit Behavior: Empirical Evidence from Chinese Households

The elderly dependency ratio in China has increased from 10.7% in 2003 to 17.8% in 2019, and there may be a link between the widespread withdrawal of family entrepreneurship in society and the increased dependency burden. Based on China Family Panel Studies, we empirically examine the impact of dependency burden on household entrepreneurial exit behavior. We find that the likelihood of household exit from entrepreneurial activity increases as the population ages. Compared to active exit from entrepreneurship, dependency burden mainly induces failure exit from household entrepreneurship. In addition to reducing physical capital accumulation and labor supply, dependency burden also reduces the household workforce’s mental and physical health, leading to the entrepreneurial exit. The application of digital technology can mitigate the negative effects of dependency burden in household entrepreneurship. The mitigating effect of digital technology will be enhanced with the deepening of the application. Therefore, government and academia need to pay attention to the negative effects of dependency burden on the sustainability of household entrepreneurship.

Predictability of foreign aid and economic growth in Ethiopia

Foreign aid is one source of physical capital accumulation in Ethiopia. It is also a main media of government revenue in meeting increasing trends of government expenditure. To investigate the impact of foreign aid flow on economic growth, various empirical studies were conducted, but they came up with mixed result. This leads to raise question of why impact of aid on economic growth in Ethiopia continues to be paradoxical in its findings. To assess the effectiveness of foreign aid in Ethiopia; this study sets predictability of foreign aid and economic growth in Ethiopia as a general objective. Specifically, the study sought to examine the contribution of foreign aid and the macroeconomic policy environment to economic growth in the country. In order to meet the aforementioned objective, the study employed an autoregressive distributed lag (ARDL) approach over the period 1985–2019. The empirical finding shows that foreign aid has a positive role in economic growth in the long run but its short run effect is found to be insignificant. Again, this finding also reveals that both in the short run and long run the predictability of foreign aid has a positive effect both on economic growth. Macroeconomic policy index also has a positive effect in the long run, but its short run effect become negative. Based on the listed empirical finding, the study came up with policy recommendation; the government should allocate the external assistance on the successful development projects rather than simply on consumption. Furthermore, for the persistent and predictable flow of foreign aid overtime, joint mechanism of transparency has to be developed between Ethiopian government and donor communities.

Human capital accumulation and economic growth of Ethiopian economy

Economic theory, empirical studies and public policy have underlined the importance of the relationship between human capital accumulation and economic growth. Several developing countries have included human capital development as an integral part of their national development plans and have devoted huge financial resources as a cornerstone to promote economic growth. The purpose of this study is to examine the long-run effects of human capital accumulation on the economic growth of a developing economy using evidence from Ethiopia. The study employed the human capital theory of economic growth and the augmented Solow-Swan model as a theoretical framework, and the ARDL bounds co-integration and error correction mechanism for parameter estimation. Time-series data, covering the period 1980/81 to 2019/20, were employed to examine the long-run relationship between economic growth and its dynamic regressors of human capital indicators. The secondary and tertiary educational attainments of the labour force and life expectancy at birth have a significant positive effect on economic growth of Ethiopia, whereas primary education attainment and adult mortality rate have an insignificant negative effect. On the other hand, physical capital accumulation has positively contributed the country’s economic growth, but trade openness and external debt adversely affect it. Thus, it is suggested that the policymakers should strengthen the country’s institutional capacity while increasing the number of healthy members of the labour force that should also be equipped with quality-based educational attainments.

Problems and prospects of export diversification of countries of Central and Eastern Europe (calculations based on econometric analysis)

Aim. The work aimed to identify the explanatory factors that determine the level of export diversification of countries of Central and Eastern Europe (CEE) in 2010–2021.Tasks. The work was performed to analyze theoretical aspects of export diversification of Eastern European countries; analyze the dynamics of changes in the volumes and structure of exports of the CEE states; assess the main factors influencing the process of export diversification in the countries of the region under consideration, and identify possible prospects for its further development.Methods. The author used such research methods as statistical analysis, observation, econometric analysis, generalization, description, graphical modeling and data classification.Results. The econometric analysis results suggest that there is a long-term relationship between export diversification and per capita gross domestic product, trade openness, human and physical capital accumulation, and foreign direct investment.Conclusion. The socio-economic indicators analyzed in this article are the main factors stimulating the process of export diversification in the CEE countries. During the study period of 2010–2021, the inflation rate showed a negative effect on the degree of export diversification in the CEE countries.

ACCESS TO CREDIT AND PHYSICAL CAPITAL STOCK: A STUDY OF NON-FARM HOUSEHOLD ENTERPRISES IN NIGERIA

This study investigated the influence of access to credit on the physical capital stock of non-farm household enterprises in Nigeria. The study used the binary logistic regression technique and Nigeria’s 2018-19 General Household Survey data (Wave 4). We find that the influence of access to credit on the physical capital stock of nonfarm household enterprises in Nigeria is positive and significant. This implies that access to credit enhances the capacity of these enterprises to procure physical capital stock. Our results also indicate that expenditure on raw materials, profit, and years of operations are other key drivers of physical capital stock accumulation. Consequently, we conclude that there is a need for policies to enhance access to credit by non-farm household enterprises in Nigeria to strengthen their operations on a sustainable basis.

AN EXAMINATION OF THE IMPACT OF SOCIAL CAPITAL ON GROWTH IN THE AXIS OF DEMOCRATIZATION

The social capital phenomenon is considered as the missing link of growth by recent studies. Attention has been drawn to the determinant of institutional factors, especially a stable democratic structure, for the occurrence of an impact of social capital on growth. In this regard, our study, covering 138 countries over the period 2009-2018, consists of two research questions. Firstly, “Does the economic growth performance of countries depend on accumulation of social capital as well as the physical and human capital accumulation highlighted by the theory?” Secondly, “Does the impact of social capital on growth change depending on the democratization level of the countries?” Linear panel data analysis was employed to examine the first question and the panel threshold method proposed by Hansen (1999) was utilized for the second research question. This nonlinear approach constitutes the original value of our study. Our analysis results indicate that, in countries where the democratization level is above a certain level, social capital has a determining impact on growth. In this framework, our findings indicate that the establishment and maintenance of democratic structure is one of the substantial policy focuses in the process of social capital-led growth.

Climate Policy and Wealth Distribution

We set up a model with intergenerational bequest transfers and climate damage on the wealth of heterogeneous households. We show that, under credit market imperfections and depending on wealth distribution across households, a balanced budget climate policy may widen the wealth inequality gap between the rich and poor. Climate policy may create positive effects on the wealth of households, but these effects are asymmetric across households in terms of both magnitude and the transmission of gains from a climate policy within households. The gains of the poor from a climate policy are mainly transmitted into improving living standards and the investment in human capital due to the higher marginal return to education investment. By contrast, the gains of the rich from a climate policy are transmitted biasedly into physical capital accumulation and thereby enhance their monopolistic position in the production of intermediate inputs. We show that, for any climate policy, there exists a corresponding threshold of aggregate physical capital. When the aggregate physical capital of the economy exceeds this threshold, the corresponding climate policy may widen the intergenerational bequest transfers among heterogeneous households, thereby contributing to widening the wealth inequality gap between the rich and poor.

Unemployment disparities in Asia-Pacific economies: physical capital or human capital

We examine whether physical capital and/or human capital accumulation explain(s) unemployment disparities in fifteen Asia-Pacific economies over the years of 1991 to 2019, using the augmented distributed lag (DL) model and the cross-section augmented distributed lag (CS-DL) model. We find significantly positive and negative mean group estimates of human capital and physical capital accumulation on long-run unemployment rate, respectively. These findings are robust to both DL and CS-DL models and to the inclusion of productivity change. However, the effects differ in each country that explains the various dynamics of unemployment rates in the fifteen Asia-Pacific economies.

PHASES OF ECONOMIC DEVELOPMENT IN AN ENDOGENOUS GROWTH MODEL WITH INNOVATION AND EDUCATION

This paper analyzes the transitional dynamics of an endogenous growth model with physical capital, human capital and R&D in which both human capital and innovation drives long run growth. The model suggests that the developing economy follows different stages of development. The first phase is characterized by physical capital accumulation. At the second stage, human capital accumulation represents the main engine of long run growth. The third phase is identified by an increasing variety of intermediate good originating from innovation. However, innovation is not assured for poor economies. In this case, permanent support for innovation can lead a sustainable exit from poverty trap.

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 labor 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.

Economic Effects of Pension Reform based on Consumption Tax

This paper analyzes the micro and macroeconomic effects of pension reform by a consumption tax hike by using an overlapping-generations model that is primarily based on Groezen, Leers and Mejidam (2003). Although Groezen, Leers and Mejidam (2003) consider pay-as-you-go pension in a model of a small open economy, they do not analyze physical capital accumulation, assume that public pension is financed only by the intergenerational transfer of national pension premiums, and ignore consumption tax as a public pension resource. This study considers pay-as-you-go pension in a closed economy model and assumes that public pensions are financed by both consumption taxes and national pension premiums. In addition, although Groezen, Leers and Mejidam (2003) consider a model with endogenous fertility, this analysis uses a model with exogenous fertility based on Verbon (1988) and Breyer (1989). Subsequently, we consider the micro and macroeconomic effects of the policy that increases the consumption tax rate compared to the effects of increases under a national pension system. We find that even if the population growth rate is negative, both a consumption tax hike and increases in people’s national pension premiums surprisingly promote physical capital accumulation, and if promoting physical capital is enough, such policies enhance economic growth remarkably. Furthermore, we show that a consumption tax hike may promote physical capital accumulation compared to an increase in national pension premiums if the consumption tax rate is not too high.

PRODUTIVIDADE DO TRABALHO E CRESCIMENTO ECONÔMICO: EFEITOS DA ACUMULAÇÃO DE CAPITAL FÍSICO E HUMANO NOS MUNICÍPIOS PARANAENSES

The objective of this study is to measure the contribution of the accumulation of physical and human capital on the product per worker of the municipalities of Parana for the period 2006/2015. In addition, municipal public expenditures with physical capital, education and health are included in the analysis, as well as the number of workers by income brackets. Thus, the study covers the effects of education, health, income and physical capital on the productivity of workers. For that, the econometrics of panel data considering the 399 municipalities of Parana State was used. The methodology also consists of tests to identify heteroscedasticity, serial correlation, cross-sectional dependence, and in estimates considering fixed and random effects. The results show that the productivity of the municipalities of Parana is positively impacted: i) by the municipal expenses with physical capital; ii) municipal public health expenditures; iii) accumulation of physical capital in the economy; and, above all, (iv) the accumulation of human capital. However, investments in education negatively influence productivity, because as there is no direct positive contemporary relationship, in the short term they act as a reallocation mechanism of resources from the productive sector to the education sector. Moreover, the increase in the number of workers with remuneration of up to one minimum wage and one to two minimum wages on the total number of workers reduces productivity, while the increase in the participation of workers with remuneration of two to four and four to ten minimum wages increases productivity.

PHYSICAL CAPITAL, HUMAN CAPITAL, AND THE HEALTH EFFECTS OF POLLUTION IN AN OLG MODEL

In a standard overlapping generations model, we show how the health effects of pollution impact the balanced-growth path (BGP) and the transition dynamics of the economy. The key driver is the differential between physical and human capital accumulation. The differential occurs because pollution alters the incentives to save and to invest in education via reductions in longevity and alters the effectiveness of education expenditures via impaired cognitive learning. Two predictions of the model are noteworthy. The first prediction is the existence of two stable BGPs with a separating saddle path. One BGP is desirable featuring high economic growth and low pollution, whereas the other should be avoided because it is associated with low economic growth and high pollution. The second prediction is that economic and environmental cycles may emerge, implying inequality between generations. These theoretical results are supported by empirical evidence and imply a role for government to steer the economy toward the desirable BGP and eliminate the cycles.

Soviet Economic Growth through the Interstate Prism: the Role of Research Funding

The article estimates economic growth factors in the late USSR: research and development (R&D) expenditures along with physical and human capital accumulation as well as institutional and technological dynamics. The USSR results are compared with those of a sample of reference countries with the use of collected statistical data and estimates in the literature and data sets. Developing theoretical ideas by Romer (1990) the authors test a model of the production function which includes R&D expenditures as a source of endogenous growth. To indirectly characterize institutional and general technological dynamics they choose the relevant proxy indicators. The use of these variables within the modified production function is the principal methodological contribution of this research related to the analysis of historical variations of industrial economy development. The model mostly fits Japanese data and somewhat less data on other industrialized countries. The main USSR variables are statistically significant for the period of 1955-1990, but not for the period of 1965-1990. The research findings support the hypothesis that in the mid 1950s – early 1960s Soviet economy had certain prerequisites for transition to endogenous growth model based on R&D and technologies which turned out mostly unrealized. The authors have not found enough evidence to confirm the hypothesis of a decisive role of institutional factors influencing the slowdown growth in the USSR. 

Человеческий капитал и рост региональных экономик

This study examines the contribution of human capital accumulation to regional economic growth using panel data for 82 subjects of the Russian Federation over 2002–2019. This paper aims to test the hypothesis that in the long-run equilibrium there exists a connection between economic growth and human capital accumulation in the regions of Russia. From the point of view of econometrics, it would mean that we should refute the hypothesis that there is no cointegration of time series describing the aforementioned variables. General theoretical framework was drawn from the neoclassical growth theory, and panel data econometrics suggested the appropriate empirical methodology. Pooled mean group and fully modified least squares estimators were applied to an autoregressive distributed lags model based on the Solow model. The results indicate that accumulation of human capital has a positive and statistically significant long-term impact on the rate of growth of per capita income and that these variables are cointegrated. Such calculations allow us to make the following conclusions: per capita GRP is cointegrated with physical and human capital on the regional level. The cointegrating equation ‘explained’ more than 90% of per capita GRP variance. Human capital accumulation had a significant positive impact on per capita GRP growth in the long run; such impact exceeded the impact of physical capital accumulation. The positive impact of human capital accumulation on per capita GRP growth surpassed the negative elasticity of growth GRP by the amount of resource excluded from the real sector to provide support to students and maintain the regional education system. The paces at which regional economies were heading towards the steady state differed which is an evidence that there exist an incredible manifold of ways and means for regions to adjust to disbalancies

Knowledge-based economy: wealth owners portfolio choices and financialisation. A wealth supply analysis

Based on a data and literature analysis as well as autonomous theoretical reasoning and argumentation by the author, the present article discusses the relevance of financialisation and portfolio choice changes under the present phase of development of modern economies. Relying upon the earlier studies by the author which stress that knowledge-based economy can be characterised as a low profitability of investment in physical capital, higher income inequalities, lower physical capital and economic growth rate phase of the development of economic systems, the present work provides variously conceived arguments to support the idea that significant portfolio choice changes by wealth owners are a relevant feature of knowledge-based economy. Some of the implications of the economic theory of the availability of assets other than physical capital and other assets more connected with production needs were thus discussed, pointing out that this leads mainly to the negation of the necessary arrival of mainstream counterbalance mechanisms which support the affirmation of higher physical capital accumulation when higher income inequalities are recorded.