Comparing China and India: A factor accumulation perspective

The remarkable economic transformations in China and India in recent decades have been accompanied by almost equally remarkable different development patterns. For example, the empirical data during 1985–2004 show that, compared with India, China’s economy has exhibited (i) considerably higher rates of physical capital formation; (ii) much higher ratios of measured physical to human capital; and (iii) a more physical-capital-friendly public policy. Motivated by these empirical observations, we study the accumulation of both physical and human capital in a one-sector growth model with a CES production function. After deriving some qualitative implications from the model, we estimate the key technological parameters of the normalized CES production function using the panel data at the provincial level for China and at the state level for India. Our estimation results suggest that our model implications match broadly with the above stylized development patterns regarding China and India.     

THE MECHANICS OF ECONOMIC GROWTH THROUGH CAPITAL ACCUMULATION AND TECHNOLOGICAL PROGRESS*

This study develops a model wherein capital is used in final goods production and research and development (R&D) activities. This arrangement generates changes of the equilibrium capital allocation corresponding to capital endowment, which engenders a regime change from capital based growth with decreasing returns to R&D based perpetual growth. These two growth phases account for the polarization of economies. The model also engenders multiple equilibria on capital allocation—which emerge during the middle stages of capital accumulation—accounting for leapfrogging and the instability of the economic growth of developing countries with medium capital accumulation.     

Phases of economic development and the transitional dynamics of an innovation-education growth model

This paper extends earlier analysis of the transitional dynamics of a growth model in which both human capital and innovation drive income expansion. Funke and Strulik [2000. On endogenous growth with physical capital, human capital and product variety. European Economic Review 44, 491-515] suggest that the typical advanced economy follows three development phases, characterized in a temporal order by physical capital accumulation, human capital formation, and innovation, and that the transitional dynamics of the model reproduce such a sequencing. I argue that other sequences of the phases of development are possible and show that the model can generate a trajectory in which innovation precedes human capital formation. This trajectory accords with the observation that the rise in formal education followed with a considerable lag the process of industrialization. U.S. income and educational time series data are used to corroborate the innovation-education trajectory.     

Social status, human capital formation and super-neutrality in a two-sector monetary economy

In this paper, we study how social status affects the impact of monetary policy on the long-run growth rate in a two-sector monetary economy with human capital accumulation, and find that the super-neutrality of money, with regard to the growth rate of the economy depends on the formation of human capital. In an economy with Lucas-type human capital formation, money is super-neutral; however, for an economy in which both physical and human capital are used as inputs for human capital accumulation, the money growth rate will have a positive effect on the long-run economic growth rate. The existence, uniqueness and saddle-path stability of balanced-growth equilibrium are also examined.     

HUMAN CAPITAL ACCUMULATION,HOME PRODUCTION AND EQUILIBRIUM DYNAMICS*

In this paper, we construct a three‐sector endogenous growth model in which long‐run growth is propelled by human capital accumulation. We show that although the addition of a home sector to the standard two‐sector endogenous growth model preserves the well‐behaved balanced growth equilibrium properties, it generates new transitional dynamics around the balanced growth path. It is shown that, when there is a positive shock to physical capital, our model is more likely to exhibit paradoxical growth than are standard multisector endogenous growth models that exclude home production. Our analysis adds new results to those from the related literature on leisure.     

Education,Innovation and Long‐Run Growth

We extend a second‐generation Schumpeterian growth model to incorporate human capital accumulation to clarify the general equilibrium effects of subsidy policies on human capital accumulation and R&D activities in a unified framework. Despite the conventional argument that subsidies always stimulate these growth‐promoting activities, we find that subsidies asymmetrically affect human capital accumulation and R&D activities. Our theoretical results suggest that research using standard models of human capital might find false negative relationships between education subsidies and economic growth.     

HUMAN CAPITAL AND CONVERGENCE: A PRODUCTION‐FRONTIER APPROACH*

Using nonparametric, production‐frontier methods, we decompose labor productivity growth into components attributable to technological change (shifts in the world production frontier), technological catch‐up (movements toward or away from the frontier), and physical and human capital accumulation (movements along the frontier). We find that (1) technological change is decidedly nonneutral, (2) productivity growth is driven primarily by physical and human capital accumulation, (3) the increased international dispersion of productivity is explained primarily by physical capital accumulation, and (4) international polarization (the shift from a unimodal to a bimodal distribution) is brought about primarily by efficiency changes (technological catch‐up).     

Experiencing change and the evolution of adaptive skills: Implications for economic growth

We distinguish learning in a static environment from that in a dynamic environment to show the existence of an important interaction between the development of new technologies and human capital accumulation. Because technological progress creates a more dynamic environment, it complements education in the production of human capital by enhancing adaptive skills. Higher levels of adaptability and human capital in turn determine the profitability of new inventions and the incentive to invest in new R&D. Differences in the history of technological progress produce different levels of adaptability and our results suggest why countries that have comparable levels of education and per capita incomes may differ significantly in their growth performance.     

Human Capital and Overinvestment in R&D*

We introduce a negative effect of technological development on human capital accumulation in a growth model with endogenous innovation and accumulation of human capital. This implies a negative externality of R&D in human capital accumulation. Some calibration exercises suggest that this distortion may be sufficiently strong not only to offset the usual effects of spillovers and of returns to specialization but also to induce overinvestment in R&D.     

Output Growth Decomposition in the Presence of Input Quality Effects: A Stochastic Frontier Approach

How do physical capital accumulation and total factor productivity (TFP) individually add to economic growth? We approach this question from the perspective of the quality of physical capital and labor, namely the age of physical capital and human capital. We build a unique dataset by explicitly calculating the age of physical capital for each country and each year of our time frame and estimate a stochastic frontier production function incorporating input quality in five regions of countries (Africa, East Asia, Latin America, South Asia and West). Physical capital accumulation generally proves much more important than either the improved quality of factors or TFP growth in explaining output growth. The age of capital decreases growth in all regions except in Africa, while human capital increases growth in all regions except in East Asia.     

Characterizing the sustainability problem in an exhaustible resource model

We provide a general condition under which consumption can be sustained indefinitely bounded away from zero in the continuous time Dasgupta–Heal–Solow–Stiglitz model, by letting augmentable capital substitute for a non-renewable resource. The assumptions made on the production function are mild, thus generalizing previous work. By showing that Hartwick?s rule minimizes the required resource input per unit of capital accumulation, and integrating the required resource input with respect to capital, we obtain a complete technological characterization without reference to the time path. We also use the characterization result to establish general existence of a maximin path.     

FACTOR SUBSTITUTION,MECHANIZATION, AND ECONOMIC GROWTH

This paper tries to explain the polarization of economic growth through mechanization. We derive a complementary relationship between capital accumulation and mechanization. While we assume an external effect that occurs as a result of mechanization, given the external effect, mechanization yields a constant‐elasticity‐of‐substitution production function in which the elasticity‐of‐substitution is greater than unity as the envelope of Cobb–Douglas production functions. When mechanization is difficult, which implies a low value for the elasticity‐of‐substitution, and the external effect is weak, there is potential for multiple steady states to exist.     

TECHNOLOGICAL CHANGE,HUMAN CAPITAL STRUCTURE,AND MULTIPLE GROWTH PATHS*

This paper presents a theoretical model to analyze the effects of technology change on growth rates of income and human capital in the uncertain environments of technology. The uncertainty comes from two sources: the possibility of a technology advance and the characteristics of new technologies. We set up an overlapping generations model in which young agents invest in both width and depth of human capital in order to adopt new technologies. The model develops explicitly the micro‐mechanism of the role of human capital in adopting new technologies as well as that of the process of human capital production in the uncertain environments. In our model, a higher level of width of human capital relative to the level of depth leads one country to a higher growth path. We also show that an economy can have different growth paths depending on the initial structure of human capital and the uncertainty about the nature of new technologies. In particular, new technologies with more uncertain characteristics may adversely affect human capital accumulation and income growth, leading the economy to a low growth trap.     

Trade liberalization and economic growth: a case study of Iran

We estimate the impact of trade liberalization and physical and human capital accumulation on Iran’s economic growth during the period 1959?2007. Using co-integration techniques and a vector error correction model, we find a unique long-run relationship between economic growth and its major determinants. These determinants include the physical and human capital stock, the labor force, real non-oil exports, and import tariffs. In addition, the short-term error correction dynamics analysis suggests that trade liberalization has a significant long run positive role in dynamic of growth. Our results support the view that the integration of the Iranian economy with the world economy is undoubtedly welfare improving.     

Are prior restrictions on factor shares appropriate in growth accounting estimations?

Several studies make different prior assumptions on the magnitude of factor shares and scale of production when accounting for economic growth. The initial Solow estimations for instance assumed a capital share of 0.3 and constant returns to scale. Most authors have subsequently used the same restrictions just because they were used in previous studies even when production in the countries under study may not necessarily be taking place under constant returns to scale and capital share may be a value not any close to 0.3. This is likely to distort growth accounting estimation results. This study investigates whether these prior restrictions on factor shares and scale of production as commonly used in the literature are appropriate and whether the Solow assumptions are likely biased even in developed countries. Using Kenyan data and structural vector autoregressions, the main findings are; first, in all cases of the unrestricted estimations, the share of physical capital is less than 0.16. An estimation which imposes 0.3 as the share of physical capital in this case would therefore not be in line with the data generating process leading to biased results. Secondly, in all cases, the explanatory power of the model decreases when the restrictions are imposed implying that the restrictions are not appropriate in growth accounting exercises. The paper further disputes the “styled fact” in growth studies that the Solow assumptions may be relevant for developed countries but not developing countries and concludes that the Solow assumptions may be biased even in developed countries.     

Government spending and growth in second-best economies

This paper extends public spending-based growth theory along three directions: we assume a logistic trajectory for the ratio of government expenditure to aggregate income, self-limiting population change, and exogenous technological progress. By focusing on the choices of a benevolent social planner we find that, if the inverse of the intertemporal elasticity of substitution in consumption is sufficiently high, the ratio of consumption to private physical capital converges towards zero when time goes to infinity. Depending on the form of the underlying aggregate production function and on whether, for given production function, technological progress equals zero or a positive constant, our model may or may not yield an asymptotically balanced growth path (ABGP) equilibrium. When there is no exogenous technological progress, an equilibrium where population size, the ratio of government spending to aggregate income and the ratio of consumption to private physical capital are all constant does exist and the equilibrium is a saddle point. In case of positive technological progress numerical simulations show that the model still exhibits an ABGP equilibrium.     

The role of Provincial Government Spending Composition in growth and convergence in China

China’s development policy since 1978 has differed across regions. With rapid aggregate growth has come widening regional inequality. The fiscal decentralisation reforms in 1994 shifted political pressure onto provincial officials to boost local growth through local public investments. These investments affect regional convergence by counteracting regulatory frictions in factor accumulation, and can also determine steady-state growth. However, the effect of public spending allocations across physical and human capital on growth and convergence processes is empirically unexplored for Chinese provinces. We take provincial time-series data on public spending by category, finding local public spending and its components augment convergence rates differently across regions. Spending on education and health contributes significantly more to growth and convergence than capital spending, confirming that the public capital-spending bias is not a local growth-optimising strategy. We suggest a policy of aligning local government promotion incentives to human capital targets to correct local resource misallocation.     

Human capital and economic development

This paper develops a general equilibrium model of fertility and human capital investment with young adult mortality. Because young adult mortality is negatively related to average young adult human capital, human capital accumulation lowers mortality, inducing demographic transition and industrial revolution. Data confirm that young adult mortality is related negatively to schooling, and the rate of return to schooling, and positively to fertility. The data indicate a negative relationship between TFP growth and schooling accumulation. The model fits the data on country populations, per capita incomes, human capital, total fertility rates, infant mortality, life expectancy and conditional life expectancy.     

Factor Substitution, Income Distribution and Growth in a Generalized Neoclassical Model

Abstract. We analyze a generalized neoclassical growth model that combines a normalized CES production function and possible asymmetries of savings out of factor incomes. This generalized model helps to shed new light on a recent debate concerning the impact of factor substitution and income distribution on economic growth. We show that this impact relies on both an efficiency and a distribution effect, where the latter is caused by the distributional consequences of an increase in the elasticity of substitution. While the efficiency effect is always positive, the sign of the distribution effect depends on the particular savings hypothesis. If the savings rate out of capital income is substantial so that a certain threshold value is surpassed, the efficiency effect dominates and higher factor substitution accelerates the accumulation of capital and works as a major engine of growth.     

PRIVATE AND PUBLIC EDUCATION: HUMAN CAPITAL ACCUMULATION UNDER PARENTAL TEACHING*

This paper examines a simple overlapping generations model of human capital accumulation under both the public and private education regimes. Both young individuals and their parents allocate time to human capital accumulation. Under the public education regime, the government collects tax to finance expenditure for education resources. We show that there exists a level of tax which maximizes the speed of human capital accumulation because of parental teaching; and, if the government chooses tax rates adequately, human capital grows faster and welfare levels become higher under the public education regime than under the private.