Public Investment and Economic Growth in Latin America: an Empirical Test

The paper analyzes the impact on economic growth of public investment spending and other relevant variables (such as human capital) for nine major Latin American nations over the 1983–93 period. The results suggest that both public and private investment spending contribute to economic growth. Overall central government consumption expenditures, on the other hand, are found to have a negative effect on private investment and growth. Finally, public expenditures on education and healthcare are found to have a positive and statistically significant effect on private capital formation and long–term economic growth. From a policy standpoint, the results suggest that indiscriminate cuts in public and private investment spending are likely to be counterproductive in the long run, and more importantly, scarce public expenditures should be channeled to the promotion of new human capital (via primary and secondary education) and the maintenance of existing human capital (through healthcare expenditures).     

Monetary–fiscal interactions with endogenous liquidity frictions

I develop a tractable macro model with endogenous asset liquidity to understand monetary–fiscal interactions with liquidity frictions. Agents face idiosyncratic investment risks and meet financial intermediaries in competitive search markets. Asset liquidity is determined by the search friction and the cost of operating the financial intermediaries, and it drives the financing constraints of entrepreneurs (those who have investment projects) and their ability to invest. In contrast to private assets, government bonds are fully liquid and can be accumulated in anticipation of future opportunities to invest. A higher level of real government debt enhances the liquidity of entrepreneurs׳ portfolios and raises investment. However, the issuance of debt also raises the cost of financing government expenditures: a higher level of distortionary taxation and/or a higher real interest rate. A long-run optimal supply of government debt emerges. I also show that a proper mix of monetary and fiscal policies can avoid a deep financial recession.     

The Effects of Future Capital Investment and R&D Expenditures on Firms' Liquidity

The paper explores factors that lead to accumulation or decumulation of firms' cash reserves. In particular, the paper empirically examines whether additional future fixed capital and R&D investment expenditures induce firms to change their liquidity ratio while considering the role of market imperfections. Implementing a dynamic framework on a panel of US, UK, and German firms, it is found that firms in all three countries make larger adjustments to cash holdings when they plan additional future R&D rather than fixed capital investment expenditures. This behavior is particularly prevalent among financially constrained firms.     

Liquidity default,liquidity management and smooth dividends policy

Our article models liquidity financing constraints with the real options framework. By conducting a comprehensive investigation of the effects of shocks to liquidity constraints on the firm’s optimal investment, financing and dividend policies, our model highlights the importance of liquidity management and extends the liquidity management approach to hedge liquidity default risk. We find that being concerned about liquidity default risk will significantly change a firm’s behaviours, including those related to investment and the optimal capital structure. A firm that is concerned about its liquidity default risk will become more cautious: it will choose to delay investment and have higher leverage when internal liquidity is very low, but choose earlier investment and lower leverage when liquidity is high enough. The dividends policy can alleviate risks from both the external market and internal project volatility and provides an alternative explanation for the ‘smooth dividends policy puzzle’ commonly reported in empirical research.     

Intergenerational transfer,human capital and long-term growth in China under the one child policy

We suggest that the demographic changes caused by the one child policy (OCP) may not harm China's long-term growth. This is because of the higher human capital accumulation induced by the intergenerational transfer arrangements under China's poor-functioning formal social security system. Parents raise their children and depend on them for support when they reach an advanced age. A decrease in the number of children prompted by the OCP results in parents investing more in their children's education to ensure retirement consumption. In addition, decreased childcare costs strengthen educational investment through an income effect. Using a calibrated model, a benchmark with the OCP is compared to three counterfactual experiments without the OCP. Output in 2025 without OCP decreases about 4% under moderate estimates. The output gain comes from a greatly increased educational investment driven by fewer children (11.4 years of schooling rather than 8.1). Our model sheds new light on the prospects of China's long-term growth by emphasizing the OCP's growth enhancing role through human capital formation under intergenerational transfer arrangements.     

Does Population Aging Hinder the Accumulation of Human Capital? Evidence from China

There is no consensus on the impact of population aging on education investment. To explore this question, we first build an overlapping generations (OLG) model to theoretically analyze the effect of population aging on human capital investment in China, and then test our theory by conducting an empirical study based on micro household data. We find the following. (1) Theoretically, the OLG model shows that population aging has a crowding-out effect on education investment. (2) Empirically, the results show that the share of education and training expenditures decreases by 5.27 percentage points as the ratio of old people in the household increases by 100 percentage points, which confirms the crowding-out effect of population aging on human capital investment. (3) The crowding-out effect is far more intense on urban households than on rural households since health care expenditures will be greater in urban areas as population aging increases. (4) A quantile regression indicates that the negative effect of population aging on the share of educational expenditure is concentrated in households with higher shares of education expenditures. We confirm the robustness of our results using regional fixed effect and instrumental variable (IV) regressions.     

Resource constraints and educational attainment in developing countries: Colombia 1945–2005

In this paper, I investigate the extent to which secondary and higher education supply constraints affected aggregate educational attainment in Colombia for cohorts born between 1945 and 1981. As was the case in many other countries after World War II, in Colombia, industrialization, urbanization and rapid population growth increased the demand for education and the return to schooling. Although educational expenditures from the central government and the states increased after the 1950s, secondary and tertiary schools' per-pupil inputs declined. Using variation in cohort size within states and over time to proxy for changes in education demand, I find that for cohorts born after 1945, a 10% increase in cohort size reduced high school completion rate by 3%, the college completion rate by 4% and average years of schooling by 1%. Compared to women's educational attainment rates, changes in cohort size had greater negative effects on men's rates.     

What determines public education expenditures in Russia?1

Recent studies suggest that the allocation of expenditures in education is important for growth. The state of public education spending in many transition economies highlights the need for an assessment of the nature of education expenditures in these countries. This paper attempts to fill this gap in the literature by estimating the determinants of education expenditures in the Russian Federation. Results from panel data analysis show that revenue and the student‐population ratio have a positive impact on education expenditures while the effect of population density is negative. Three regional variables also show significant impact. The income and price elasticity of public education expenditures are estimated to be 0.57 and ?0.18, respectively, a result comparable to studies from other countries. The results presented here provide insight into how fiscal institutions and the structure of the political process in Russia may affect the degree of resource allocation in the educational sector during the transition process.     

货币流动性过剩、噪声交易与资产价格波动

流动性过剩与投资者主体行为是影响资产价格波动的两个重要因素,通过将流动性过剩引入噪声交易模型,并在此基础上结合我国资本市场运行情况进行了分阶段的实证检验,发现我国长期存在流动性过剩现象,在资本市场平稳运行期间,流动性过剩与资产价格保持协整关系,而在资本市场过度波动时期,这种协整关系消失了,投资主体的行为特征成为这一时期资产价格的主导因素。从2000年至今的整个样本时期来看,流动性过剩并不必然导致资产价格上涨,但却对资产价格有潜在的冲击和抬升作用,因此是资产价格上涨的充分非必要条件。     

THE TREATMENT OF EDUCATION IN NATIONAL ACCOUNTING1

It is argued that the conventions of an accounting system, such as the S.N.A., are a matter of convenience. The treatment of education as a current expenditure, instead of as a form of capital formation, derives from the Keynesian system, and is not appropriate for dynamic problems of developing countries, where weaknesses in education are often the main “bottleneck” in the process of development. In such countries, expenditure on education clearly yields its benefits mainly in the longer run. To treat this as a consumption item biases policy in the direction of using financial resources for fixed capital rather than human investment, and may cause aid agencies to penalize countries which expand their educational systems. A similar problem arises on other expenditures such as health, but the case for treating them as investment is not so strong. To treat educational expenditure as part of capital formation logically requires two major changes. First education needs to be removed from private and public consumption, and for this purpose a fairly broad definition of what is education should be used. Secondly, the stock of educational capital should be valued. The valuation problems are, however, severe. Variations in cost components make historic cost of little value as a yardstick, and calculations of future returns are fraught with difficulties. Using replacement costs, which seems the best method, involves the construction of education profiles in physical terms which can then be valued by present or by standardised costs. The depreciation of human capital through mortality and retirement can be allowed for by applying national average rates to these physical profiles. Switching educational expenditure from current to capital accounts involves no serious practical problem. However, although there should logically be an allowance for depreciation on human capital, this is not recommended; single monetary measures of educational stock are not very meaningful, and this would involve changing the definition of “net” aggregates. Development of statistics of educational stocks and flows in physical terms—the beginnings of “demographic accounting” fully integrated with the rest of national accounting—is strongly advocated.     

“Interest Rate Trap”, or Why Does the Central Bank Keep the Policy Rate Too Low for Too Long?

In this paper, we provide a framework for modeling one risk‐taking channel of monetary policy, the mechanism whereby financial intermediaries' incentives for liquidity transformation are affected by the central bank's reaction to a financial crisis. The anticipation of the central bank's reaction to liquidity stress gives banks incentives to invest in excessive liquidity transformation, triggering an “interest rate trap” – the economy will remain stuck in a long‐lasting period of suboptimal, low interest rate equilibrium. We demonstrate that interest rate policy as a financial stabilizer is dynamically inconsistent, and the constrained efficient outcome can be implemented by imposing ex ante liquidity requirements.     

Child endowments and parental investments: Intra‐household allocation in oportunidades families in Mexico

This paper estimates a family fixed‐effects model to test whether parental educational investments are reinforcing or compensating differences in child height and body mass index (BMI) within Oportunidades households. The results indicate that allocations are not made in response to endowment differences in isolation, but depend on the interaction of child endowment, gender, and beneficiary status. Moreover, investments are made so as to counterbalance efficiency and equity considerations: widening differences in height but closing gaps in BMI, where both strategies maximize returns given the earnings–endowment function for height and BMI in Mexico. Finally, household socio‐economic status matters. Thus, discriminatory responses within the better‐off urban beneficiary households are smaller. In contrast, indigenous beneficiary households, which have the lowest average endowment z‐scores and fraction spent on education, see the largest differences in educational outlay between child subgroups. While the economic effects seem small, these are measured relative to the mean of the base category. In some cases, then, parents are dedicating nearly a quarter of all expenditures to education for a standard deviation increase in endowment over mean sibling endowment. Hence, it seems that the success of the Oportunidades program in improving overall human capital formation may be masking rising inequalities within recipient households.     

FUNCTIONAL ESTIMATES OF JAPANESE GOVERNMENT DOMESTIC EXPENDITURES, FISCAL 1952–1963

The purpose of the paper is to describe current and constant price estimates of Japanese central and local government postwar domestic expenditures by economic type and function recently completed by Miss Yoshiko Kido, International Christian University, Tokyo, and myself. The rationale of the functional classification is to estimate those government expenditures which enhance the economy's productive capacity. Expenditures are divided into four broad functional categories: developmental, disaster repair and prevention, social welfare, and general government. These four categories are subdivided to two levels of disaggregation. We were able to break down government fixed investment, government enterprise inventory investment, current domestic transfers and subsidies into 42 functional components. For constant price series, each functional component by economic type was deflated by separate price indexes. We followed the Economic Planning Agency's procedure for the official national accounts of assuming no productivity change in the provision of government services. Our results are generally comparable to the official national accounts estimates. The major difference is that we attribute considerably more fixed investment to local governments, and correspondingly less to the central level. Government expenditures had the following characteristics. Growth was rapid; in real terms the public sector use of the economy's resources in 1963 was 2.2 times more than in 1952. The elasticity of government expenditures to GNP was unity in current prices, slightly less in real terms. The government postwar share in GNP has been smaller than in European nations and, unlike them, was not rising. This reflects the underlying growth strategy of emphasis upon private business fixed investment. Government consumption expenditures declined relative to GNP, and investment rose. Developmental expenditures comprised the largest share (40–45 per cent) of the government total. The elasticities to GNP of government expenditures by economic and functional categories are provided and discussed. A simple test was made of the cyclical relationship of government expenditures (both total and by category) to GNP. The results suggest that government expenditures, rather than contra-cyclical, were pro-cyclical in effect.     

货币需求弹性、有效货币供给与货币市场非均衡模型——解析“中国之谜”与长期流动性过剩

中国的流动性过剩相对于其他经济发达国家更为严重,不但是由于产业结构升级和对外开放度上升而导致的过度货币需求,而且是因为不良贷款引发的货币供给有效性减弱。缓解流动性过剩必须从经济转型时期的货币需求弹性、有效货币供给以及货币市场非均衡等多个方面寻找对策。     

我国居民家庭子女教育投资动机的经济学分析

我国城市居民家庭在子女教育投资方面,一般会受到流动性约束的影响,并且父母的当期收入会影响到对子女当期教育的投资;父母对于子女教育投资的动机主要符合贷款合同模型,即父母对于子女的教育投资是暗含后期回报的合同,这一合同主要通过家庭的某种内在机制和社会道德标准来执行的.基于这样的结论,笔者认为,为扩大父母对子女教育方面的合理投资,国家应该建立健全教育方面的金融渠道,提供符合我国国情的教育贷款或保险,使父母对子女的教育的投资更加平滑.     

Do liquidity constraints generate excess sensitivity in consumption? New evidence from a sample of post-bankruptcy households

Previous work linking liquidity constraints to excessive consumption sensitivity have used household level information on wealth and assets to split the sample into households that are likely to be constrained from those with access to credit and liquidity. In this paper, we use the sample splitting methods of previous authors but refine the criteria by using direct information on whether the household filed for bankruptcy in the last 10 years. Legally, a flag can appear on a bankruptcy filer’s credit report for up to 10 years after bankruptcy. This bankruptcy flag affects an individual’s credit score, and therefore the individual’s access to credit, which may make post-bankruptcy consumers liquidity constrained. Our results indicate that post-bankruptcy consumers exhibit excess sensitivity likely due to the bankruptcy flag. Consistency checks confirm that the source of sensitivity is due to liquidity constraints and not other observationally equivalent behavior.     

货币需求弹性、有效货币供给与货币市场非均衡模型——解析"中国之谜"与长期流动性过剩

Chinese excessive liquidity problems are more serious than other main countries. The upgrading industrial structure and the increasing opening degree lead to the excessive money demand and higher money demand elasticity. Bad credits weaken money supply effectiveness and lead to illusive increasing money. We set up the money market disequilibrium model under the condition of the excessive liquidity. The imbalance between money demand and money supply is the key of Chinese excessive liquidity problems. __________ Translated from Jingji lilun yu jingji guanli 经济理论与经济管理(Economic Theory and Business Management), 2007, (11): 38–44     

Multiple equilibria arising from donor’s aid policy in economic development

This paper presents a neoclassical growth model comprising education and child labor with a focus on developing and aid-receiving countries to demonstrate cyclical growth and bifurcation in economic development. The appearance of multiple equilibria has often been attributed to the internal affairs of recipient countries, such as technology in production, subsistence minimum in consumption, and liquidity constraints in investment. The main argument of this paper is that the aid allocation policy employed by donor countries, thereby the motive of aid-providers, leads to divaricated and cyclical development in the recipient countries.     

Endogenous Sunk Costs, Flexible Manufacturing and the Productivity Effects of International Trade

The paper addresses the productivity effects of international trade in the presence of flexible manufacturing and endogenous sunk costs (cost-reducing R&D). It shows that international trade raises R&D expenditures, but this will not necessarily boost productivity because of possibly counteracting market structure effects. The analysis is conducted in general equilibrium so that implications for real wages and welfare can also be addressed. Both can fall when trade leads to excessive R&D investment.     

Women's education and economic well-being

Evidence across regions in the world reveals patterns in school enrollment ratios and literacy that are divided along gender lines. In the developing world, apart from most countries in Latin America and the Caribbean, enrollment ratios of girls lag behind those for boys at all levels of education. Worldwide literacy rates for adult men far exceed those for women. While educational progress has been enjoyed by both sexes, these advances have failed to eradicate the gender gap. Education enhances labor market productivity and income growth for all, yet educating women has beneficial effects on social well-being not always measured by the market. Rising levels of education improve women's productivity in the home which in turn can increase family health, child survival, and the investment in children's human capital. The social benefits from women's education range from fostering economic growth to extending the average life expectancy in the population, to improving the functioning of political processes. This paper reviews recent empirical research that analyzes the benefits of women's education, describes the importance of women's education for country-level measures of economic development, and examines the implications of a gender gap in education for aggregate social well-being.