SECCION CARTELES PAGADOS
TÍTULOS SUPLETORIOS
Economic growth can also come from adding more capital and labour inputs. Solow (1962a) argues that increased rates of capital investment can only temporarily increase economic growth rates, through an increase in the capital-labour ratio. However, the marginal product of additional units of capital may tend to suffer from diminishing returns, and the economy responds in the long-run by an increased dependence on the growth and efficiency of the workforce (Solow, 1962a). The neoclassical growth theory posits that long-run economic growth requires increased supplies of labour and higher levels of productivity of labour and capital. This section will survey those empirical studies that conversely argue that only
investments in capital and labour are necessary for long-run economic growth, not the pace of productivity.
Turner, Tamura, and Mulholland (2013) found evidence most of output growth is accounted for by the accumulation of capital and labour, rather than 𝑇𝑇𝑇𝑇𝑇𝑇 for states in the United States during 1840 to 2000. Their cross-state examination of levels of factor accumulation and efficiency of factor inputs for output growth, used per worker estimates of human capital, physical capital, land and each state’s income and capital stocks. Turner et al. (2013) were basing their arguments on neoclassical perspectives, while adopting an endogenous AK model approach. They conducted an AK growth accounting approach using levels and not growth
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rates to calculate 𝑇𝑇𝑇𝑇𝑇𝑇, like Solow, but arrived at different conclusions regarding the relative importance of 𝑇𝑇𝑇𝑇𝑇𝑇 as a driver of output growth. Their model used a
composite measure of capital (physical and human capital) to explain cross-state differences in output levels. Turner et al. (2013) maintained that their results suggest that factor accumulation is a greater contributor to economic growth rates than the mobility of capital and labour, common institutions, language, currency and trade policy. Empirical results from both Turner et al. (2013) and Yalcinkaya et al. (2017) may be misleading as their composite measure of capital, ignores the level of labour-augmenting 𝑇𝑇𝑇𝑇𝑇𝑇 that elevates the efficiency of labour, derived from the investment in education, skills and knowledge.
More recently Aguiar et al. (2017) found evidence to suggest that
differences in factor accumulation amongst OECD and emerging countries are more critical than differences in changes to 𝑇𝑇𝑇𝑇𝑇𝑇 for explaining cross-country variations in economic performance. Their model decomposed the determinants of economic growth to estimate why some countries are richer than others (Aguiar et al., 2017). Their model included GDP per worker, human capital per worker formulated using data on the average years of schooling for the working-age population and rates or return associated with different years of education, capital stock per worker
calculated by dividing capital stock at current PPPs by inter alia the number of workers, patents and regulations. Though it is difficult to reconcile why they have not considered the investment in skills and knowledge required to increase the productivity of labour stock. This disparate model may provide inconsistent results, both from the large number of variables and the estimation of human capital as opposed to labour stocks, without taking account of the productivity of human capital as opposed to the productivity of labour stock. Accounting for human capital and 𝑇𝑇𝑇𝑇𝑇𝑇 may involve measurement errors as both measures may consider the heterogeneity of the labour force and the impact of investment in education, investment in training and skills acquisition.
Similarly, Hofman et al. (2017) found evidence that capital plays a critical role in GDP growth for their sample of Latin American and Caribbean economies. They found that 𝑇𝑇𝑇𝑇𝑇𝑇’s contribution to output growth was negative and pro-cyclical, exhibiting positive characteristics only in countries with high GDP growth. They suggest that there is a positive covariance association between capital and
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productivity and argue that increases in capital generates higher 𝑇𝑇𝑇𝑇𝑇𝑇 (Hofman et al., 2017). They also argued that it is a mistake to associate 𝑇𝑇𝑇𝑇𝑇𝑇 with only
technological progress. They adopted a purely neoclassical approach and consider 𝑇𝑇𝑇𝑇𝑇𝑇 as a measure of the changes in production over and above what can be explained by capital and labour (Hofman et al., 2017). These changes in production levels can be the result of: technical innovations, organisational or institutional changes, demand fluctuations, changes in allocation of capital and labour, scale effects and changes in the intensity of labour as well as measurement errors (Hofman et al., 2017).
The results of Hofman et al. (2017) suggest that economic performance is driven by firms expanding their maximum production possibilities through increased investment in factor accumulation. However, they do find some evidence that during a ‘boom-period’ from 2003 to 2008 𝑇𝑇𝑇𝑇𝑇𝑇 may have been positive and statistically significantly associated with economic growth in their sample of 23 countries in the Latin American and Caribbean region. During this ‘boom-period’ they found evidence that the high economic growth rates were associated with positive 𝑇𝑇𝑇𝑇𝑇𝑇 levels, suggesting that 𝑇𝑇𝑇𝑇𝑇𝑇 may exhibit procyclical behaviour in response to the slowly responsive capital (Hofman et al., 2017). They go further to suggest that in periods of low economic growth increased levels of ‘idle’ capacity will tend to show up in decreased levels of productivity in their sample. They also argue that the low economic performance of the economies in their sample, could be associated with slower accumulation and the misallocation of productive resources across firms or industries (Hofman et al., 2017).