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Human capital, equipment investment, and industrialization

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  • Temple, Jonathan
  • Voth, Hans-Joachim

Abstract

This paper constructs simple models in which industrialization is driven by human capital accumulation. Industrialization can explain the robust correlation between equipment investment and growth in developing countries. We show that government intervention is justified within our stylized model, and indicate that a subsidy to equipment investment is likely to be dominated by other policies. In the final section of the paper, we examine the correlation between equipment investment and growth, and find that it is strongest in economies on the brink of industrialization. We also show that this result is not easily explained by diminishing returns.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 42 (1998)
Issue (Month): 7 (July)
Pages: 1343-1362

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Handle: RePEc:eee:eecrev:v:42:y:1998:i:7:p:1343-1362

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References

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  1. Romer, Paul M, 1996. "Why, Indeed, in America? Theory, History, and the Origins of Modern Economic Growth," American Economic Review, American Economic Association, vol. 86(2), pages 202-06, May.
  2. J. Bradford DeLong & Lawrence H. Summers, 1992. "Equipment Investment and Economic Growth: How Strong Is the Nexus?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 157-212.
  3. De Long, J Bradford & Summers, Lawrence H, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 445-502, May.
  4. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 537-64, August.
  5. Marvin Goodfriend & John McDermott, 1994. "Early development," Working Paper 94-02, Federal Reserve Bank of Richmond.
  6. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  7. Alan J. Auerbach & Kevin A. Hassett & Stephen D. Oliner, 1992. "Reassessing the social returns to equipment investment," Working Paper Series / Economic Activity Section 129, Board of Governors of the Federal Reserve System (U.S.).
  8. John Page, 1994. "The East Asian Miracle: Four Lessons for Development Policy," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 219-282 National Bureau of Economic Research, Inc.
  9. Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
  10. De Long, J. Bradford, 1992. "Productivity Growth and Machinery Investment: A Long-Run Look, 1870–1980," The Journal of Economic History, Cambridge University Press, vol. 52(02), pages 307-324, June.
  11. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  12. James G. MacKinnon & Halbert White, 1983. "Some Heteroskedasticity Consistent Covariance Matrix Estimators with Improved Finite Sample Properties," Working Papers 537, Queen's University, Department of Economics.
  13. Matsuyama, Kiminori, 1992. "The market size, entrepreneurship, and the big push," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 347-364, December.
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Citations

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Cited by:
  1. Uwe Dulleck & Neil Foster, 2007. "Imported Equipment, Human Capital and Economic Growth in Developing Countries," NCER Working Paper Series 16, National Centre for Econometric Research.
  2. Temple, Jonathan & Woessmann, Ludger, 2006. "Dualism and Cross-Country Growth Regressions," CEPR Discussion Papers 5655, C.E.P.R. Discussion Papers.
  3. Dessy, Sylvain & Mbiekop, Flaubert & Pallage, Stéphane, 2010. "On the mechanics of trade-induced structural transformation," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 251-264, March.
  4. Giorgia Barboni & Tania Treibich, 2010. "On the Latin American Growth Paradox: A Hindsight into the Golden Age," LEM Papers Series 2010/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  5. der Beek, Karine van, 2010. "The effects of political fragmentation on investments: A case study of watermill construction in medieval Ponthieu, France," Explorations in Economic History, Elsevier, vol. 47(4), pages 369-380, October.
  6. Carlos Esteban Posada & Jorge Andres Tamayo, . "La transición hacia una economía urbana y el aumento del producto per cápita: el caso colombiano del siglo XX desde la perspectiva de Lucas," Borradores de Economia 534, Banco de la Republica de Colombia.
  7. Pedro Lains, 2008. "The Portuguese Economy in the Irish Mirror, 1960–2004," Open Economies Review, Springer, vol. 19(5), pages 667-683, November.
  8. Temple, Jonathan, 1999. "A positive effect of human capital on growth," Economics Letters, Elsevier, vol. 65(1), pages 131-134, October.
  9. Tiago Neves Sequeira, 2003. "Human Capital Composition, Growth and Development in an R&D Endogenous Growth Model," Macroeconomics 0310015, EconWPA.
  10. Maria Herrerias, 2010. "The causal relationship between equipment investment and infrastructures on economic growth in China," Frontiers of Economics in China, Springer, vol. 5(4), pages 509-526, December.
  11. Kathavate, Jay, 2013. "Direct & Indirect Effects of Aid Volatility on Growth: Do Stronger Institutions Play a Role?," MPRA Paper 45187, University Library of Munich, Germany.
  12. M. Herrerias & Vicente Orts, 2012. "Equipment investment, output and productivity in China," Empirical Economics, Springer, vol. 42(1), pages 181-207, February.
  13. Maloney, William F. & Caicedo, Felipe Valencia, 2014. "Engineers, Innovative Capacity and Development in the Americas," Policy Research Working Paper Series 6814, The World Bank.

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