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Capital, Wages, and Growth: Theory and Evidence

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  • Antonio Ciccone
  • Giovanni Peri
  • Douglas Almond

Abstract

Returns to scale to capital and the strength of capital externalities play a key role for the empirical predictions and policy implications of different growth theories. We show that both can be identified with individual wage data and implement our approach at the city-level using US Census data on individuals in 173 cities for 1970, 1980, and 1990. Estimation takes into account fixed effects, endogeneity of capital accumulation, and measurement error. We find no evidence for human or physical capital externalities and decreasing aggregate returns to capital. Returns to scale to physical and human capital are around 80 percent. We also find strong complementarities between human capital and labor and substantial total employment externalities.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 152.

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Handle: RePEc:igi:igierp:152

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  1. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S71-102, October.
  2. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  3. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 54-70, March.
  4. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  5. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 92-96, May.
  6. Glaeser, Edward L & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1992. "Growth in Cities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(6), pages 1126-52, December.
    • Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  7. Moretti, Enrico, 2004. "Human capital externalities in cities," Handbook of Regional and Urban Economics, Elsevier, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 51, pages 2243-2291 Elsevier.
  8. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(3), pages 779-804, August.
  9. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 1127-70, November.
  10. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  11. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
  12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  13. Esther Vaya Valcarce & Enrique Lopez Bazo & Manuel Artis Ortuno, 1998. "Growth, convergence and (why not?) regional externalities," Working Papers in Economics, Universitat de Barcelona. Espai de Recerca en Economia 31, Universitat de Barcelona. Espai de Recerca en Economia.
  14. James E. Rauch, 1991. "Productivity Gains From Geographic Concentration of human Capital: Evidence From the Cities," NBER Working Papers 3905, National Bureau of Economic Research, Inc.
  15. Etsuro Shioji, 1997. "Convergence in panel data: Evidence from the skipping estimation," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 235, Department of Economics and Business, Universitat Pompeu Fabra.
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Citations

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Cited by:
  1. Ciccone, Antonio & Peri, Giovanni, 2000. "Human Capital and Externalities in Cities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2599, C.E.P.R. Discussion Papers.
  2. Mori Mori, Tomoya & Turrini, Alessandro Antonio, 2000. "Skills, Agglomeration and Segmentation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2645, C.E.P.R. Discussion Papers.
  3. Esteban Sanroma Melendez & Raul Ramos Lobo, 2001. "Capital humano local y productividad en las provincias espanolas," Working Papers in Economics, Universitat de Barcelona. Espai de Recerca en Economia 71, Universitat de Barcelona. Espai de Recerca en Economia.
  4. Esteve Sanromà & Raúl Ramos, 2001. "Local human capital and external economies: evidence for Spain," Working Papers 2001/6, Institut d'Economia de Barcelona (IEB).
  5. Huw Lloyd-Ellis, 2003. "On the Impact of Inequality on Productivity Growth in the Short and Long Term: A Synthesis," Canadian Public Policy, University of Toronto Press, University of Toronto Press, vol. 29(s1), pages 65-86, January.

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