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Capital, Wages and Growth: Theory and Evidence

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  • Almond, Douglas
  • Ciccone, Antonio
  • Peri, Giovanni

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.

Suggested Citation

  • Almond, Douglas & Ciccone, Antonio & Peri, Giovanni, 1999. "Capital, Wages and Growth: Theory and Evidence," CEPR Discussion Papers 2199, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2199
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    Cited by:

    1. Esteban Sanroma Melendez & Raul Ramos Lobo, 2001. "Capital humano local y productividad en las provincias espanolas," Working Papers in Economics 71, Universitat de Barcelona. Espai de Recerca en Economia.
    2. Panu Poutvaara & Vesa Kanniainen, 2000. "Why Invest in Your Neighbor? Social Contract on Educational Investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 547-562, August.
    3. G nther Rehme, 2002. "(Re-)Distribution of Personal Incomes, Education and Economic Performance across Countries," LIS Working papers 299, LIS Cross-National Data Center in Luxembourg.
    4. Ramos, Raul & Sanroma, Esteban, 1999. "Local human capital and external economies: evidence for Spain," ERSA conference papers ersa99pa309, European Regional Science Association.
    5. Antonio Ciccone & Giovanni Peri, "undated". "Human Capital and Externalities in Cities," Working Papers 172, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. Mori, Tomoya & Turrini, Alessandro, 2005. "Skills, agglomeration and segmentation," European Economic Review, Elsevier, vol. 49(1), pages 201-225, January.
    7. International Monetary Fund, 2005. "Azerbaijan Republic: Selected Issues," IMF Staff Country Reports 2005/017, International Monetary Fund.
    8. Ramos, Raul & Sanroma, Esteban, 1999. "Local human capital and external economies: evidence for Spain," ERSA conference papers ersa99pa309, European Regional Science Association.
    9. 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, vol. 29(s1), pages 65-86, January.

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    More about this item

    Keywords

    Capital Externalities; Cities; Complementarities; Human Capital; Returns to Scale to Capital; Scale Effects;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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