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Capital formation and economic growth under central planning and transition: a theoretical and empirical analysis, ca. 1920-2008

  • Peter Foldvari
  • Bas van Leeuwen
  • Dimitry Didenko

According to the consensus view it was physical capital accumulation that primarily drove economic growth during the early socialist period. Growth models incorporating both human and physical capital accumulation (Caballe and Santos 1993, Barro and Sala-i-Martin 2004) lead to the conclusion that a high physical/human capital ratio can cause a lower economic growth in the long-run. In this paper we show theoretically and empirically that according to the logic of the socialist planner, it was optimal to achieve a higher physical to human capital ratio in socialist countries than in the West. Using a VAR analysis, we find empirical confirmation that within the Material Product System of national accounting the relative dominance of investment in physical capital accumulation relative to human capital was indeed more efficient than under an SNA system of national accounts.

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Paper provided by Utrecht University, Centre for Global Economic History in its series Working Papers with number 0048.

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Length: 22 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:ucg:wpaper:0048
Contact details of provider: Postal: University of Utrecht, Drift 10, The Netherlands
Web page: http://www.cgeh.nl

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  1. repec:cup:cbooks:9780521358668 is not listed on IDEAS
  2. Bas van Leeuwen & Peter Földvári, 2013. "Capital Accumulation and Growth in Central Europe, 1920-2006," Eastern European Economics, M.E. Sharpe, Inc., vol. 51(5), pages 69-93, September.
  3. Bas van Leeuwen & Peter Foldvari, 2008. "Human Capital and Economic Growth in Asia 1890-2000: A Time-series Analysis ," Asian Economic Journal, East Asian Economic Association, vol. 22(3), pages 225-240, 09.
  4. Duczynski, Petr, 2002. "Adjustment costs in a two-capital growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 837-850, May.
  5. Dmitry Didenko & Péter Földvári & Bas van Leeuwen, 2013. "Inspiration and Perspiration Factors in Economic Growth: The Former Soviet Union Area versus China (ca. 1920-2010)," Global COE Hi-Stat Discussion Paper Series gd12-283, Institute of Economic Research, Hitotsubashi University.
  6. Judson, Ruth, 2002. "Measuring Human Capital Like Physical Capital: What Does It Tell Us?," Bulletin of Economic Research, Wiley Blackwell, vol. 54(3), pages 209-31, July.
  7. Mark Harrison, 2005. "The Fundamental Problem of Command: Plan and Compliance in a Partially Centralised Economy," Comparative Economic Studies, Palgrave Macmillan, vol. 47(2), pages 296-314, June.
  8. Caballe, Jordi & Santos, Manuel S, 1993. "On Endogenous Growth with Physical and Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1042-67, December.
  9. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766, March.
  10. Peter Duczynski, 2003. "On the Empirics of the Imbalance Effect," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 2(2), pages 121-128, August.
  11. B. Leeuwen & P. Földvári, 2011. "Capital accumulation and growth in Hungary, 1924–2006," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 61(2), pages 143-164, June.
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