We estimate a health investment equation, derived from a health capital model that is an extension of the well-known Grossman model. Of particular interest is whether the health production function has constant returns to scale, as in the standard Grossman model, or decreasing returns to scale, as in the Ehrlich-Chuma model and extensions thereof. The model with decreasing returns to scale has a number of theoretically and empirically desirable characteristics that the constant returns model does not have. Although our empirical equation does not point-identify the decreasing returns to scale curvature parameter, it does allow us to test for constant versus decreasing returns to scale. The results are suggestive of decreasing returns and in line with prior estimates from the literature. But when we attempt to control for the endogeneity of health by using instrumental variables, the results become inconclusive. This brings into question the robustness of prior estimates in this literature.

The paper tests three hypotheses about the causes of unemployment in the Central-East European transition economies and in a benchmark market economy (Western part of Germany). The first hypothesis (H1) is that unemployment is caused by inefficient matching. Hypothesis 2 (H2) is that unemployment is caused by low demand. Hypothesis 3 (H3) is that restructuring is at work. Our estimates suggest that the west and east German parts of Germany, Czech Republic and Slovakia are consistent with H2 and H3. Hungary provides limited support to all three hypotheses. Poland is consistent with H1. The economies in question hence contain one broad group of countries and one or two special cases. The group comprises the Czech Republic, Hungary, Slovak Republic and (possibly) East Germany. These countries resemble West Germany in that they display increasing returns to scale in matching and unemployment appears to be driven by restructuring and low demand. The East German case is complex because of its major active labor market policies and a negative trend in efficiency in matching. In some sense...

This paper compares and contrasts the performance of rural and urban manufacturing firms in Ethiopia to assess the impact of market integration and the investment climate on firm performance. Rural firms are shown to operate in isolated markets, have poor access to infrastructure and a substantial degree of market power, whereas urban firms operate in better integrated and more competitive markets, where they have much better access to inputs. Fragmentation may also help explain why urban firms are much larger, much more capital intensive and why they produce much more output per worker. Capital intensity and labor productivity are strongly correlated with firm size. Manufacturing technology choice does not vary strongly across space and increasing returns to scale are modest at best, suggesting that rural-urban differences in output per worker are predominantly driven by differences in capital intensity and Total Factor Productivity (TFP). The average TFP of firms in rural towns is much higher than that of rural firms in remote areas...

With growing international skilled labor mobility, education and migration decisions have become increasingly inter-related, and potentially have a large impact on the growth trajectories of source countries, through their effects on labor supply, savings, or the cost of education. The authors develop a generic dynamic general equilibrium model to analyze the education-migration nexus in a consistent framework. They use the model as a laboratory to test empirical conditions for the existence of net brain gain, that is, greater domestic accumulation of human capital (in per capita terms) with greater migration of skilled workers. The results suggest that although some structural parameters can favor simultaneously greater human capital accumulation and greater skilled migration - such as high ratio of remittances over domestic incomes, high dependency ratios in migrant households, low dependency ratios in source countries, increasing returns to scale in the education sector, technological transfers and export market access with Diasporas...

Using data from the International Benchmarking NETwork database, the authors estimate measures of density and scale economies in the water industry in four countries (Brazil, Colombia, Moldova, and Vietnam) that differ substantially in economic development, piped water and sewerage coverage, and characteristics of the utilities operating in the different countries. They find evidence of economies of scale in Colombia, Moldova, and Vietnam, implying the existence of a natural monopoly. In Brazil the authors cannot reject the 0 hypothesis of constant returns to scale. They also find evidence of economies of customer density in Moldova and Vietnam. The results of this study show that the cost structure of the water and wastewater sector varies significantly between countries and within countries, and over time, which has implications for how to regulate the sector.

Has the revival of the Association of Southeast Asian Nations (ASEAN) in the early 1990s affected the industrial growth of Indonesia, Malaysia, and the Philippines? The author uses two mechanisms to capture this potential impact: scale effects, and intermediate imports variety. She performs the analysis on twenty two industries (at the three-digit level of the International Standard Industrial Classification) over the period 1971-95. The results show significant heterogeneity in industry-level returns to scale. Moreover, the three ASEAN members have very small, mostly negative cross-industry scale effects. As a result, they may not achieve large, or across-the-board gains from their regional arrangement through scale effects. The author finds unexpected results with respect to the role of intermediate imports variety in industrial growth. She finds no support for the hypothesis that non-regional (rest of the world) suppliers, and goods variety have a positive effect on ASEAN industries through the channel of imported intermediate inputs. The regional variety measure...

"New" economic geography theory, and the development of innovative methods of analysis have renewed interest in the location, and spatial concentration of economic activities. The authors examine the extent to which agglomeration economies contribute to economic productivity. They distinguish three sources of agglomeration economies: 1) At the firm level, from improved access to market centers. 2) At the industry level, from enhanced intra-industry linkages. 3) At the regional level, from inter-industry urbanization economies. The input demand framework they use in analysis, permits the production function to be estimated jointly with a set of cost shares, and, makes allowances for non-constant returns to scale, and for agglomeration economies to be factor-augmenting. They use firm-level data for standardized manufacturing in India, together with spatially detailed physio-geographic information that considers the availability, and quality of transport networks linking urban centers - thereby accounting for heterogeneity in the density of transport networks...

Has the revival of the Andean Pact affected the industrial growth of Bolivia, Colombia, and Ecuador? Has this regional agreement had greater effects tha unilateral liberalization? The author explores two potential channels for industrial growth: scale effects and variety of imported intermediate inputs. She analyzes data from 2 countries (classified at the three-digit level of ISIC) across three countries. The results show that: 10 The variety of intermediate inputs originating from nonregional partners has a significant positive impact on growth in a handful of industries. 2) The effect of regional variety is at best mixed. This lends preliminary support to the argument that unilateral liberalization will have a positive impact on output growth through the channel of imported intermediate inputs. There is significant homogeneity in industry-level returns to scale. Moreover, in the three Andean countries studied, cross-country scale effects were small and negative. Therefore, the three countries should not expect large or across-the-board gains through scale effects from their regional arrangement.

Assume that a public program -- whether in the form of public expenditures or regulation of private activities -- provides not only a public good to consumers but also a collective input (say, a less polluted water source for brewers, or better roads for their trucks). In a context of optimal taxation and constant returns to scale, the author shows that only the direct benefits to consumers in the form of a public good are adjusted by the shadow price of public revenue (typically downward, as Pigou conjectured) before benefits are aggregated to establish optimal provision. When public programs benefit productive sectors through cost savings, the marginal cost of provision is in optimum equal to the marginal cost savings in the benefiting sectors. The reason that programs that benefit production are not scaled down by the shadow price of public revenue is that the benefits are derived from markets that are otherwise taxable. Government can capture those cost savings at no distortionary cost by increasing the tax rates for each good...

This paper examines the possibility of environmental "development traps," or "brown poverty traps," caused by interactions between the impacts of climate change and increasing returns in the development of "clean-technology" sectors. A simple specification is used in which the economy can produce a single homogeneous consumption good with two different technologies. In the "old" sector, technology has global diminishing returns to scale and depends on the use of fossil energy that gives rise to long-lived, damaging climate change. In the "new" sector, the technology has convex-concave production and is not dependent on the polluting energy input. If the new sector does not grow fast enough to move through the phase of increasing returns, then the economy may linger at a low level of income indefinitely or it may achieve greater progress but then get driven back down to a lower level of income by environmental degradation. Stimulating growth in the new sector thus may be a key element for avoiding an environmental poverty trap and achieving higher...

The purpose of this paper is to come up with an estimate for the value of human capital with the World Bank wealth accounting framework for the Latin American and Caribbean Region. The proposed approach draws connections between wealth accounting and the development accounting literature that explores the effects of education and health on human capital, building on previous work by Arrow and coauthors (2012), UNU-IHDP and UNEP (2012), Farreira and Hamilton (2010), Weil (2007), and others. The approach is extended to value the loss of human capital due to air pollution and lack of access to clean water and sanitation. The wealth accounting framework is underpinned by the notion that total wealth is equal to the present value of current and future consumption in a competitive economy with constant returns to scale. The author uses a series of calculations representing the framework for and methodology of his framework. Later in this paper the author breaks down the variables in determining the value of human capital into the following categories: schooling...

This paper examines whether taxation is effective in eliminating sunspot fluctuations by considering two separate model economies by which indeterminacy occurs for empirically plausible specification of the model parameters. In the first model where production exhibits social increasing returns to scale and private constant returns to scale, I find that i) labor income tax alone, even if the tax schedule is flat, is effective; ii) taxes on labor and capital income would be more effective with increased progressivity; iii) at each average tax rate, labor income tax is more effective than capital income tax. However, in the second model where production exhibits social constant returns to scale and private decreasing returns to scale, I find that labor and capital income taxes at all progressivity levels are ineffective in removing sunspot fluctuations.; http://ideas.repec.org/a/bpj/bejmac/vcontributions.5y2005i1n3.html; Nicholas C.S. Sim

Using data from 270 water and sanitation providers, this Note investigates the relationship between a utility's size and its operating costs. The current trend toward transferring responsibility for providing services to the municipal level is driven in part by the assumption that this will make providers more responsive to customers' needs. But findings reported here suggest that smaller municipalities may face higher per-customer costs and could lower costs (and prices for consumers) by merging.

The article documents five stylized facts of economic growth: (1) the 'residual' (total factor productivity, tfp) rather than factor accumulation accounts for most of the income and growth differences across countries; (2) income diverges over the long run; (3) factor accumulation is persistent while growth is not, and the growth path of countries exhibits remarkable variation; (4) economic activity is highly concentrated, with all factors of production flowing to the richest areas; and (5) national policies are closely associated with long-run economic growth rates. These facts do not support models with diminishing returns, constant returns to scale, some fixed factor of production, or an emphasis on factor accumulation. However, empirical work does not yet decisively distinguish among the different theoretical conceptions of tfp growth. Economists should devote more effort toward modeling and quantifying tfp.

This report investigates the environmental impacts of Russia's accession to the World Trade Organization. A 10-region, 30-sector model of the Russian economy is developed. The model is innovative and more accurate empirically in that it contains foreign direct investment, imperfectly competitive sectors, and endogenous productivity effects triggered by World Trade Organization accession along with environmental emissions data in Russia for seven pollutants that are tracked for all 30 sectors in each of the 10 regions. The decomposition analysis shows that despite the fact that World Trade Organization accession allows Russia to import better technologies and reduce pollution from the "technique effect," on balance World Trade Organization accession alone will increase environmental pollution in Russia through a shift toward dirty industries (the "composition effect") and the expansion of output with its associated increase in pollution ("scale effect"). The paper assesses the costs of three types of environmental regulations to reduce carbon dioxide emissions by 20 percent. The paper simultaneously implements a central case scenario with each of the carbon dioxide emission reduction policy initiatives. The analysis finds that the welfare gains of World Trade Organization accession are large enough to pay for the costs of any of the three environmental abatement policies...

The results of this paper challenge the conventional wisdom in the literature that productivity plays no role in the economic development of Singapore. Properly accounting for market power and returns to scale technology, the estimated average productivity growth is twice as large as the conventional total factor productivity (TFP) measures. Using a standard growth accounting (production function) technique, Young (1992, 1995) found no sign of TFP growth in the aggregate economy and the manufacturing sector of Singapore. Based on Young's results, Krugman (1994) claimed that there was no East Asia miracle as all the economic growth in Singapore could be attributed to its capital accumulation in the past three decades. Citing evidence on nondiminishing market rates of return to capital investment in Singapore during the period of fast growth as an indication of high productivity growth, Hsieh (1999) challenged Young's findings using the dual approach. But all of these papers maintained the assumptions of perfect competition and constant returns to scale and used only aggregate macro-level data. Kee uses industry level data and focuses on Singapore's manufacturing sector. She develops an empirical methodology to estimate industry productivity growth in the presence of market power and nonconstant returns to scale. The estimation of industry markups and returns to scale in this paper combines both the production function (primal) and the cost function (dual) approaches while controlling for input endogeneity and selection bias. The results of a fixed effect panel regression show that all industries in the manufacturing sector violate at least one of the two assumptions. Relaxing the assumptions leads to an estimated productivity growth that is on average twice as large as the conventional TFP calculation. Kee concludes that productivity growth plays a nontrivial role in the manufacturing sector.

Trade, financial, and exchange rate reforms are shown to have exerted a positive impact on the growth of total factor productivity in Rwanda during the period 1995-2003. Based on a constant returns-to-scale Cobb-Douglas production function, this paper regresses total factor productivity on indices of trade, financial, and exchange rate reforms. The analysis determines that trade reforms and financial reforms each contributed positively to improvements in total factor productivity. The data also suggest that the allocation of official development assistance to human capital made a significant contribution to productivity. In contrast, the appreciation of the real exchange rate of the late 1980's hindered productivity or the growth of TFP. Taken together, the findings for Rwanda presented in this paper show that the strong growth of the past decade has not just been due to a "bounce back" effect following the genocide. The results support the notion that policies favorable to trade development, a deepening of the financial sector...

This paper develops a seven-region comparative static computable general equilibrium model of Russia to assess the impact of accession to the World Trade Organization on these seven regions (the federal okrugs) of Russia. In order to assess poverty and distributional impacts, the model includes ten households in each of the seven federal okrugs, where household data are taken from the Household Budget Survey of Rosstat. The model allows for foreign direct investment in business services and endogenous productivity effects from additional varieties of business services and goods, which the analysis shows are crucial to the results. National welfare gains are about 4.5 percent of gross domestic product in the model, but in a constant returns to scale model they are only 0.1 percent. All deciles of the population in all seven federal okrugs can be expected to significantly gain from Russian World Trade Organization accession, but due to the capacity of their regions to attract foreign direct investment, households in the Northwest region gain the most...

Manure production on grower/finisher swine operations in the United States was examined using data from 184 grower/finisher swine operations that participated in the United States National Animal Health Monitoring System's 1995 National Swine Study. Two methods were used: one, assuming that pigs produced 8.4% of their body weight in manure each day; another using the difference between feed fed and weight gained as a proxy variable to study manure production. Using this latter approach, a production function was developed. The function exhibited diminishing returns to scale when food waste was not fed to pigs, but constant returns to scale when food waste was included in their diets. The difference between feed fed and weight gained was lower on operations that restricted entry to employees only.

This paper studies the implications of procyclical capital utilization rates for inference regarding cyclical movements in labor productivity and the degree of returns to scale. We organize our investigation around five questions that we study using a measure of capital services based on electricity consumption: (1) Is the phenomenon of near or actual short-run increasing returns to labor an artifact of the failure to accurately measure capital utilization rates? (2) Can we find a significant role for capital services in aggregate and industry-level production technologies? (3) Is there evidence against the hypothesis of constant returns to scale? (4) Can we reject the notion that the residuals in our estimated production functions represent technology shocks? (5) How does correcting for cyclical variations in capital services affect the statistical properties of estimated aggregate technology shocks? The answer to the first two questions is yes. The answer to the third and fourth questions is no. The answer to the fifth question is "a lot."