Empirical analysis of human capital development and economic growth in Europe

Recent discussion of the knowledge-based economy draws increasingly attention to the role that the creation and management of knowledge plays in economic development. Development of human capital, the principal mechanism for knowledge creation and management, becomes a central issue for policy-makers and practitioners at the regional, as well as national, level. Facing competition both within and across nations, regional policy-makers view human capital development as a key to strengthening the positions of their economies in the global market. Against this background, the aim of this study is to go some way towards answering the question of whether, and how, investment in education and vocational training at regional level provides these territorial units with comparative advantages. The study reviews literature in economics and economic geography on economic growth (Chapter 2). In growth model literature, human capital has gained increased recognition as a key production factor along with physical capital and labour. Although leaving technical progress as an exogenous factor, neoclassical Solow-Swan models have improved their estimates through the inclusion of human capital. In contrast, endogenous growth models place investment in research at centre stage in accounting for technical progress. As a result, they often focus upon research workers, who embody high-order human capital, as a key variable in their framework. An issue of discussion is how human capital facilitates economic growth: is it the level of its stock or its accumulation that influences the rate of growth? In addition, these economic models are criticised in economic geography literature for their failure to consider spatial aspects of economic development, and particularly for their lack of attention to tacit knowledge and urban environments that facilitate the exchange of such knowledge. Our empirical analysis of European regions (Chapter 3) shows that investment by individuals in human capital formation has distinct patterns. Those regions with a higher level of investment in tertiary education tend to have a larger concentration of information and communication technology (ICT) sectors (including provision of ICT services and manufacture of ICT devices and equipment) and research functions. Not surprisingly, regions with major metropolitan areas where higher education institutions are located show a high enrolment rate for tertiary education, suggesting a possible link to the demand from high-order corporate functions located there. Furthermore, the rate of human capital development (at the level of vocational type of upper secondary education) appears to have significant association with the level of entrepreneurship in emerging industries such as ICT-related services and ICT manufacturing, whereas such association is not found with traditional manufacturing industries. In general, a high level of investment by individuals in tertiary education is found in those regions that accommodate high-tech industries and high-order corporate functions such as research and development (R&D). These functions are supported through the urban infrastructure and public science base, facilitating exchange of tacit knowledge. They also enjoy a low unemployment rate. However, the existing stock of human and physical capital in those regions with a high level of urban infrastructure does not lead to a high rate of economic growth. Our empirical analysis demonstrates that the rate of economic growth is determined by the accumulation of human and physical capital, not by level of their existing stocks. We found no significant effects of scale that would favour those regions with a larger stock of human capital. The primary policy implication of our study is that, in order to facilitate economic growth, education and training need to supply human capital at a faster pace than simply replenishing it as it disappears from the labour market. Given the significant impact of high-order human capital (such as business R&D staff in our case study) as well as the increasingly fast pace of technological change that makes human capital obsolete, a concerted effort needs to be made to facilitate its continuous development.

Conditional volatility and firm size:an empirical analysis of UK equity portfolios

The techniques and insights from two distinct areas of financial economic modelling are combined to provide evidence of the influence of firm size on the volatility of stock portfolio returns. Portfolio returns are characterized by positive serial correlation induced by the varying levels of non-synchronous trading among the component stocks. This serial correlation is greatest for portfolios of small firms. The conditional volatility of stock returns has been shown to be well represented by the GARCH family of statistical processes. Using a GARCH model of the variance of capitalization-based portfolio returns, conditioned on the autocorrelation structure in the conditional mean, striking differences related to firm size are uncovered.

Linking FDI motivation and host economy productivity effects:conceptual and empirical analysis

We develop a taxonomy that relates foreign direct investment (FDI) motivation (technology- and cost-based) to its anticipated effects on host countries domestic productivity. We then empirically examine the effects of FDI into the United Kingdom on domestic productivity, and find that different types of FDI have markedly different productivity spillover effects, which are consistent with the conceptual analysis. The UK gains substantially only from inward FDI motivated by a strong technology-based ownership advantage. As theory predicts, inward FDI motivated by technology-sourcing considerations leads to no productivity spillovers.

Diversity in economics:an analysis of journal quality perceptions

It is still debatable whether scientific diversity is a virtue or a disadvantage for the development of a discipline. Nonetheless, diversity among scientists with respect to their journal quality perceptions plays an important role in hiring and promotion decisions. In this article we examine the degree of diversity within economics based on the journal quality perceptions of 2,103 AEA economists worldwide. Specifically, we empirically test for factors that might explain differences in an economist's journal quality perceptions. These factors include an economist's geographic origin, school of thought, journal affiliation, field of specialization and research orientation. Indeed, we find that a significant degree of diversity in journal quality perceptions exists between economists that belong in different subgroups. These results might explain the frequent debates in tenure and promotion committees where journal standings are used for the evaluation of a researcher's output.

Has DRG payment influenced the technical efficiency and productivity of diagnostic technologies in Portuguese public hospitals? An empirical analysis using parametric and non‐parametric methods

The use of Diagnosis Related Groups (DRG) as a mechanism for hospital financing is a currently debated topic in Portugal. The DRG system was scheduled to be initiated by the Health Ministry of Portugal on January 1, 1990 as an instrument for the allocation of public hospital budgets funded by the National Health Service (NHS), and as a method of payment for other third party payers (e.g., Public Employees (ADSE), private insurers, etc.). Based on experience from other countries such as the United States, it was expected that implementation of this system would result in more efficient hospital resource utilisation and a more equitable distribution of hospital budgets. However, in order to minimise the potentially adverse financial impact on hospitals, the Portuguese Health Ministry decided to gradually phase in the use of the DRG system for budget allocation by using blended hospitalspecific and national DRG casemix rates. Since implementation in 1990, the percentage of each hospitals budget based on hospital specific costs was to decrease, while the percentage based on DRG casemix was to increase. This was scheduled to continue until 1995 when the plan called for allocating yearly budgets on a 50% national and 50% hospitalspecific cost basis. While all other nonNHS third party payers are currently paying based on DRGs, the adoption of DRG casemix as a National Health Service budget setting tool has been slower than anticipated. There is now some argument in both the political and academic communities as to the appropriateness of DRGs as a budget setting criterion as well as to their impact on hospital efficiency in Portugal. This paper uses a twostage procedure to assess the impact of actual DRG payment on the productivity (through its components, i.e., technological change and technical efficiency change) of diagnostic technology in Portuguese hospitals during the years 1992–1994, using both parametric and nonparametric frontier models. We find evidence that the DRG payment system does appear to have had a positive impact on productivity and technical efficiency of some commonly employed diagnostic technologies in Portugal during this time span.

IT as enabler of sustainable farming:an empirical analysis of farmers' adoption decision of precision agriculture technology

Precision agriculture (PA) describes a suite of IT based tools which allow farmers to electronically monitor soil and crop conditions and analyze treatment options. This study tests a model explaining the difficulties of PA technology adoption. The model draws on theories of technology acceptance and diffusion of innovation and is validated using survey data from farms in Canada. Findings highlight the importance of compatibility among PA technology components and the crucial role of farmers' expertise. The model provides the theoretical and empirical basis for developing policies and initiatives to support PA technology adoption.

Regional competitiveness:theories and methodologies for empirical analysis

A significant forum of scholarly and practitioner-based research has developed in recent years that has sought both to theorize upon and empirically measure the competitiveness of regions. However, the disparate and fragmented nature of this work has led to the lack of a substantive theoretical foundation underpinning the various analyses and measurement methodologies employed. The aim of this paper is to place the regional competitiveness discourse within the context of theories of economic growth, and more particularly, those concerning regional economic growth. It is argued that regional competitiveness models are usually implicitly constructed in the lineage of endogenous growth frameworks, whereby deliberate investments in factors such as human capital and knowledge are considered to be key drivers of growth differentials. This leads to the suggestion that regional competitiveness can be usefully defined as the capacity and capability of regions to achieve economic growth relative to other regions at a similar overall stage of economic development, which will usually be within their own nation or continental bloc. The paper further assesses future avenues for theoretical and methodological exploration, highlighting the role of institutions, resilience and, well-being in understanding how the competitiveness of regions influences their long-term evolution.

Market value, R&D and intellectual property:an empirical analysis of large Australian firms

This paper considers the value of innovation to large Australian firms. Specifically, we investigate how R&D and intellectual property activity influences the market value of firms, using a Tobin’s q approach. R&D data are available for the period 1994–96 and data on patent, trade mark and design applications for 1996. The findings suggest that R&D and patent activity are positively and significantly associated with market value. The results also suggest that private returns to R&D in Australia are low by international standards.

Real options and demographic decisions:empirical evidence from East and West Germany

Iyer and Velu (2006) have convincingly argued that contemporary analyses of fertility behaviour fail to explain why a woman (or a couple) will choose to postpone childbirth, and in particular to consider the role of uncertainty in this regard. They have addressed this lacuna in the literature by using a real options approach to model fertility decisions by relating uncertainty experienced by individuals to the likelihood of childbirth. However, they did not present empirical evidence. Since the theory implies the existence of two offsetting effects of uncertainty on fertility decisions, a positive insurance effect and a negative option value effect, it is not easy to reject the theory on the basis of empirical analysis, when one of these effects offsets the other. We construct such a test for East (and also West) Germany during that country's reunification, which takes advantage of the fact that because of the country's strong welfare system, the insurance effect should be dominated by the option value effect, thereby suggesting that the net relationship should be negative. The results provide rather strong support for the real options link, especially for Eastern Germany.

The economics of copyright

The copyright industries — such as music, film, software and publishing — occupy a significant and growing share of economic activity. Current copyright law protects the creator for up to 70 years after their death, significantly longer than patent protection (20 years after invention). Copyright law aims to balance the incentive to create new work against the costs associated with high prices and restricted access to this work. This paper reviews the economic issues behind copyright and how these are challenged by changes in technology and market structure. While economics provides a powerful conceptual framework for understanding the trade-offs involved, the paper argues that our empirical knowledge base is very weak. Much more empirical analysis is needed to understand the impacts of changes to copyright legislation. Without such analysis, policy and legal debates will continue to be based largely on anecdote and rhetoric.

Human capital:theoretical and empirical insights

There is nothing more difficult to plan, more Doubtful of success, nor more dangerous to manage Than the creation of a new system. For the initiator has the enmity of all who would Profit by the preservation of the old system, and Merely lukewarm defenders in those who should gain By the new one. N. Machiavelli (1513) Abstract: The purpose of this paper is twofold. First, we want to challenge the notion of "human capital" as "education, training and work experience" and suggest that it is the "quality of the workforce" that matters, here defined as the set of characteristics that allow workers to function in a specific institutional and historical context. Our main conclusion is that the quality of the workforce is affected by the institutional environment where the workers live and that therefore it can vary across countries and institutional contexts. Second, we want to show the empirical relevance of this last point by testing the extent to which the quality of institutions (here proxied by the governance indicators of Kaufmann etal. (2007)) can affect the quality of the workforce (proxied by the percentage of the working age population registered in a lifelong learning program). Our empirical analysis is conducted on a data-set of 11 European countries observed over the period 1996-2006. The results indicate that countries with better governance indicators are also endowed with a more qualified workforce. © 2011 American Journal of Economics and Sociology, Inc.

Military spending and economic growth in South Africa

This paper undertakes an empirical analysis of the economic effects of military spending on the South African economy. It estimates a neo-classical model common in the literature at the level of the macroeconomy and at the level of the manufacturing sector. An attempt is made to improve upon the model by allowing the data to determine the dynamic structure of the model through an ARDL procedure. No significant impact of military spending is found in aggregate, but there is a significant negative impact for the manufacturing sector. This suggests that the cuts in domestic military procurement that have occurred since 1989 could lead to improved economic performance in South Africa through their impact on the manufacturing sector.